ARKANSAS BEST CORP /DE/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended June 30, 2002
--------------------

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________

Commission file number 0-19969
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ARKANSAS BEST CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 6711 71-0673405
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)

3801 Old Greenwood Road
Fort Smith, Arkansas 72903
(479) 785-6000
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(Address, including zip code, and telephone number, including area
code, of the registrant's principal executive offices)

Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)

Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class Outstanding at July 31, 2002
---------------------------- ----------------------------
Common Stock, $.01 par value 24,784,527 shares

ARKANSAS BEST CORPORATION

INDEX

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements.

Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

3

ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED

See notes to condensed consolidated financial statements.

Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

4

ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(1) Gives consideration to preferred stock dividends of $1.0 million and $2.0
million for the three and six months ended June 30, 2001.

(2) For the three and six months ended June 30, 2001, conversion of preferred
shares into common is assumed.

(3) Includes three and six months of G.I. Trucking's operations for the three
and six months ended June 30, 2001. G.I. Trucking was sold on August 1,
2001.

(4) In the first quarter of 2002, the Company recognized a non-cash impairment
loss of $23.9 million, net of taxes, due to the write-off of Clipper
goodwill.

See notes to condensed consolidated financial statements.

5

ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(a) Net of tax benefits of $2.6 million relating to the fair value of the
interest rate swap and $0.2 million relating to foreign currency
translation.

(b) Total comprehensive income for the three months ended June 30, 2002 was
$5.0 million. Total comprehensive income for the three and six months ended
June 30, 2001 was $10.5 million and $17.8 million, respectively.

See notes to condensed consolidated financial statements.

6

ARKANSAS BEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to condensed consolidated financial statements.

7

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Arkansas Best Corporation (the "Company") is a diversified holding company
engaged through its subsidiaries primarily in motor carrier transportation
operations and intermodal transportation operations. Principal subsidiaries are
ABF Freight System, Inc. ("ABF"); Clipper Exxpress Company and related companies
("Clipper"); FleetNet America, LLC; and until August 1, 2001, G.I. Trucking
Company ("G.I. Trucking") (see Note I).

Approximately 77% of ABF's employees are covered under a five-year collective
bargaining agreement, which began on April 1, 1998, with the International
Brotherhood of Teamsters ("IBT") and expires on March 31, 2003. The Company is
currently preparing for the negotiation of a new collective bargaining agreement
with the IBT and anticipates reaching an agreement with the IBT prior to the
expiration of its current agreement, however there can be no assurance that this
will happen.

The Company utilizes tractors and trailers primarily in its motor carrier
transportation operations. Tractors and trailers are commonly referred to as
"revenue equipment" in the transportation business.

NOTE B - FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial statements and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2002 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002. For
further information, refer to the Company's financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

On August 13, 2001, the Company announced the call for redemption of its $2.875
Series A Cumulative Convertible Exchangeable Preferred Stock ("ABFSP"). As of
August 10, 2001, 1,390,000 shares of Preferred Stock were outstanding. At the
end of the extended redemption period on September 14, 2001, 1,382,650 shares of
Preferred Stock were converted to 3,511,439 shares of Common Stock. A total of
7,350 shares of Preferred Stock were redeemed at the redemption price of $50.58
per share. The Company paid $0.4 million to the holders of these shares in
redemption of their Preferred Stock. As a result of this transaction, the
Company no longer has an obligation to pay Preferred Stock dividends, which
approximated $4.0 million per year. Outstanding shares of Preferred Stock had
historically been included in the Company's diluted earnings per share on an
as-converted basis. Therefore, the conversion of preferred shares into common
did not result in an increase in the Company's diluted common shares.

On January 24, 2002, the Company called for redemption, the remaining $5.0
million of WorldWay Corporation 6 1/4% Convertible Subordinated Debentures. The
redemption date of the debentures was February 25, 2002 and the redemption price
was the par value of each debenture plus accrued and unpaid interest to, but not
including, the redemption date. The redemption resulted in a loss to the Company
of $0.2 million.

8

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

On August 15, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 143, Accounting for Asset Retirement Obligations. Statement No.
143 addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated retirement
costs. This Statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. The Statement is effective for the Company in
2003. The Company is evaluating the impact, if any, the Statement will have on
its financial statements and related disclosures.

In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. Statement No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than at the date of
a commitment to an exit or disposal plan. The Statement is effective for the
Company in 2003. The impact on the Company's financial statements and related
disclosures is not expected to be material.

NOTE D - LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS

Various legal actions, the majority of which arise in the normal course of
business, are pending. None of these legal actions are expected to have a
material adverse effect on the Company's financial condition, cash flows or
results of operations. The Company maintains liability insurance against certain
risks arising out of the normal course of its business, subject to certain
self-insured retention limits.

The Company's subsidiaries, or lessees, store fuel for use in tractors and
trucks in approximately 76 underground tanks located in 26 states. Maintenance
of such tanks is regulated at the federal and, in some cases, state levels. The
Company believes that it is in substantial compliance with all such regulations.
The Company is not aware of any leaks from such tanks that could reasonably be
expected to have a material adverse effect on the Company.

The Company has received notices from the EPA and others that it has been
identified as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act or other federal or state
environmental statutes at several hazardous waste sites. After investigating the
Company's or its subsidiaries' involvement in waste disposal or waste generation
at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $195,000 over the last 10 years primarily at seven
sites), or believes its obligations with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.

As of June 30, 2002, the Company has accrued approximately $2.4 million to
provide for environmental-related liabilities. The Company's environmental
accrual is based on management's best estimate of the actual liability. The
Company's estimate is founded on management's experience in dealing with similar
environmental matters and on actual testing performed at some sites. Management
believes that the accrual is adequate to cover environmental liabilities based
on the present environmental regulations. Accruals for environmental liability
are included in the balance sheet as accrued expenses.

