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 September 30, 2002
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[ ] 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
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(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 September 30, 2002
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Common Stock, $.01 par value 24,790,427 shares

ARKANSAS BEST CORPORATION

INDEX

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
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See condensed notes to 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
CONSOLIDATED BALANCE SHEETS - CONTINUED
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See condensed notes to 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
CONSOLIDATED STATEMENTS OF INCOME
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(1) Gives consideration to preferred stock dividends of $0.5 million and $2.5
million for the three and nine months ended September 30, 2001.

(2) For the three and nine months ended September 30, 2001, conversion of
preferred shares into common is assumed for the period prior to the
September 14 preferred redemption date.

(3) Includes one and seven months of G.I. Trucking's operations, respectively,
for the three- and nine-month periods ended September 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.

(5) In the third quarter of 2002, the Company recognized other income of $3.1
million, net of taxes, due to a favorable settlement reached with the
Internal Revenue Service ("IRS") (see Note K).

See condensed notes to consolidated financial statements.

5

ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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(a) Net of tax benefits of $3.9 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 September 30, 2002
was $16.3 million. Total comprehensive income for the three and nine months
ended September 30, 2001 was $9.7 million and $27.4 million, respectively.

See condensed notes to consolidated financial statements.

6

ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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See condensed notes to consolidated financial statements.

7

ARKANSAS BEST CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
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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 78% 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. On October 8,
2002, negotiations began on a new collective bargaining agreement with the IBT.
The Company 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 nine months ended September 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, as
amended, 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
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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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 impact on the Company's financial statements and related disclosures
is not expected to be material.

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 77 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 September 30, 2002, the Company has accrued approximately $2.6 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
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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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 1998 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 nine months ended September 30, 2001, shown on an adjusted basis, excluding
goodwill amortization, to the Company's actual income before the cumulative
effect change, net income (loss), and earnings per share for the three and nine
months ended September 30, 2002 is as follows:

10

ARKANSAS BEST CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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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 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 September 30, 2002. The Company considers a long-lived asset as
abandoned when it ceases to be used. The Company records impairment losses
resulting from such abandonment in operating income. During the third quarter of
2002, ABF abandoned $0.1 million of capitalized software, which it ceased to
use. 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 or assets to a third party
within the next 12 to 24 months.

11

ARKANSAS BEST CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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Total assets held for sale at December 31, 2001 were $2.4 million. During the
first nine months of 2002, additional assets of $2.0 million were identified and
reclassified to assets held for sale. Non-operating terminals and revenue
equipment carried at $2.6 million were sold for a gain of $3.7 million, of which
$3.5 million was related to real estate and reported below the operating line
and $0.2 million related to equipment and was reported above the operating line.
During the first nine months of 2002, there were no write-downs to fair value
less costs to sell, other than the write-down of abandoned capitalized software.

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 September 30, 2002, the Company estimates its workers' compensation claims
insured by Reliance to be approximately $6.4 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 $4.5 million of the $6.4 million, which leaves the
Company with a net exposure amount of $1.9 million. The Company increased its
estimated reserve for exposure to Reliance from $0.5 million to $1.4 million
during the third quarter of 2002 based upon the following factors: 1.) No new
Reliance financial information has been made available by the Pennsylvania
Insurance Department since the March 31, 2001 financial statements were made
available on October 3, 2001; 2.) A September 9, 2002 court order extended the
deadline for which the liquidator will receive Reliance claims to December 31,
2003, which could increase Reliance's liability exposure.

The Company anticipates receiving, from guaranty funds or through orderly
liquidation, partial reimbursement for future claims payments, however the
process 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 September
30, 2002, it would have had to pay an estimated $10.0 million. The Company
recorded liabilities of $10.0 million and $5.4 million, respectively, on its
balance sheet in accordance with Statement No. 133, at September 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 nine months ended
September 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.

12

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

13

ARKANSAS BEST CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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NOTE J - EARNINGS PER SHARE

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

(1) For the three and nine months ended September 30, 2001, conversion of
preferred shares into common is assumed for the period prior to the
September 14 preferred redemption date.

