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 March 31, 2003
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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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 March 31, 2003
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Common Stock, $.01 par value 24,842,199 shares

ARKANSAS BEST CORPORATION

INDEX

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
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See notes to consolidated financial statements.

Note: The balance sheet at December 31, 2002 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 notes to consolidated financial statements.

Note: The balance sheet at December 31, 2002 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 OPERATIONS
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(1) Included in the fair value of the interest rate swap is a pre-tax non-cash
charge of $8.5 million, due to no longer forecasting borrowings and
interest payments on the full notional amount of the swap (see Note F).

(2) 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 consolidated financial statements.

5

ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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(a) The accumulated loss from the fair value of the interest rate swap in
accumulated other comprehensive loss is $6.0 million, net of tax
benefits of $3.8 million at December 31, 2002 and $0.2 million, net of
tax benefits of $0.1 million at March 31, 2003. Included in the $5.8
million for the interest rate swap is $0.7 million in fair value
changes from December 31, 2002 through March 19, 2003 and the transfer
of $5.2 million from accumulated other comprehensive income into
earnings during the first quarter of 2003. As of March 31, 2003, the
Company no longer forecasts borrowings and interest payments on the
full notional amount of the swap. As a result, until the interest rate
swap terminates on April 1, 2005, changes in the fair value of the
interest rate swap will be accounted for through the income statement.

(b) The accumulated loss from the foreign currency translation in
accumulated other comprehensive loss is $0.3 million, net of tax
benefits of $0.2 million at both December 31, 2002 and March 31, 2003.

(c) The minimum pension liability included in accumulated other
comprehensive loss is $3.5 million, net of tax benefits of $2.2 million
at both December 31, 2002 and March 31, 2003.

(d) Total comprehensive loss for the three months ended March 31, 2002 was
$21.8 million, which included the cumulative effect of an accounting
change of $23.9 million resulting from the write-off of Clipper
goodwill.

See notes to consolidated financial statements.

6

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

7

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2003
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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"); and FleetNet America, LLC.

On March 28, 2003, the International Brotherhood of Teamsters ("IBT") announced
the ratification of its National Master Freight Agreement with the Motor Freight
Carriers Association ("MFCA") by its membership. The agreement has a five-year
term and is effective April 1, 2003. The agreement provides for annual
contractual wage and benefit increases of approximately 3.2% - 3.4%.
Approximately 78% of ABF Freight System, Inc. employees are covered by the
agreement. Carrier members of the MFCA ratified the agreement on the same date.

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 three months ended March 31, 2003 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2003. 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, 2002.

On January 23, 2003, the Company announced that its Board of Directors had
declared a quarterly cash dividend of eight cents per share to holders of record
of its Common Stock. Dividends paid on Common Stock during the first quarter of
2003 totaled $2.0 million. On April 23, 2003, the Board of Directors declared a
dividend for the second quarter of 2003 which totaled $2.0 million.

On January 23, 2003, the Company also announced a program to repurchase, in the
open market or in privately negotiated transactions, up to a maximum of $25.0
million of the Company's Common Stock. The repurchases may be made either from
the Company's cash reserves or from other available sources. During the first
quarter of 2003, the Company made open market purchases, totaling 100,000
shares, of its Common Stock for a total purchase price of $2.3 million. These
common shares were added to the Company's treasury stock.

On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards No. 143 ("FAS 143"), Accounting for Asset Retirement Obligations and
Statement of Financial Accounting Standards No. 146 ("FAS 146"), Accounting for
Costs Associated with Exit or Disposal Activities. Neither FAS 143 nor FAS 146
had a material impact upon the Company's financial statements and related
disclosures.