9

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

NOTE E - GOODWILL

On January 1, 2002, the Company adopted FASB Statement No. 142 ("Statement
142"), Goodwill and Other Intangible Assets. Under the provisions of Statement
142, goodwill, the Company's only intangible asset, is no longer amortized but
reviewed annually for impairment. At December 31, 2001, the Company's assets
included goodwill of $101.3 million of which $63.8 million related to ABF and is
from a leveraged buyout ("LBO") transaction and $37.5 million is from the 1994
acquisition of Clipper.

The Company performed the required transitional impairment testing on its
goodwill during the first quarter of 2002 based on January 1, 2002 values. The
Company performed both the first and second phases of the transitional
impairment testing on its Clipper goodwill and found the entire $37.5 million
balance to be impaired. As a result, the Company recognized a non-cash
impairment loss of $23.9 million, net of tax benefits of $13.6 million, as the
cumulative effect of a change in accounting principle as provided in Statement
142. This impairment loss results from the change in method of determining
recoverable goodwill from using undiscounted cash flows, as prescribed by FASB's
Statement No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, to the fair value method, as prescribed by
Statement No. 142, determined by using a combination of valuation methods,
including EBITDA and net income multiples and the present value of discounted
cash flows.

The Company performed the first phase of impairment testing on its $63.8 million
of LBO goodwill, which was based on ABF's operations and fair value at January
1, 2002. There was no indication of impairment with respect to this goodwill.

A comparison of the Company's net income and earnings per share for the three
and six months ended June 30, 2001, shown on an adjusted basis, excluding
goodwill amortization, to the Company's actual income before the cumulative
effect change, net loss, and earnings per share for the three and six months
ended June 30, 2002 is as follows:

10

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

NOTE F - ACCOUNTING FOR THE IMPAIRMENT AND DISPOSAL OF LONG-LIVED ASSETS

On January 1, 2002, the Company adopted FASB Statement No. 144 ("Statement
144"), Accounting for the Impairment and Disposal of Long-Lived Assets. The
Company reviews its long-lived assets, including property, plant, equipment and
capitalized software, that are held and used in its motor carrier operations and
intermodal operations businesses for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable, as is required by Statement 144. If such an event or change in
circumstances is present, the Company will estimate the undiscounted future cash
flows, less the future cash outflows necessary to obtain those inflows, expected
to result from the use of the asset and its eventual disposition. If the sum of
the undiscounted future cash flows is less than the carrying amount of the
related assets, the Company will recognize an impairment loss or review its
depreciation policies as may be appropriate. No such events or circumstances
were present, indicating the Company's long-lived assets would not be
recoverable at June 30, 2002. Assets to be disposed of are reclassified as
assets held for sale at the lower of their carrying amount or fair value less
costs to sell.

Assets held for sale represent primarily ABF's non-operating freight terminals
and older revenue equipment that is no longer in service. Assets held for sale
are carried at the lower of their carrying value or fair value less costs to
sell. Write-downs to fair value less costs to sell are reported below the
operating income line in gains or losses on sales of property, in the case of
real property, or above the operating income line as gains or losses on sales of
equipment, in the case of revenue or other equipment. Assets held for sale are
expected to be disposed of by selling the properties to a third party within the
next 12 to 24 months.

Total assets held for sale at December 31, 2001 were $2.4 million. During the
first six months of 2002, additional assets of $2.4 million were identified and
reclassified to assets held for sale. Revenue equipment carried at $0.6 million
was sold for a gain of $0.2 million. During the first six months of 2002, there
were no write-downs to fair value less costs to sell.

11

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

NOTE G - RELIANCE INSURANCE COMPANY INSOLVENCY

Reliance Insurance Company ("Reliance") insured the Company's workers'
compensation claims in excess of $300,000 ("excess claims") for the period from
1993 through 1999. According to an Official Statement by the Pennsylvania
Insurance Department on October 3, 2001, Reliance was determined to be
insolvent, with total admitted assets of $8.8 billion and liabilities of $9.9
billion, or a negative surplus position of $1.1 billion, as of March 31, 2001.
As of June 30, 2002, the Company estimates its workers' compensation claims
insured by Reliance to be approximately $5.8 million. The Company has been in
contact with and has received either written or verbal confirmation from a
number of state guaranty funds that they will accept excess claims, representing
a total of approximately $4.2 million of the $5.8 million. Based upon the
limited available Reliance financial information, the Company estimates its
current exposure to Reliance to be $0.5 million, for which it established
reserves during the third quarter of 2001. In evaluating that same financial
information, the Company anticipates receiving, from guaranty funds or through
orderly liquidation, partial reimbursement for future claims payments, a process
that could take several years.

NOTE H - DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for its derivative financial instruments in accordance with
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. On February 23, 1998, the Company entered into an interest-rate swap
agreement with an effective date of April 1, 1998 and a termination date of
April 1, 2005 on a notional amount of $110.0 million. The Company's interest
rate strategy is to hedge its variable 30-day LIBOR-based interest rate for a
fixed interest rate of 5.845% (plus the Credit Agreement margin which was 0.575%
at December 31, 2001 and is currently 0.825%) on $110.0 million of Credit
Agreement borrowings for the term of the interest rate swap to protect the
Company from potential interest rate increases. The Company has designated its
benchmark variable 30-day LIBOR-based interest rate on $110.0 million of
borrowings under the Company's Credit Agreement as a hedged item under a cash
flow hedge. If the Company had terminated the interest rate swap on June 30,
2002, it would have had to pay an estimated $6.7 million. The Company recorded
liabilities of $6.7 million and $5.4 million, respectively, on its balance sheet
in accordance with Statement No. 133, at June 30, 2002 and December 31, 2001,
with changes in value included in other comprehensive income, net of income tax
benefits.

The Company reported no gain or loss during the three and six months ended June
30, 2002 or 2001 as a result of hedge ineffectiveness, other derivative
instruments' gain or loss or the discontinuance of a cash flow hedge. Future
changes in the swap arrangement (including termination of the swap agreement),
swap notional amount, hedged portion or forecasted Credit Agreement borrowings
below $110.0 million may result in a reclassification of any gain or loss
reported in other comprehensive income, into earnings.