14

ARKANSAS BEST CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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NOTE K - INCOME TAXES

The difference between the effective tax rate for the three and nine months
ended September 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") had previously
raised the same issue with respect to the Company. There were certain factual
differences between those present in the Tenth Circuit case and those relating
specifically to the Company. The Company was involved in the administrative
appeals process with the IRS regarding those factual differences beginning in
1997. 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. In August 2002, the Company reached a settlement
with the IRS of all outstanding issues relating to the Company's federal income
tax returns for the years 1990 through 1994. The settlement resulted in a
liability for tax and interest, which was less than the liability the Company
had estimated if the IRS prevailed on all issues. As a result of the settlement,
the Company reduced its reserves for interest by approximately $5.2 million to
reflect the reduction in the Company's liability for future cash payments of
interest. The effect of this change resulted in an increase in the Company's net
income per diluted common share of $0.12.

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. The Company's Credit Agreement allows the Company to request extensions of
the maturity date for a period not to exceed two years, subject to participating
bank approval. The Company's Credit Agreement also allows the Company to request
an increase in the amount of revolving credit loans as long as the total
revolving credit loans do not exceed $275.0 million, subject to the approval of
participating banks.

At September 30, 2002, there were $110.0 million of Revolver Advances and
approximately $66.4 million of letters of credit outstanding. At September 30,
2002, the Company had approximately $48.6 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 September 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 ("S&P") and Baa3 by Moody's Investors Service, Inc. On October 21, 2002,
S&P revised its outlook on the Company from stable to

15

ARKANSAS BEST CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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positive citing the Company's robust operating performance in a difficult
operating environment. The Company has no downward rating triggers that would
accelerate the maturity of its debt.

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 September 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 one and seven months of G.I. Trucking's operations, respectively,
for the three and nine month periods ended September 30, 2001. G.I.
Trucking was sold on August 1, 2001.

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ARKANSAS BEST CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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(1) Includes one and seven months of G.I. Trucking's operations, respectively,
for the three and nine month periods ended September 30, 2001. G.I.
Trucking was sold on August 1, 2001.

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
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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 $47.4 million and $46.3 million at September
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 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.

18

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

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 ($10.0)
million and ($5.4) million at September 30, 2002 and December 31, 2001,
respectively, is recorded as a liability on the Company's balance sheet through
other comprehensive income rather than through the income statement. If the swap
terminated at September 30, 2002, the Company would have had to pay $10.0
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 $73.0 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 nine months ended September 30, 2002, cash provided by operations of
$58.4 million, proceeds from asset sales of $11.6 million, borrowings of $2.6
million and available cash were used primarily to purchase revenue equipment and
other property and equipment totaling $51.7 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 $15.1 million in outstanding debt obligations.
During the nine months ended September 30, 2001, cash provided by operations of
$48.6 million, proceeds from asset sales of $7.6 million, proceeds from the sale
of G.I. Trucking of $40.5 million and available cash were used primarily to
purchase revenue equipment and other property and equipment totaling $70.4
million and reduce outstanding debt during the nine months ended September 30,
2001, including the retirement of $24.8 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.

19

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. The Company's Credit Agreement allows the Company
to request extensions of the maturity date for a period not to exceed two years,
subject to participating bank approval. The Company's Credit Agreement also
allows the Company to request an increase in the amount of revolving credit
loans as long as the total revolving credit loans do not exceed $275.0 million,
subject to the approval of participating banks.

At September 30, 2002, there were $110.0 million of Revolver Advances and
approximately $66.4 million of letters of credit outstanding. At September 30,
2002, the Company had approximately $48.6 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 September 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. On October 21,2002, S&P
revised its outlook on the Company from stable to positive citing the Company's
robust operating performance in a difficult operating environment. 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 ($10.0) million at
September 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 September 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 September 30, 2002, the Company has future minimum rental
commitments, net of noncancellable subleases totaling $38.9 million for terminal
facilities and $0.6 million primarily for revenue equipment.