8

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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NOTE C - STOCK-BASED COMPENSATION

At March 31, 2003, the Company maintained three stock option plans: the 1992
Stock Option Plan, the 2000 Non-Qualified Stock Option Plan and the 2002 Stock
Option Plan, which provided for the granting of options to directors and
designated employees of the Company. The 1992 Stock Option Plan expired on
December 31, 2001, and therefore, no new options can be granted under this plan.
The 2000 Non-Qualified Stock Option Plan, a broad-based plan that allows options
to be granted to designated employees, provided 1.0 million shares of Common
Stock for the granting of options. The 2002 Stock Option Plan allows for the
granting of 1.0 million options, as well as two types of stock appreciation
rights ("SARs") which are payable in shares or cash. Employer SARs allow the
Company to decide, when an option is exercised, to treat the exercise as a SAR.
Employee SARs allow the optionee to decide, when exercising an option, to treat
it as a SAR. During 2003, the Company granted 182,500 Employer SARs in
conjunction with stock option grants of 182,500 shares to directors and key
employees of the Company from the 2002 Stock Option Plan. Employer SARs may be
exercised at the Company's discretion. As of March 31, 2003, the Company had not
exercised any Employer SARs. Also during 2003, the Company granted 143,500 stock
options to designated employees under the 2000 Non-Qualified Stock Option Plan.
All options or SARs granted are exercisable starting on the first anniversary of
the grant date, with 20% of the shares or rights covered, thereby becoming
exercisable at that time and with an additional 20% of the option shares or SARs
becoming exercisable on each successive anniversary date, with full vesting
occurring on the fifth anniversary date. The options or SARs are granted for a
term of 10 years.

The Company accounts for stock options under the "intrinsic value method" and
the recognition and measurement principles of Accounting Principles Board
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees and related
interpretations, including Financial Accounting Standards Board Interpretation
No. 44 ("FIN 44"), Accounting for Certain Transactions Involving Stock
Compensation. During the fourth quarter of 2002, the Company adopted the
disclosure provisions of Statement of Financial Accounting Standards No. 148
("FAS 148"), Accounting for Stock-Based Compensation - Transition and
Disclosure. No stock-based employee compensation expense is reflected in net
income, as all options granted under the Company's plans had an exercise price
equal to the market value of the underlying Common Stock on the date of grant.

The Company has elected to use the APB 25 intrinsic value method because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based
Compensation requires the use of theoretical option valuation models, such as
the Black-Scholes model, that were not developed for use in valuing employee
stock options. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of employee stock options.

For companies accounting for their stock-based compensation under the APB 25
intrinsic value method, pro forma information regarding net income and earnings
per share is required and is determined as if the Company had accounted for its
employee stock options under the fair value method of FAS 123. The fair value
for these options is estimated at the date of grant, using a Black-Scholes
option pricing model. For the first quarter of 2003, the assumptions used were
as follows: risk-free interest rate of 2.7%; dividend yield of 1.2%; volatility
factor of the expected market price of the Company's Common Stock of 56.2%; and
an expected life of the option of 4 years. There were no stock options granted
during the first quarter of 2002. Subsequent to the issuance of the 2002
financial statements, the Company determined that an inappropriate weighted
average life assumption was used in

9

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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determining the fair value of options granted in 2002 and 2001. Additionally, a
computational error was identified. As a result, the weighted average life has
been revised from 9.5 years to 4 years, which reflects the Company's historical
experience. The impact of the revisions on the Company's previously reported
2002 pro forma annual net income is a decrease of $0.01 per basic and diluted
common share. The pro forma disclosures for the quarter ended March 31, 2002
reflect the revised computations. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period.

The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition under FAS 123 and FAS 148
to stock-based employee compensation (in thousands except for earnings-per-share
information):

10

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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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 has accruals for certain legal and
environmental exposures.

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's underground storage tanks are required to have leak detection
systems. 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 Environmental Protection Agency
("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 $140,000 over
the last 10 years primarily at seven sites), or believes its obligations other
than those specifically accrued for with respect to such sites would involve
immaterial monetary liability, although there can be no assurances in this
regard.