NOTE I - SALE OF G.I. TRUCKING COMPANY

On August 1, 2001, the Company sold the stock of G.I. Trucking for $40.5 million
in cash to a company formed by the senior executives of G.I. Trucking and Estes
Express Lines ("Estes"). G.I. Trucking and Estes have been partners in
ExpressLINK(R), a North American transportation partnership since 1996. The
Company recognized a pre-tax gain on the sale of $4.6 million in the third
quarter of 2001.

The Company retained ownership of three California terminal facilities and has
agreed to lease them for an aggregate amount of $1.6 million per year to G.I.
Trucking for a period of up to four years. G.I. Trucking has an option at any
time during the four-year lease term to purchase these terminals for $19.5
million. The facilities have a net book value of approximately $6.0 million. If
the terminal facilities are sold to G.I. Trucking, the

12

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

Company will recognize a pre-tax gain of approximately $14.0 million in the
period they are sold. Cash proceeds from the sale of G.I. Trucking, net of costs
and income taxes, of approximately $33.0 million were used to pay down the
Company's outstanding debt.

NOTE J - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

(1) For the three and six months ended June 30, 2001, conversion of preferred
shares into common is assumed.

13

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

NOTE K - INCOME TAXES

The difference between the effective tax rate for the six months ended June 30,
2002 and the federal statutory rate resulted from state income taxes and
nondeductible expenses.

In March 1999, the Tenth Circuit Court of Appeals ruled against an appealing
taxpayer regarding the timing of the deductibility of contributions to
multiemployer pension plans. The Internal Revenue Service ("IRS") has raised the
same issue with respect to the Company. There are certain factual differences
between those present in the Tenth Circuit case and those relating specifically
to the Company. The Company has been involved in the administrative appeals
process with the IRS regarding those factual differences. During 2001, the
Company paid approximately $33.0 million, which represented a substantial
portion of the tax and interest that would be due if all the issues involved
were decided adversely to the Company, and which was accounted for in prior
years as a part of the Company's net deferred tax liability and accrued
expenses. The Company continues to contest the issues and will pursue judicial
remedies if appropriate. Because of the complex issues and the fact that
multiple tax years and IRS examinations of the Company and an acquired company
are involved, management believes the final resolution of this matter will occur
over an extended period. In the opinion of management, any additional liability
that may arise has been accrued for and will not have a material adverse effect
on the Company's results of operations, financial position and cash flows in any
future period.

NOTE L - CREDIT AGREEMENT

On May 15, 2002, the Company entered into a new three-year $225.0 million Credit
Agreement ("Credit Agreement") with Wells Fargo Bank Texas, National Association
as Administrative Agent and Lead Arranger, and Fleet National Bank and Suntrust
Bank as Co-Syndication Agents, and Wachovia Bank, National Association as
Documentation Agent. The new Credit Agreement replaces the Company's five-year
$250.0 million credit agreement dated as of June 12, 1998 with Wells Fargo Bank
Texas, National Association, as Administrative Agent and with Bank of America
National Trust and Savings Association and Wells Fargo Bank Texas, National
Association, as Co-Documentation Agents, which was terminated on May 15, 2002.
The Credit Agreement provides for up to $225.0 million of revolving credit loans
(including a $100.0 million sub limit for letters of credit) and extends into
2005.

At June 30, 2002, there were $110.0 million of Revolver Advances and
approximately $30.8 million of letters of credit outstanding. At June 30, 2002,
the Company had approximately $84.2 million of borrowing availability under the
Credit Agreement. The Credit Agreement contains various covenants, which limit,
among other things, indebtedness, distributions and dispositions of assets and
require the Company to meet certain quarterly financial ratio tests. As of June
30, 2002, the Company was in compliance with the covenants.

The Company's Credit Agreement contains a pricing grid that determines its LIBOR
margin, facility fees and letter of credit fees. The pricing grid is based on
the Company's senior debt rating agency ratings. A change in the Company's
senior debt ratings could potentially impact its Credit Agreement pricing. In
addition, if the Company's senior debt ratings fall below investment grade, the
Company's Credit Agreement provides for limits on additional permitted
indebtedness without lender approval, acquisition expenditures and capital
expenditures. The Company is currently rated BBB by Standard & Poor's Rating
Service and Baa3 by Moody's Investors Service, Inc. The Company has no downward
rating triggers that would accelerate the maturity of its debt.

14

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

NOTE M - OPERATING SEGMENT DATA

The Company used the "management approach" to determine its reportable operating
segments as well as to determine the basis of reporting the operating segment
information. The management approach focuses on financial information that the
Company's management uses to make decisions about operating matters. Management
uses operating revenues, operating expense categories, operating ratios,
operating income and key operating statistics to evaluate performance and
allocate resources to the Company's operating segments.

During the periods being reported on, the Company operated in three defined
reportable operating segments: (1) ABF; (2) Clipper; and (3) G.I. Trucking
(which was sold on August 1, 2001) (see Note I).

The Company eliminates intercompany transactions in consolidation. However, the
information used by the Company's management with respect to its reportable
segments is before intersegment eliminations of revenues and expenses.
Intersegment revenues and expenses are not significant.

Further classifications of operations or revenues by geographic location beyond
the descriptions provided above are impractical and are, therefore, not
provided. The Company's foreign operations are not significant.

The following table reflects asset information by reportable operating segment
for the Company, as well as a reconciliation of reportable segment information
to the Company's consolidated assets at June 30, 2002, subsequent to the
recognition of the impairment loss on the Company's Clipper goodwill and the
reclassification of a portion of the Company's LBO goodwill to ABF, resulting in
the entire amount of LBO goodwill being allocated to ABF (see Note E) and at
December 31, 2001:

The following tables reflect reportable operating segment information for the
Company, as well as a reconciliation of reportable segment information to the
Company's consolidated operating revenues, operating expenses and operating
income:

(1) Includes three and six months of G.I. Trucking's operations for the three
and six months ended June 30, 2001. G.I. Trucking was sold on August 1,
2001.