20

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:

For the nine months ended September 30, 2002, the Company's net capital
expenditures total $37.5 million. For the full year 2002, the Company's total
spending could be as high as $65.0 million for capital expenditures, net of
proceeds from equipment and real estate sales. Of the $65.0 million, ABF is
budgeted for approximately $60.0 million primarily for revenue equipment and
facilities, including approximately $20.0 million for certain terminal
facilities of one of the Company's major competitors, Consolidated Freightways
Corporation ("CF"). CF filed for bankruptcy protection on September 3, 2002. The
Company is considering bidding for certain CF terminal facilities, through the
bankruptcy process. As in any competitive bid for real estate, there can be no
assurance of successful bids by the Company, for any or all of the desired
properties.

During the third quarter of 2002, the Company increased its letter of credit
commitments by $35.6 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 were more favorably priced.

The Company's non-union pension plan assets have been adversely impacted by
recent stock market declines. In addition, non-union pension plan obligations
have been adversely impacted by declining interest rates, which increases the
present value of the plan obligations. In the event stock market values do not
improve and interest rates do not change, the Company could be required to make
contributions to the plans in future periods. It would be the Company's
intention to make contributions to cover non-union pension plan underfunding as
soon as allowable under applicable IRS regulations.

The Company has two principal sources of available liquidity, which are its
operating cash and the $48.6 million it has available under its revolving Credit
Agreement at September 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 $58.4 through the nine months ended September 30, 2002. The Company
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, which includes any CF terminal facilities it may
purchase.

21

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

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.

OPERATING SEGMENT DATA

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

(1) Includes one and seven months of G.I. Trucking's operations, respectively,
for the three- and nine-month periods ended September 30, 2001. G.I.
Trucking was sold on August 1, 2001.

22

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

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2001

Consolidated revenues for the three and nine months ended September 30, 2002
were $375.4 million and $1,040.7 million compared to $381.6 million and $1,188.7
million for the same periods in 2001, representing a decrease of 1.6% and 12.4%,
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 nine months ended September 30, 2001 included one and
seven months of operations, respectively, for G.I. Trucking. The decline in
revenues for the third quarter 2002 from the third quarter 2001 resulted from
the sale of G.I. Trucking Company on August 1, 2001. This decline was offset, in
part, by a slight increase in ABF's revenues. The decline in revenues for the
nine months ended September 30, 2002 resulted from the sale of G.I. Trucking and
declines in revenues for ABF and Clipper 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 continued to negatively impact the Company during the first eight months of
2002. A major competitor of ABF's, Consolidated Freightways ("CF") filed for
bankruptcy protection on September 3, 2002. ABF's revenues increased in the
month of September 2002 over August 2002 levels as a result.

Operating income for the three months ended September 30, 2002 increased to
$23.9 million from $21.2 million during the same period in 2001, due primarily
to improvements in ABF's operating income. Operating income for the nine months
ended September 30, 2002 decreased to $42.0 million from $61.2 million during
the same period in 2001. This decrease in operating income is due primarily to a
decline in operating income for ABF, which relates primarily to the decline in
the U.S. economy.

Income before the cumulative effect of change in accounting principle for the
three months ended September 30, 2002 was $18.3 million, or $0.73 per diluted
common share, compared to $13.0 million, or $0.52 per diluted common share, for
the same period in 2001. The increase is due to a $5.2 million, or $0.12 per
diluted common share, settlement with the IRS (see Note K) and $3.7 million, or
$0.09 per diluted common share, in gains on the sales of ABF non-operating
terminal facilities, during the third quarter of 2002, as well as improved
operations at ABF. The third quarter of 2002 was negatively impacted by a $0.9
million, or $0.02 per diluted common share, by an increase in the Company's
workers' compensation reserve for its exposure to Reliance Insurance Company
("Reliance") (See Note G). The third quarter of 2001 included a pre-tax gain of
$4.6 million, or $0.11 per diluted common share, from the sale of G.I. Trucking,
(see Note I).