As of March 31, 2003, the Company has accrued approximately $2.7 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 and in other liabilities.

NOTE E - GOODWILL

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 ("FAS 142"), Goodwill and Other Intangible Assets. Under the
provisions of FAS 142, the Company's goodwill intangible asset is no longer
amortized but reviewed annually for impairment. At March 31, 2003 and December
31, 2002, the Company's assets included goodwill of $63.8 million related to ABF
from a 1988 LBO transaction related to ABF.

The Company performed the required transitional impairment testing on its
goodwill during the first quarter of 2002 based on January 1, 2002 values, which
included $63.8 million related to ABF and $37.5 million related to the 1994
acquisition of Clipper. 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 FAS 142. This impairment loss results from the change in method of
determining recoverable goodwill from using undiscounted cash flows, as
prescribed by Statement of Financial Accounting Standards No. 121 ("FAS 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 FAS 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

11

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

The Company performed the annual impairment testing on its ABF goodwill based
upon operations and fair value at January 1, 2003 and found there to be no
impairment.

NOTE F - DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for its derivative financial instruments in accordance with
Financial Accounting Standards Board Statement No. 133, ("FAS 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 has been 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 0.825% at both March 31, 2003 and
December 31, 2002) 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 had designated its benchmark variable 30-day LIBOR-based
interest rate payments on $110.0 million of borrowings under the Company's
Credit Agreement as a hedged item under a cash flow hedge. As a result, the fair
value of the swap, as estimated by Societe Generale, was a liability of ($9.9)
million at December 31, 2002 and was recorded on the Company's balance sheet
through accumulated other comprehensive income, net of taxes, rather than
through the income statement.

On March 19, 2003, the Company announced that it had notified The Goodyear Tire
& Rubber Company ("Goodyear") of its intention to sell its 19% ownership
interest in Wingfoot Commercial Tire Systems, LLC to Goodyear for a cash price
of $71.3 million. Management also announced its intention to use the proceeds to
pay down Credit Agreement borrowings. As a result, the Company no longer
forecasts Credit Agreement borrowings to be at the $110.0 million level. In
fact, management expects Credit Agreement borrowings to be below $110.0 million.
As a result, the Company reclassified the majority of the negative fair value of
the swap on March 19, 2003 of $8.5 million (pre-tax), or $5.2 million net of
taxes, from accumulated other comprehensive income into earnings on the income
statement, during the first quarter of 2003. The closing date of the transaction
with Goodyear was April 28, 2003. Management used the proceeds received from
Goodyear to pay down its Credit Agreement borrowings.

The fair value of the interest rate swap, as estimated by Societe Generale at
March 31, 2003, is a liability of ($9.4) million and is recorded on the
Company's balance sheet and represents the amount the Company would have had to
pay if it had terminated the swap on March 31, 2003. Included in accumulated
other comprehensive income is $0.4 million (pre-tax), or $0.2 million net of
taxes representing the negative fair value of the portion of the estimated
remaining interest rate swap payments relating to interest payments on
borrowings that are still likely to occur. Included in the income statement for
the first quarter 2003 is the $8.5 million (pre-tax) reclassification previously
discussed and $0.5 million (pre-tax) of changes in the fair value of the
interest rate swap, from March 19, 2003 to March 31, 2003. Future changes in the
fair value of the interest rate swap will be accounted for in the Company's
income statement until the interest rate swap matures on April 1, 2005, unless
the Company terminates the arrangement prior to that date.

12

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

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

13

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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NOTE H - OPERATING SEGMENT DATA

The Company uses 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 two defined
reportable operating segments: (1) ABF and (2) Clipper.

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.

14

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

15

ARKANSAS BEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
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NOTE I - SUBSEQUENT EVENT

On March 19, 2003, the Company announced that it had notified The Goodyear Tire
& Rubber Company ("Goodyear") of its intention to sell its 19% ownership
interest in Wingfoot Commercial Tire Systems, LLC to Goodyear for a cash price
of $71.3 million. The closing date of the transaction was April 28, 2003.
Management used the proceeds received from Goodyear to pay down its Credit
Agreement borrowings.