15

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued

(1) Includes three and six months of G.I. Trucking's operations for the three
and six months ended June 30, 2001. G.I. Trucking was sold on August 1,
2001.

16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

The Company's accounting policies that are "critical," or the most important, to
understand the Company's financial condition and results of operations and that
require management of the Company to make the most difficult judgments are
described as follows:

The Company's accounting policy for revenue recognition is a method prescribed
by the Emerging Issues Task Force ("EITF") 91-9 for motor carrier transportation
companies, where revenue is recognized based on relative transit times in each
reporting period with expenses being recognized as incurred. Management of the
Company utilizes a bill-by-bill analysis to establish the associated revenue to
recognize in each reporting period.

The Company's accounting policy for its allowance for doubtful accounts is based
on the Company's historical write-offs, as well as trends and factors
surrounding the credit risk of specific customers. In order to gather
information regarding these trends and factors, the Company performs ongoing
credit evaluations of its customers. The Company's allowance for revenue
adjustments is based on the Company's historical revenue adjustments. Actual
write-offs or adjustments could differ from the allowance estimates the Company
makes as a result of a number of factors. These factors include unanticipated
changes in the overall economic environment or factors and risks surrounding a
particular customer. The Company continually updates the history it uses to make
these estimates to reflect the most recent trends, factors and other information
available. Actual write-offs and adjustments are charged against the allowances
for doubtful accounts and revenue adjustments.

Under its accounting policy for property, plant and equipment, management
establishes appropriate depreciable lives and salvage values for the Company's
revenue equipment (tractors and trailers) based on their estimated useful lives
and estimated fair values to be received when the equipment is sold or traded
in. Currently, management has a policy of purchasing its revenue equipment
rather than utilizing off-balance sheet financing.

The Company has elected to follow Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees and related interpretations in
accounting for stock options because the alternative fair value accounting
provided for under FASB Statement No. 123, Accounting for Stock-Based
Compensation ("Statement 123") requires the use of option valuation models that
were not developed for use in valuing employee stock options and are theoretical
in nature. Under APB 25, because the exercise price of the Company's employee
and director options equals the market price of the underlying stock on the date
of grant, no compensation expense is recognized.

The Company is self-insured up to certain limits for workers' compensation and
certain property damage and liability claims. These claims liabilities recorded
in the financial statements totaled $46.2 million and $46.3 million at June 30,
2002 and December 31, 2001, respectively. The Company does not discount its
claims liabilities. Under the Company's accounting policy for claims, management
annually estimates the development of the claims based upon the Company's
historical development factors over a number of years. The Company utilizes a
third party to calculate the development factors and analyze historical trends.
Actual payments may differ from management's estimates as a result of a number
of factors. These factors include increases in

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

medical costs and the overall economic environment, as well as many other
factors. The actual claims payments are charged against the Company's accrued
claims liabilities.

The Company hedged its interest rate risk by entering into a fixed rate interest
rate swap on $110.0 million of revolving credit agreement borrowings. The
Company's accounting policy for derivative financial instruments is as
prescribed by FAS 133, Accounting for Derivative Financial Instruments and
Hedging Activities. The Company's fixed rate interest rate swap is an effective
hedge on $110.0 million of revolving credit agreement borrowings in accordance
with its accounting policy. As a result, the fair value of the swap ($6.7)
million and ($5.4) million at June 30, 2002 and December 31, 2001, respectively,
is recorded on the Company's balance sheet through other comprehensive income
rather than through the income statement. If the swap terminated at June 30,
2002, the Company would have had to pay $6.7 million. Future changes in the fair
value of the swap will also be reflected in other comprehensive income as long
as the swap remains in place and is effectively hedged.

The Company's accounting policy for its 19% investment in Wingfoot Commercial
Tire Systems, LLC ("Wingfoot") is the equity method of accounting, similar to a
partnership investment. Under the terms of the LLC operating agreement, the
Company does not share in the profits or losses of Wingfoot during the term of
the Company's "Put" option. The Company has the right, at any time after April
30, 2003 and before April 30, 2004, to sell its interest in Wingfoot to Goodyear
for a cash "Put Price" equal to approximately $73.4 million. Goodyear has the
right, at any time after April 30, 2003 until October 31, 2004, to purchase the
Company's entire interest, for cash, at a "Call Price" equal to the "Put Price"
plus $5.0 million. If the Company "puts" its interest to Goodyear, the Company
will record a pre-tax gain of approximately $14.0 million in the quarter its
interest is "put." If Goodyear "calls" the Company's interest in Wingfoot, the
Company will record a pre-tax gain of approximately $19.0 million during the
quarter the "call" is made by Goodyear.

LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 2002, cash provided by operations of $34.4
million, proceeds from asset sales of $2.8 million, borrowings of $2.6 million
and available cash were used primarily to purchase revenue equipment and other
property and equipment totaling $29.3 million, retire the remaining $5.0 million
in face value of the Company's WorldWay 6 1/4% Convertible Subordinated
Debentures (see Note B) and pay $11.2 million in outstanding debt obligations.
During the six months ended June 30, 2001, cash provided by operations of $23.3
million, proceeds from asset sales of $6.5 million and available cash were used
primarily to purchase revenue equipment and other property and equipment
totaling $44.4 million and reduce outstanding debt, including the retirement of
$24.6 million in face value of the Company's WorldWay 6 1/4% Convertible
Subordinated Debentures. Revenue equipment includes tractors and trailers used
primarily in the Company's motor carrier transportation operations.