Income before the cumulative effect of change in accounting principle for the
nine months ended September 30, 2002 was $26.3 million or $1.04 per diluted
common share, compared to $31.9 million, or $1.28 per diluted common share, for
the same period in 2001. The decrease reflects primarily the decrease in
operating income, discussed above, offset in part by the $5.2 million, or $0.12
per diluted common share, settlement with the IRS and $3.7 million, or $0.09 per
diluted common share, in gains on the sales of ABF non-operating terminal
facilities. In addition, the nine months ended September 30, 2002 had lower
interest expense from lower average debt levels and no goodwill amortization, 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 a change in accounting principle as required by Statement
No. 142 (see Note E). The nine months ended September 30, 2001 included a $4.6
million, or $0.11 per diluted common share, pre-tax gain from the sale of G.I.
Trucking.

23

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

The Company's net income, including the impact of the accounting change, for the
three and nine months ended September 30, 2002 was $18.3 million and $2.4
million respectively, or $0.73 and $0.09 per diluted common share, compared to
net income of $13.0 million and $31.9 million respectively, or $0.52 and $1.28
per diluted common share, for the same periods in 2001.

Tonnage levels during the first eight months of 2002 continued to be impacted by
a decline in the U. S. economy, beginning in mid-2000. However, during the month
of September of 2002, ABF experienced an increase in tonnage levels over
September 2001 and August 2002 levels, due primarily to CF's bankruptcy.

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 September 30, 2002, the Company estimates its workers' compensation claims
insured by Reliance to be approximately $6.4 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 $4.5 million of the $6.4 million, which leaves the
Company with a net exposure amount of $1.9 million. The Company increased its
estimated reserve for exposure to Reliance from $0.5 million to $1.4 million
during the third quarter of 2002 based upon the following factors: 1.) No new
Reliance financial information has been made available by the Pennsylvania
Insurance Department since the March 31, 2001 financial statements were made
available on October 3, 2001; 2.) A September 9, 2002 court order extended the
deadline for which the liquidator will receive Reliance claims to December 31,
2003, which could increase Reliance's liability exposure.

The Company anticipates receiving, from guaranty funds or through orderly
liquidation, partial reimbursement for future claims payments, however the
process could take several years.

ABF FREIGHT SYSTEM, INC.

Effective August 1, 2002 and 2001, ABF implemented general rate increases to
cover known and expected cost increases. Typically, the increases were 5.8% and
4.9% respectively, although the amounts can vary by lane and shipment
characteristic.

Revenues for the three and nine months ended September 30, 2002 were $335.5
million and $932.2 million compared to $330.0 million and $980.3 million during
the same periods in 2001. ABF generated operating income of $23.7 million and
$41.8 million for the three and nine month periods ended September 30, 2002
compared to $22.1 million and $62.9 million during the same periods in 2001.

During the third quarter of 2002, ABF's revenue increased as a result of yield
improvements offset by a decline in tonnage levels for the same period in 2001.
A key operating statistic used by ABF management to measure yield improvements
is LTL billed revenue per hundredweight. LTL billed revenue per hundredweight,
compares the revenue billed during the period, without the revenue deferral
adjustment required for financial statement revenues, to the tonnage billed
during the same period. ABF's LTL billed revenue per hundredweight, excluding
fuel surcharge, increased 5.3% to $22.39 for the three months ended September
30, 2002 compared to $21.27 for the same period in 2001. ABF's tonnage levels
declined during the third quarter of 2002 compared to the same period in 2001,
2.4% per workday. During the month of September 2002, ABF's LTL tonnage per day
increased approximately 11.0% from tonnage trends experienced in August 2002,
due primarily to the additional business gained as a result of the bankruptcy of
CF.

24

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

ABF's decline in revenue for the nine months ended September 30, 2002, compared
to the same period in 2001, is due to an overall decrease in LTL tonnage and
fuel surcharges. ABF's LTL tonnage decreased 5.6% per workday for the nine
months ended September 30, 2002, compared to the same periods in 2001. ABF's
performance for the nine months ended September 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 impacting ABF. ABF's LTL
billed revenue per hundredweight, excluding fuel surcharges increased 3.7% to
$21.68 for the nine months ended September 30, 2002 compared to $20.91 for the
nine months ended September 30, 2001. The pricing environment remained
relatively firm during the first nine 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 nine months ended September 30, 2002 averaged 2.2% and 1.7%
of revenue. The fuel surcharge in effect during the same periods in 2001
averaged 2.7% and 3.0% of revenue.