16

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

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 estimates 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:

Management of the Company utilizes a bill-by-bill analysis to establish
estimates of revenue in transit to recognize in each reporting period under the
Company's accounting policy for revenue recognition. The Company uses a method
prescribed by Emerging Issues Task Force Issue No. 91-9 ("EITF 91-9"), Revenue
and Expense Recognition for Freight Services in Process, where revenue is
recognized based on relative transit times in each reporting period with
expenses being recognized as incurred.

The Company estimates its allowance for doubtful accounts 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 an estimate 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 so as 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. Management has a policy of purchasing its revenue equipment or entering into
capital leases rather than utilizing off-balance-sheet financing.

The Company and its subsidiaries have noncontributory defined benefit pension
plans covering substantially all noncontractual employees. Benefits are
generally based on years of service and employee compensation. The Company
accounts for its non-union pension plan in accordance with Statement of
Financial Accounting Standards No. 87 ("FAS 87"), Employer's Accounting for
Pensions. The Company's pension expense and related asset and liability balances
is an estimate which is based upon a number of assumptions. The assumptions with
the greatest impact on the Company's expense are the assumed compensation cost
increase, the expected return on plan assets and the discount rate used to
discount the plans' obligations.

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Unaudited) - continued
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The following table provides the key assumptions the Company used for 2002
compared to those it is utilizing to estimate 2003 pension expense:

The assumptions used directly affect the pension expense for a particular year.
If actual results vary from the assumption, an actuarial gain or loss is created
and amortized into pension expense over the average remaining service period of
the plan participants beginning in the following year. The decline in the stock
market during 2002 negatively impacted plan assets and created a plan actuarial
loss. The Company reduced its expected return on plan assets in 2003 to reflect
the historical returns on the investments the plan holds, which includes the
investment returns experienced during 2002. The reduction in the expected return
on plan assets, lower assets on which to earn a return and actuarial losses
increase the Company's pension expense. A 1.0% decrease in the Company's
expected return on plan assets, based upon pension plan assets at December 31,
2002, would increase pension expense by approximately $1.3 million. The Company
anticipates its pension expense for non-union plans to be approximately $10.0
million for 2003 compared to $5.3 million for 2002.

The Company has elected to follow Accounting Principles Board Opinion No. 25
("APB 25"), Accounting for Stock Issued to Employees and related interpretations
in accounting for stock options because the alternative fair value accounting
provided for under the Statement of Financial Accounting Standards No. 123 ("FAS
123"), Accounting for Stock-Based Compensation, 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 third-party casualty claims. For 2002, these limits were $1.0 million
per claim for workers' compensation claims and $500,000 per claim for
third-party casualty claims. For 2003, the Company increased its third-party
casualty self-insurance exposure by increasing its retention to $1.0 million per
claim. The Company's self-insured retention level for workers' compensation
remained the same for 2003. Workers' compensation and property damage claims
liabilities recorded in the financial statements totaled $49.9 million at March
31, 2003 and $49.1 million at December 31, 2002. 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.

The Company's accounting policy for its 19% investment in Wingfoot Commercial
Tire Systems, LLC ("Wingfoot") was the equity method of accounting, similar to a
partnership investment. Under the terms of the LLC operating agreement, the
Company did not share in the profits or losses of Wingfoot during the term of
the Company's "Put" option. Therefore, the Company's investment balance of $59.3
million at March 31, 2003 and December 31, 2002 did not change during the "Put"
period. On March 19, 2003, the Company announced that it had notified The
Goodyear Tire & Rubber Company ("Goodyear") of its intention to sell its 19%
ownership

18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Unaudited) - continued
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interest in Wingfoot to Goodyear for a cash price of $71.3 million. The
transaction was closed on April 28, 2003. The Company recorded a pre-tax gain of
approximately $12.0 million ($8.4 million after tax, or $0.33 per diluted common
share) during the second quarter of 2003. The Company used the proceeds to
reduce the outstanding debt under its Credit Agreement.