On August 13, 2001, the Company announced the call for redemption of its $2.875
Series A Cumulative Convertible Exchangeable Preferred Stock ("ABFSP"). As of
August 10, 2001, 1,390,000 shares of Preferred Stock were outstanding. At the
end of the extended redemption period on September 14, 2001, 1,382,650 shares of
Preferred Stock were converted to 3,511,439 shares of Common Stock. A total of
7,350 shares of Preferred Stock were redeemed at the redemption price of $50.58
per share. The Company paid $0.4 million to the holders of these shares in
redemption of their Preferred Stock. As a result of this transaction, the
Company no longer has an obligation to pay Preferred Stock dividends, which
approximated $4.0 million per year. Outstanding shares of Preferred Stock had
historically been included in the Company's diluted earnings per share on an
as-converted basis. Therefore, the conversion of preferred shares into common
did not result in an increase in the Company's diluted common shares.

18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

On May 15, 2002, the Company entered into a new three-year $225.0 million Credit
Agreement ("Credit Agreement") with Wells Fargo Bank Texas, National
Association, as Administrative Agent and Lead Arranger, and Fleet National Bank
and Suntrust Bank as Co-Syndication Agents, and Wachovia Bank, National
Association as Documentation Agent. The new Credit Agreement replaces the
Company's five-year $250.0 million credit agreement dated as of June 12, 1998
with Wells Fargo Bank Texas, National Association, as Administrative Agent and
with Bank of America National Trust and Savings Association and Wells Fargo Bank
Texas, National Association, as Co-Documentation Agents, which was terminated on
May 15, 2002. The Credit Agreement provides for up to $225.0 million of
revolving credit loans (including a $100.0 million sub limit for letters of
credit) and extends into 2005.

At June 30, 2002, there were $110.0 million of Revolver Advances and
approximately $30.8 million of letters of credit outstanding. At June 30, 2002,
the Company had approximately $84.2 million of borrowing availability under the
Credit Agreement. The Credit Agreement contains various covenants, which limit,
among other things, indebtedness, distributions and dispositions of assets and
require the Company to meet certain quarterly financial ratio tests. As of June
30, 2002, the Company was in compliance with the covenants.

The Company's Credit Agreement contains a pricing grid that determines its LIBOR
margin, facility fees and letter of credit fees. The pricing grid is based on
the Company's senior debt rating agency ratings. A change in the Company's
senior debt ratings could potentially impact its Credit Agreement pricing. In
addition, if the Company's senior debt ratings fall below investment grade, the
Company's Credit Agreement provides for limits on additional permitted
indebtedness without lender approval, acquisition expenditures and capital
expenditures. The Company is currently rated BBB by Standard & Poor's Rating
Service and Baa3 by Moody's Investors Service, Inc. The Company has no downward
rating triggers that would accelerate the maturity of its debt.

The Company is party to an interest rate swap on a notional amount of $110.0
million. The purpose of the swap is to limit the Company's exposure to increases
in interest rates on $110.0 million of bank borrowings over the seven-year term
of the swap. The interest rate under the swap is fixed at 5.845% plus the Credit
Agreement margin, which was 0.575% at December 31, 2001 and is currently 0.825%.
The fair value of the Company's interest rate swap was ($6.7) million at June
30, 2002 and ($5.4) million at December 31, 2001. The fair value of the swap is
impacted by changes in rates of similarly termed Treasury instruments. The
liability is recognized on the Company's balance sheet in accordance with
Statement No. 133, at June 30, 2002 and December 31, 2001, through other
comprehensive income, net of income tax benefits.

The Company's primary subsidiary, ABF, maintains ownership of most of its larger
terminals or distribution centers. Both ABF and Clipper lease certain terminal
facilities. At June 30, 2002, the Company has future minimum rental commitments,
net of noncancellable subleases totaling $40.8 million for terminal facilities
and $0.9 million primarily for revenue equipment.

19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

The following is a table providing the aggregate annual obligations of the
Company including debt, capital lease maturities and future minimum rental
commitments:

In 2002, the Company forecasts total spending of approximately $45.0 million for
capital expenditures, net of proceeds from equipment and real estate sales. Of
the $45.0 million, ABF is budgeted for approximately $40.0 million primarily for
revenue equipment and facilities.

During the third quarter of 2002, the Company anticipates increasing its letter
of credit commitments by approximately $40.0 million. This increase is due to
the Company's shift from surety bond coverage for worker's compensation self
insurance in certain states, to letters of credit, which currently have more
favorable pricing.

The Company plans to make a contribution during the third quarter of 2002, to
its defined benefit pension plan covering non-union employees, if tax
deductible.

The Company has two principal sources of available liquidity, which are its
operating cash and the $84.2 million it has available under its revolving Credit
Agreement at June 30, 2002. The Company has generated between $60.0 million and
$130.0 million of operating cash, annually, during the years 1999 through 2001,
and it expects cash from operations and its available revolver to continue to be
principal sources of liquidity to finance its annual debt maturities, lease
commitments, letter of credit commitments, pension contributions and fund its
2002 capital expenditures.

The Company has not historically entered into financial instruments for trading
purposes, nor has the Company historically engaged in hedging fuel prices. No
such instruments were outstanding during 2002 or 2001. The Company has no
relationships with special-purpose entities or financial partnerships and has no
outstanding loans with officers of the Company.

20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

OPERATING SEGMENT DATA

The following table sets forth, for the periods indicated, a summary of the
Company's operating expenses by segment as a percent of revenue for the
applicable segment.

(1) Includes three and six months of G.I. Trucking's operations for the three
and six months ended June 30, 2001. G.I. Trucking was sold on August 1,
2001.