ABF's operating ratio improved to 92.9% for the three months ended September 30,
2002 from 93.3% during the same period in 2001, due primarily to revenue yield
improvements previously discussed and certain changes in operating expense
categories explained below. ABF's operating ratio increased to 95.5% for the
nine months ended September 30, 2002 from 93.6% during the same period in 2001,
primarily as a result of overall tonnage declines as discussed above and changes
in insurance costs and certain other operating expense categories as follows:

Salaries and wages expense for the three months ended September 30, 2002
decreased 0.1% as a percent of revenue compared to the same period in 2001. The
decrease is due primarily to the previously discussed revenue yield improvements
and productivity improvements. This decrease is offset, in part by 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, and the August 1,
2002 increase of 12.9% for health and welfare costs. In addition, workers'
compensation costs increased, as a result of an increase in the Company's
self-insurance retention level, from $0.3 million per claim to $1.0 million per
claim and a $0.9 million increase in reserves associated with ABF's exposure to
the liquidation of Reliance Insurance Company (see Note G), when the three
months ended September 30, 2002 are compared to the same period in 2001.

Salaries and wages expense for the nine months ended September 30, 2002
increased 1.9% as a percent of revenue compared to the same period in 2001. The
increase results from the annual general International Brotherhood of Teamsters
("IBT") contractual increases discussed above, 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 increases in the Company's self-insurance retention level
and Reliance reserves, as discussed above, when the nine months ended September
30, 2002 are compared to the same period in 2001.

The Company's five-year agreement with the IBT expires on March 31, 2003. On
October 8, 2002, negotiations began on a new collective bargaining agreement
with the IBT. The Company 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.

Supplies and expenses decreased 0.6% and 0.8% as a percent of revenue for the
three and nine months ended September 30, 2002, compared to the same periods in
2001, due primarily to a decline in fuel costs, excluding

25

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

taxes, which on an average price-per-gallon basis, declined to $0.83 and $0.75
for the three and nine months ended September 30, 2002 from $0.88 and $0.91 for
the three and nine months ended September 30, 2001.

Insurance expense increased 0.1% and 0.5% as a percent of revenue for the three
and nine months ended September 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. The effects of the increased insurance costs
for the third quarter 2002 compared to the same period in 2001 were offset by
previously discussed revenue yield improvements.

Depreciation and amortization expense increased 0.3% as a percent of revenue for
the nine months ended September 30, 2002, compared to the same period in 2001,
due primarily to the purchase of 500 road tractors during the nine months ended
September 30, 2002. The road tractors purchased replaced 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.

As previously mentioned, ABF's general rate increase on August 1, 2002 was put
in place to cover known and expected cost increases for the next twelve months.
Typically, the increase was 5.8%, although the amount can vary by lane and
shipment characteristic. ABF's ability to retain this rate increase is dependent
on the pricing environment, which has remained relatively firm during the nine
months ended September 30, 2002 and has been favorable in the third quarter of
2002. ABF could be impacted by fluctuating fuel prices in the future. Although
fuel prices have remained stable during the nine months ended September 30,
2002, there can be no assurances that they will continue to do so. ABF's fuel
surcharges on revenue are intended to offset any fuel cost increases. ABF's
insurance premium costs could potentially increase, in part, because of the
continuing impact on the insurance industry of the terrorist acts of September
11. For the nine months ended September 30, 2002, insurance premiums represented
38.2% of ABF's total insurance costs. During the nine months ended September 30,
2002, ABF has experienced increases in its nonunion benefit costs of 2.4%,
representing increased medical, prescription drug and pension costs. These costs
represent approximately 2.6% of ABF's revenue for the nine months ended
September 30, 2002. Based on recent trends, these costs could continue to
increase, although there can be no certainty of this. As previously discussed,
the Company's five-year agreement with the IBT expires on March 31, 2003. The
Company is currently negotiating 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's management expects ABF's business levels to continue to improve in
the fourth quarter of 2002 compared to the same period in 2001, similar to the
improvement experienced in September 2002 as a result of additional business
gained due to the CF bankruptcy.