The Company has 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 Statement of Financial Accounting Standards No. 133 ("FAS 133"),
Accounting for Derivative Financial Instruments and Hedging Activities. The fair
value of the swap, as estimated by Societe Generale, was a liability of ($9.9)
million at December 31, 2002 and was recorded on the Company's balance sheet
through accumulated other comprehensive income, net of taxes, rather than
through the income statement. During the first quarter of 2003, management
determined that it would use the proceeds received from the sale of Wingfoot to
Goodyear to pay down its Credit Agreement borrowings. As a result, the Company
no longer forecasts Credit Agreement borrowings to be at the $110.0 million
level. In fact, management expects Credit Agreement borrowings to be below
$110.0 million. As a result, the Company reclassified the majority of the
negative fair value of the swap of $8.5 million (pre-tax), or $5.2 million net
of taxes, from accumulated other comprehensive income into earnings on the
income statement, during the first quarter of 2003. Included in the income
statement for the first quarter 2003 is the $8.5 million (pre-tax)
reclassification previously discussed and $0.5 million (pre-tax) of changes in
the fair value of the interest rate swap, from March 19, 2003 to March 31, 2003.
The fair value of the interest rate swap, as estimated by Societe Generale at
March 31, 2003, is a liability of ($9.4) million and is recorded on the
Company's balance sheet and represents the amount the Company would have had to
pay if it had terminated the swap on March 31, 2003. Future changes in the fair
value of the interest rate swap will be accounted for in the Company's income
statement until the interest rate swap terminates on April 1, 2005, unless the
Company terminates the arrangement prior to that date.

19

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

LIQUIDITY AND CAPITAL RESOURCES

During the first quarter of 2003, cash provided from operations of $5.0 million
and available cash were used to purchase revenue equipment and other property
and equipment totaling $7.6 million, pay dividends on Common Stock of $2.0
million, purchase 100,000 shares of the Company's Common Stock for $2.3 million
and reduce outstanding debt under the Company's revolving credit facilities by
$25.0 million. During the first quarter of 2002, net additional borrowings under
revolving credit facilities of $8.4 million and available cash were used
primarily to purchase revenue equipment and other property and equipment
totaling $11.0 million, retire the remaining $5.0 million in face value of the
Company's WorldWay 6 1/4% Convertible Subordinated Debentures, pay $2.0 million
in outstanding capital lease obligations and provide $6.4 million of cash used
in the Company's operations. Revenue equipment includes tractors and trailers
used primarily in the Company's motor carrier transportation operations.

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 replaced 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 sublimit for letters of
credit) and extends into 2005. The 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 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 March 31, 2003, there were $85.0 million of Revolver Advances and
approximately $64.4 million of letters of credit outstanding. At March 31, 2003,
the Company had approximately $75.6 million of borrowings available 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 March
31, 2003, 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
trucking company's robust operating performance in a difficult 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 was 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 0.825% at both March 31, 2003 and
December 31, 2002. The fair value of the Company's interest rate swap was ($9.4)
million at March 31, 2003 and ($9.9) million at December 31, 2002. The fair
value

20

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

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 FAS 133, at March 31, 2003 and December 31, 2002.

The Company's primary subsidiary, ABF, maintains ownership of most all of its
larger terminals or distribution centers. Both ABF and Clipper lease certain
terminal facilities. At March 31, 2003, the Company has future minimum rental
commitments, net of noncancellable subleases, totaling $40.7 million for
terminal facilities and $2.4 million primarily for other equipment.