21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 2001

Consolidated revenues for the three and six months ended June 30, 2002 were
$345.1 million and $665.3 million compared to $406.6 million and $807.2 million
for the same periods in 2001, representing a decreases of 15.1% and 17.6%,
respectively, due in part to a decrease in revenue for G.I. Trucking. On August
1, 2001, the Company sold the stock of G.I. Trucking (see Note I). The Company's
results for the three and six months ended June 30, 2001 included three and six
months of operations, respectively, for G.I. Trucking. In addition, there were
declines in revenues for ABF and Clipper for the three and six months ended June
30, 2002 compared to the same periods in 2001, as a result of a decline in the
U.S. economy beginning in mid-2000. This economic decline was further
accelerated by the September 11 terrorist attacks on the World Trade Center and
on the Pentagon and has continued to negatively impact the Company during 2002.
Operating income decreased to $13.3 million and $18.1 million for the three and
six months ended June 30, 2002 from $19.9 million and $40.0 million during the
same periods in 2001. The decrease in operating income is due primarily to a
decline in operating income for ABF, which relates primarily to the previously
discussed revenue declines. Income before the cumulative effect of change in
accounting principle for the three and six months ended June 30, 2002 was $6.5
million and $7.9 million respectively, or $0.26 and $0.32 per diluted common
share, compared to $9.8 million and $18.9 million respectively, or $0.40 and
$0.76 per diluted common share, for the same periods in 2001. The decrease in
income before the cumulative effect of change in accounting principle reflects
primarily the decrease in operating income, offset in part by lower interest
expense from lower average debt levels and no goodwill amortization in 2002, in
accordance with the Company's adoption of Financial Accounting Standards Board
("FASB") Statement No. 142 ("Statement 142"). During the first quarter of 2002,
the Company recognized a non-cash impairment loss on its Clipper goodwill of
$23.9 million, net of taxes, or ($0.95) per diluted common share, as the
cumulative effect of change in accounting principle as required by Statement No.
142 (see Note E). The Company's net income (loss), including the impact of the
accounting change, for the three and six months ended June 30, 2002 was $6.5
million and ($16.0) million respectively, or $0.26 and ($0.63) per diluted
common share, compared to net income of $9.8 million and $18.9 million
respectively, or $0.40 and $0.76 per diluted common share, for the same periods
in 2001.

Tonnage levels in 2002 continue to be impacted by a decline in the U. S.
economy, beginning in mid-2000. The impact could continue through the third
quarter of 2002 and potentially further into 2002, if the U.S. economy does not
improve.

Reliance Insurance Company ("Reliance") insured the Company's workers'
compensation claims in excess of $300,000 ("excess claims") for the period from
1993 through 1999. According to an Official Statement by the Pennsylvania
Insurance Department on October 3, 2001, Reliance was determined to be
insolvent, with total admitted assets of $8.8 billion and liabilities of $9.9
billion, or a negative surplus position of $1.1 billion, as of June 30, 2001. As
of June 30, 2002, the Company estimates its workers' compensation claims insured
by Reliance to be approximately $5.8 million. The Company has been in contact
with and has received either written or verbal confirmation from a number of
state guaranty funds that they will accept excess claims, representing a total
of approximately $4.2 million of the $5.8 million. Based upon the limited
available Reliance financial information, the Company estimates its current
exposure to Reliance to be $0.5 million, for which it established reserves
during the third quarter of 2001. In evaluating that same financial information,
the Company anticipates receiving, from guaranty funds or through orderly
liquidation, partial reimbursement for future claims payments, a process that
could take several years.

22

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

ABF FREIGHT SYSTEM, INC.

Effective August 1, 2002 and 2001, ABF implemented general rate increases of
5.8% and 4.9% respectively, in part, to cover known and expected cost increases.

Revenues for the three and six months ended June 30, 2002 declined, on a workday
basis, 5.2% and 7.5% to $308.1 million and $596.7 million from $324.8 million
and $650.3 million during the same periods in 2001. ABF generated operating
income of $12.5 million and $18.1 million for the three and six months ended
June 30, 2002 compared to $19.9 million and $40.8 million during the same
periods in 2001.

ABF's decline in revenue is due to a continued decrease in LTL tonnage and fuel
surcharges, which was partially offset by an increase in revenue per
hundredweight. ABF's LTL tonnage decreased 6.1% and 7.2% per workday for the
three and six months ended June 30, 2002, compared to the same periods in 2001.
ABF's performance for the three and six months ended June 30, 2002 was affected
by less available freight due to decreased business levels at customer
facilities, primarily as a result of a decline in the U.S. economy. The decrease
in tonnage was offset, in part, by an increase in LTL revenue per hundredweight,
excluding fuel surcharge of 3.1% and 2.6%, to $21.31 and $21.20 for the three
and six months ended June 30, 2002 compared to $20.67 for both the three and six
months ended June 30, 2001. The pricing environment remained relatively firm
during the first six months of 2002, when compared to that in previous economic
downturns.

ABF implemented a fuel surcharge on July 7, 1999, based on the increase in
diesel fuel prices compared to an index price. The fuel surcharge in effect
during the three and six months ended June 30, 2002 averaged 1.9% and 1.4% of
revenue. The fuel surcharge in effect during the same periods in 2001 averaged
3.1% and 3.2% of revenue.

ABF's operating ratio increased to 95.9% and 97.0% for the three and six months
ended June 30, 2002 from 93.9% and 93.7% during the same periods in 2001,
primarily as a result of continued tonnage declines and changes in insurance
costs and certain other operating expense categories as follows:

Salaries and wages expense for the three and six months ended June 30, 2002
increased 1.9% and 2.9% as a percent of revenue compared to the same periods in
2001. The increase results from the annual general International Brotherhood of
Teamsters ("IBT") contractual base wage and pension cost increases of 1.8% and
4.9%, on April 1, 2002, as well as the fact that a portion of salaries and wages
are fixed in nature and increase as a percent of revenue with decreases in
revenue levels. In addition, workers' compensation costs increased, which
resulted primarily from severe workers' compensation claim increases and an
increase in the Company's self-insurance retention level, from $0.3 million per
claim to $1.0 million per claim when the three and six months ended June 30,
2002 is compared to the same periods in 2001. During the third quarter of 2002,
ABF will experience an effective annual general contractual health and welfare
cost increase under its agreement with the IBT, which will occur on August 1,
2002. The health and welfare increase percentage has yet to be determined.