CLIPPER

Effective July 29, 2002 and August 13, 2001, Clipper implemented general rate
increases of 5.9% and 4.9%, respectively, for LTL shipments. Clipper's third
quarter revenues were $32.4 million for both 2002 and 2001. Revenues for the
nine months ended September 30, 2002 decreased to $88.6 million from $97.6
million during the same period in 2001.

Shipments for Clipper Controlled Logistics, Clipper's temperature-controlled
division, increased 9.3% and 11.8% per workday for the three and nine months
ended September 30, 2002, compared to the same periods in 2001. Clipper
Controlled Logistics' revenue per shipment increased 6.2% for the three months
ended September

26

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

30, 2002, compared to the same period in 2001 and decreased 1.1% for the nine
months ended September 30, 2002, compared to the same period in 2001.

LTL shipments decreased 4.8% and 4.4% per workday for the three and nine months
ended September 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 increased slightly, 0.7%, for the three months ended
September 30, 2002, compared to the same period in 2001. LTL revenue per
shipment decreased 4.3% for the nine months ended September 30, 2002, compared
to the same period 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 17.8% and 17.5% per workday for the three and
nine months ended September 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 increased 3.5%
for the three months ended September 30, 2002, compared to the same period in
2001. Intermodal revenue per shipment decreased slightly 0.3% for the nine
months ended September 30, 2002, compared to the same period in 2001.

Clipper's operating ratio improved to 97.7% for the three months ended September
30, 2002, from 99.2% during the same period in 2001. Clipper's operating ratio
improvement results primarily from improved margins for Clipper Controlled
Logistics. In addition, Clipper's increase in rail utilization from 55.6% during
the third quarter of 2001 to 63.5% during the third quarter of 2002 improved its
third quarter margins. For Clipper, rail costs per mile are generally less
expensive than over-the-road costs per mile.

Clipper's operating ratio increased slightly to 99.1% for the nine months ended
September 30, 2002, from 99.0% during the same period in 2001. Clipper's
operating ratio was adversely affected by overall 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 2002, which increased bad debt expense.
These adverse impacts were offset, in part, by the previously discussed improved
margins at Clipper Controlled Logistics.

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.

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 one and seven months of operations, respectively, for G.I. Trucking for
the three and nine month periods ended September 30, 2001. Revenues for G.I.
Trucking for the one and seven months ended September 30, 2001 were $12.9
million and $95.5 million, respectively. Operating income (loss) for G.I.
Trucking for the one and seven months ended September 30, 2001 was ($0.6)
million and $0.1 million, respectively.

27

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

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 $73.0 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 and nine months
ended September 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") had previously
raised the same issue with respect to the Company. There were certain factual
differences between those present in the Tenth Circuit case and those relating
specifically to the Company. The Company was involved in the administrative
appeals process with the IRS regarding those factual differences beginning in
1997. 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. In August 2002, the Company reached a settlement
with the IRS of all outstanding issues relating to the Company's federal income
tax returns for the years 1990 through 1994. The settlement resulted in a
liability for tax and interest, which was less than the liability the Company
had estimated if the IRS prevailed on all issues. As a result of the settlement,
the Company reduced its reserves for interest by approximately $5.2 million to
reflect the reduction in the Company's liability for future cash payments of
interest. The effect of this change resulted in an increase in the Company's net
income per diluted common share of approximately $0.12.

PREPAID EXPENSES

Prepaid expenses increased $4.3 million from December 31, 2001 to September 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 $14.6 million and other long-term liabilities
increased $12.3 million from December 31, 2001 to September 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. In addition, the Company made a $5.6 million
contribution to its defined benefit pension plan covering non-union employees
during the third quarter of 2002.