The Company's five-year agreement with the IBT expires on March 31, 2003. The
Company is currently preparing for the negotiation of a new collective
bargaining agreement with the IBT and anticipates reaching an agreement with the
IBT prior to the expiration of its current agreement, however there can be no
assurance that this will happen.

23

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

Supplies and expenses decreased 0.7% and 1.0% as a percent of revenue for the
three and six months ended June 30, 2002, compared to the same periods in 2001,
due primarily to a decline in fuel costs, excluding taxes, which on an average
price-per-gallon basis, declined to $0.77 and $0.71 for the three and six months
ended June 30, 2002 from $0.93 for both the three and six months ended June 30,
2001.

Insurance expense increased 0.5% and 0.7% as a percent of revenue for the three
and six months ended June 30, 2002, compared to the same periods in 2001, due
primarily to increased insurance premium costs for property damage and liability
claims, in part, because of the effect of the September 11 terrorist attacks on
the insurance markets.

Depreciation and amortization expense increased 0.3% and 0.5% as a percent of
revenue for the three and six months ended June 30, 2002, compared to the same
periods in 2001, due primarily to the purchase of 394 road tractors during the
six months ended June 30, 2002. The road tractors purchased were to replace
older tractors in the fleet that have been transferred to city use. In addition,
portions of such costs are primarily fixed in nature and increase as a percent
of revenue with decreases in revenue levels.

CLIPPER

Effective July 29, 2002 and August 13, 2001, Clipper implemented general rate
increases of 5.9% and 4.9%, respectively, for LTL shipments. Revenues for
Clipper decreased to $30.4 million and $56.2 million for the three and six
months ended June 30, 2002 from $34.3 million and $65.1 million during the same
periods in 2001.

LTL shipments decreased 3.2% and 4.2% per workday for the three and six months
ended June 30, 2002, compared to the same periods in 2001. LTL shipment declines
reflect Clipper's movement away from unprofitable LTL business and lower
business levels, resulting from the decline in the U.S. economy. LTL revenue per
shipment decreased 5.4% and 6.8% for the three and six months ended June 30,
2002, compared to the same periods in 2001. LTL revenue per shipment declines
reflect, in part, an increase in Clipper's mix of heavier weighted shipments
with a shorter length of haul. In addition, LTL revenue per shipment was also
negatively impacted by declines in fuel surcharges.

Intermodal shipments decreased 22.3% and 17.3% per workday for the three and six
months ended June 30, 2002, compared to the same periods in 2001. The number of
intermodal shipments decreased, primarily due to lower shipment volumes from
existing customers. Intermodal revenue per shipment decreased 0.1% and 2.2% for
the three and six months ended June 30, 2002, compared to the same periods in
2001. Intermodal revenue per shipment declines reflect declines in fuel
surcharges and an increasingly competitive pricing marketplace.

Clipper's operating ratio increased to 97.3% and 99.9% for the three and six
months ended June 30, 2002, from 96.7% and 98.8% during the same periods in
2001. Clipper's operating ratio was adversely affected by reduced business
levels and from the reduced rail incentives created by these reduced business
levels. In addition, two of Clipper's customers, with significant accounts
receivable balances, filed for bankruptcy during the first six months of 2002,
which increased bad debt expense.

Clipper is soliciting additional shipments in its traditional metro-to-metro
lanes. These shipments will provide a better match with Clipper's core
operations and have historically been more profitable.

24

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

G.I. TRUCKING COMPANY

On August 1, 2001, the Company sold the stock of G.I. Trucking to a company
formed by the senior executives of G.I. Trucking and Estes Express Lines
("Estes") (see Note I). The Company retained ownership of three California
terminal facilities and has agreed to lease them for an aggregate amount of $1.6
million per year to G.I. Trucking for a period of up to four years. G.I.
Trucking has an option at any time during the four-year lease term to purchase
these terminals for $19.5 million. The facilities have a net book value of
approximately $6.0 million. If the terminal facilities are sold to G.I.
Trucking, the Company will recognize a pre-tax gain of approximately $14.0
million in the period they are sold. The Company's revenue and operating income
includes three and six months of operations for G.I. Trucking for the three and
six months ended June 30, 2001. Revenues for G.I. Trucking for the three and six
months ended June 30, 2001 were $42.0 million and $82.5 million, respectively.
Operating income for G.I. Trucking for the three and six months ended June 30,
2001 was $0.3 million and $0.6 million, respectively.

INVESTMENT IN WINGFOOT

The Company has the right, at any time after April 30, 2003 and before April 30,
2004, to sell its interest in Wingfoot to Goodyear for a cash "Put Price" equal
to approximately $73.4 million. Goodyear has the right, at any time after April
30, 2003 until October 31, 2004, to purchase the Company's entire interest, for
cash, at a "Call Price" equal to the "Put Price" plus $5.0 million. As provided
in the agreement between Goodyear and Treadco, the Company will not share in the
profits or losses of Wingfoot during the term of the "Put." If the Company does
not exercise its right to sell its 19% interest in Wingfoot, the Company will
account for its share of Wingfoot's profits or losses beginning May 1, 2004, as
provided in the Wingfoot Operating Agreement. If the Company "puts" its interest
to Goodyear, the Company will record a pre-tax gain of approximately $14.0
million in the quarter its interest is "Put." If Goodyear "calls" the Company's
interest in Wingfoot, the Company will record a pre-tax gain of approximately
$19.0 million during the quarter the "call" is made by Goodyear.

INCOME TAXES

The difference between the effective tax rate for the three months ended June
30, 2002 and the federal statutory rate resulted from state income taxes and
nondeductible expenses.