28

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

STOCKHOLDERS' EQUITY

The Company's Other Assets include a non-union prepaid asset of $20.0 million at
September 30, 2002 determined under Statement of Financial Accounting Standards
No. 87 ("FAS 87"), Employers' Accounting for Pensions. As of January 1, 2002,
the Company's non-union pension plan assets exceeded plan accumulated benefit
obligations ("ABO") by $22.6 million and plan projected benefit obligations by
$1.1 million. As calculated for FAS 87 purposes, accumulated benefit obligations
do not consider future impacts on the obligation of changes, such as salary
increases. Projected benefit obligations, consider assumptions of future
increases in salary in calculating the obligation amount.

During 2002, the Company's non-union pension plan assets have been adversely
impacted by stock market declines. In addition, non-union pension plan
obligations have been adversely impacted by declining interest rates, which
increases the present value of plan obligations. Based upon current stock market
valuations and the interest rate environment and other available information,
the Company's current estimate of its December 31, 2002 non-union pension plan
ABO underfunding is approximately $2.0 to $3.0 million. The Company's consulting
actuaries will prepare a pension plan valuation as of December 31, 2002. In the
event stock market values do not improve and interest rates do not change, the
Company's non-union pension plans could be underfunded at December 31, 2002. In
that event, the Company would be required to write-off its non-union prepaid
pension asset and record a minimum pension liability at December 31, 2002, as
required by FAS 87. The impact of these balance sheet changes would be recorded
directly to the Company's stockholders' equity through other comprehensive
income, net of taxes. No additional pension expense would be recorded in the
Company's 2002 income statement.

If an underfunding were to occur, it would be the Company's intention to make
contributions to cover non-union pension plan underfunding as soon as allowable
under applicable IRS regulations. The Company contributed $5.6 million, the
maximum allowable amount, to the ABF non-union pension plan during the third
quarter of 2002.

The Company's non-union pension plan funding levels could improve with increases
in the stock market and interest rates.

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

Net deferred income taxes decreased $10.9 million from a net deferred income tax
liability of $9.5 million at December 31, 2001 to a net deferred income tax
asset of $1.4 million at September 30, 2002, due primarily to an increase in
deferred tax assets associated with the write-off of the tax deductible goodwill
of Clipper of $13.6 million (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.

29

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.

30

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
September 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 September 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.

31

ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------------------------------------------------------

CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the CEO and CFO, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure controls and procedures were effective as of September
30, 2002. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to September 30, 2002.

32

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.

None.

ITEM 5. OTHER INFORMATION.

None.

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

(a) EXHIBITS.

99.1 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 August 12, 2002, for Item No. 9 -
Regulation Fair Disclosure. The filing disclosed the statements made
under oath by Robert A. Young III, President and Chief Executive
Officer of the Company and David E. Loeffler, Vice President - Chief
Financial Officer and Treasurer of the Company, pursuant to Order 4-460
with regard to facts and circumstances relating to certain Exchange Act
filings of the Company, pursuant to Section 21(a)(1) of the Securities
Exchange Act of 1934.

The Company filed Form 8-K dated August 15, 2002, for Item No. 5 -
Other Events. The filing announced the Company's favorable settlement
reached with the Internal Revenue Service.

The Company filed Form 8-K dated October 17, 2002, for Item No. 5 -
Other Events. The filing announced the retirement of David E.
Stubblefield, President and Chief Executive Officer of ABF and the
appointment of Robert A. Davidson as his successor.

33

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: November 1, 2002 /s/ David E. Loeffler
-------------------------------------------------
David E. Loeffler
Vice President-Treasurer, Chief Financial Officer
and Principal Accounting Officer

34

MANAGEMENT CERTIFICATION

I, Robert A. Young III, President and Chief Executive Officer of Arkansas Best
Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arkansas Best
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 1, 2002 /s/ Robert A. Young III
---------------------- -------------------------------------------
Robert A. Young III
President and Chief Executive Officer

35

MANAGEMENT CERTIFICATION

I, David E. Loeffler, Vice President - Chief Financial Officer and Treasurer of
Arkansas Best Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arkansas Best
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 1, 2002 /s/ David E. Loeffler
-------------------- --------------------------------------------------
David E. Loeffler
Vice President - Chief Financial Officer and
Treasurer

36

INDEX TO EXHIBITS