In March 1999, the Tenth Circuit Court of Appeals ruled against an appealing
taxpayer regarding the timing of the deductibility of contributions to
multiemployer pension plans. The Internal Revenue Service ("IRS") has raised the
same issue with respect to the Company. There are certain factual differences
between those present in the Tenth Circuit case and those relating specifically
to the Company. The Company has been involved in the administrative appeals
process with the IRS regarding those factual differences. During 2001, the
Company paid approximately $33.0 million, which represented a substantial
portion of the tax and interest that would be due if all the issues involved
were decided adversely to the Company, and which was accounted for in prior
years as a part of the Company's net deferred tax liability and accrued
expenses. The Company continues to contest the issues and will pursue judicial
remedies if appropriate. Because of the complex issues and the fact that
multiple tax years and IRS examinations of the Company and an acquired company
are involved, management believes the final resolution of this matter will occur
over an extended period. In the opinion of management, any additional liability
that may arise has been accrued for and will not have a material adverse effect
on the Company's results of operations, financial position and cash flows in any
future period.

25

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) - continued

PREPAID EXPENSES

Prepaid expenses increased $5.9 million from December 31, 2001 to June 30, 2002,
due primarily to the prepayment of 2002 annual insurance premiums for the
Company.

OTHER LONG-TERM ASSETS AND OTHER LONG-TERM LIABILITIES

Other long-term assets increased $11.4 million and other long-term liabilities
increased $12.8 million from December 31, 2001 to June 30, 2002, due primarily
to a reclassification between supplemental pension benefit plan assets and
liabilities. The net effect of this reclassification on the Company's balance
sheet was zero.

CURRENT DEFERRED INCOME TAX ASSETS AND LONG-TERM DEFERRED INCOME TAX LIABILITIES

Net deferred income tax liabilities decreased $6.6 million from December 31,
2001 to June 30, 2002, due primarily to an increase in deferred tax assets
associated with the write-off of the tax deductible goodwill of Clipper (see
Note E).

SEASONALITY

ABF is affected by seasonal fluctuations, which affects its tonnage to be
transported. Freight shipments, operating costs and earnings are also affected
adversely by inclement weather conditions. The third calendar quarter of each
year usually has the highest tonnage levels while the first quarter has the
lowest. Clipper's operations are similar to operations at ABF with revenues
being weaker in the first quarter and stronger during the months of June through
October.

FORWARD-LOOKING STATEMENTS

Statements contained in the Management's Discussion and Analysis section of this
report that are not based on historical facts are "forward-looking statements."
Terms such as "estimate," "forecast," "expect," "predict," "plan," "anticipate,"
"believe," "intend," "should," "would," "scheduled," and similar expressions and
the negatives of such terms are intended to identify forward-looking statements.
Such statements are by their nature subject to uncertainties and risks,
including, but not limited to, union relations; availability and cost of
capital; shifts in market demand; weather conditions; the performance and needs
of industries served by Arkansas Best's subsidiaries; actual future costs of
operating expenses such as fuel and related taxes; self-insurance claims and
employee wages and benefits; actual costs of continuing investments in
technology; the timing and amount of capital expenditures; competitive
initiatives and pricing pressures; general economic conditions; and other
financial, operational and legal risks and uncertainties detailed from time to
time in the Company's Securities and Exchange Commission ("SEC") public filings.

26

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE INSTRUMENTS

The Company has historically been subject to market risk on all or a part of its
borrowings under bank credit lines, which have variable interest rates.

In February 1998, the Company entered into an interest rate swap effective April
1, 1998. The swap agreement is a contract to exchange variable interest rate
payments for fixed rate payments over the life of the instrument. The notional
amount is used to measure interest to be paid or received and does not represent
the exposure to credit loss. The purpose of the swap is to limit the Company's
exposure to increases in interest rates on the notional amount of bank
borrowings over the term of the swap. The fixed interest rate under the swap is
5.845% plus the Credit Agreement margin (0.575% at December 31, 2001 and
currently 0.825%). This instrument is recorded on the balance sheet of the
Company in other liabilities (see Note H). Details regarding the swap, as of
June 30, 2002, are as follows:

(1) LIBOR rate is determined two London Banking Days prior to the first day of
every month and continues up to and including the maturity date.

(2) The fair value is an amount estimated by Societe Generale ("process agent")
that the Company would have paid at June 30, 2002 to terminate the
agreement.

(3) The swap value changed from ($5.4) million at December 31, 2001. The fair
value is impacted by changes in rates of similarly termed Treasury
instruments.

OTHER MARKET RISKS

Since December 31, 2001, there have been no significant changes in the Company's
other market risks, as reported in the Company's Form 10-K Annual Report.

27

PART II.
OTHER INFORMATION
ARKANSAS BEST CORPORATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, the Company is named as a defendant in legal actions, the
majority of which arise out of the normal course of its business. The Company is
not a party to any pending legal proceeding which the Company's management
believes to be material to the financial condition of the Company. The Company
maintains liability insurance in excess of self-retention levels for certain
risks arising out of the normal course of its business (see Note G to the
Company's unaudited consolidated financial statements).

ITEM 2. CHANGES IN SECURITIES.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company's Annual Meeting of Shareholders was held on April 24, 2002. The
first proposal considered at the Annual Meeting was to elect three persons to
serve as directors of the Company. The results of this proposal were as follows:

The second proposal was to approve the 2002 Stock Option Plan. This proposal
received 18,246,580 votes for adoption, 3,003,476 against adoption, 481,833
abstentions and no broker non-votes.

The third proposal was to ratify the appointment of Ernst & Young LLP as
independent auditors for the fiscal year 2002. This proposal received 21,480,672
votes for adoption, 237,939 against adoption, 13,278 abstentions and no broker
non-votes.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS.

10.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) REPORTS ON FORM 8-K.

The Company filed Form 8-K dated May 17, 2002, for Item No. 5 -
Other Events. The filing announced the Company's new three-year
$225 million Credit Agreement dated as of May 15, 2002.

The Company filed Form 8-K dated June 21, 2002, for Item No. 5 -
Other Events. The filing announced the Company's general rates
and charges increase that took effect August 1, 2002.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

ARKANSAS BEST CORPORATION
(Registrant)

Date: August 9, 2002 /s/ David E. Loeffler
------------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer

29

INDEX TO EXHIBITS