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

The Company has guaranteed approximately $0.4 million that relates to a debt
owed by The Complete Logistics Company ("CLC"), to the owner of a company CLC
acquired in 1995. CLC was a wholly owned subsidiary of the Company until 1997,
when CLC was sold. The Company's exposure to this guarantee declines by
approximately $60,000 per year.

One of ABF's major competitors, Consolidated Freightways Corporation ("CF"),
filed for bankruptcy protection and ceased operations in early September 2002.
ABF continues to be interested in purchasing a few of the remaining unsold CF
facilities throughout the United States, which ABF anticipates having a market
value of approximately $2.0 to $3.0 million, although it is not certain.

In 2003, the Company forecasts total spending of approximately $70.0 million for
capital expenditures, net of proceeds from equipment and real estate sales. Of
the $70.0 million, ABF is budgeted for approximately $57.0 million, primarily
for revenue equipment and facilities (including the CF properties discussed
above), and Clipper is budgeted for approximately $5.0 million, primarily for
revenue equipment.

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. During 2002, the Company made $15.7
million in tax-deductible contributions to its non-union pension plans, and it
is anticipated that the Company may make additional contributions during 2003,
although the Company is not certain of the amounts at this time.

The Company has two principal sources of available liquidity, which are its
operating cash and the $75.6 million it has available under its revolving Credit
Agreement at March 31, 2003. The Company has generated between $60.0 million and
$130.0 million of operating cash annually for the years 2000 through 2002. The
Company

21

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

expects cash from operations and its available revolver to continue to be
principal sources of cash to finance its annual debt maturities; lease
commitments; letter of credit commitments; pension contributions; fund its 2003
capital expenditures; and to fund quarterly dividends and stock repurchases.

On March 19, 2003, the Company announced that it had notified Goodyear of its
intention to sell its 19% ownership interest in Wingfoot to Goodyear for a cash
price of $71.3 million. The Company closed the transaction and received the
proceeds from Goodyear on April 28, 2003. The Company used the proceeds to
reduce the outstanding debt under its Credit Agreement.

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 2003 or 2002. The Company has no
investments, loans or any other relationships with special-purpose entities or
financial partnerships and has no outstanding loans with officers or directors
of the Company.

22

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 percentage of revenue for the
applicable segment.

23

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002

Consolidated revenues for the three months ended March 31, 2003 increased 12.3%
to $359.6 million compared to $320.2 million for the same period in 2002, due to
increases in revenues for ABF and Clipper. Operating income for the three months
ended March 31, 2003 increased to $9.9 million from $4.8 million during the same
period in 2002.

Income (loss) before the cumulative effect of a change in accounting principle
for the first quarter of 2003 was $(0.7) million, or $(0.03) per common share,
compared to $1.5 million, or $0.06 per diluted common share, for the first
quarter of 2002. This decrease in income before the cumulative effect of a
change in accounting principle reflects primarily a $9.0 million pre-tax ($0.22
after-tax per common share) first quarter 2003 charge related to the Company's
interest rate swap on $110.0 million of borrowings (see Note F), offset in part
by an increase in ABF operating income. 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 FAS 142 (see Note F).

The Company's net loss for the three months ended March 31, 2003 was $0.7
million, or $0.03 per common share, compared to a net loss, including the impact
of the accounting change, of $22.5 million, or $0.89 per diluted common share,
for the same period in 2002.

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 March 31, 2003, the Company estimates its workers' compensation claims
insured by Reliance to be approximately $5.6 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 $3.6 million of the $5.6 million, which leaves the
Company with a net exposure amount of $2.0 million. At March 31, 2003, the
Company has $1.4 million recorded in its financial statements for its estimated
exposure to Reliance. The Company anticipates receiving, from guaranty funds or
through orderly liquidation, partial reimbursement for future claims payments;
however, the process could take several years.

Kemper Insurance Companies ("Kemper") insured the Company's workers'
compensation claims in excess of $300,000 ("excess claims") for the period from
2000 through 2001. In March 2003, Kemper announced that it was discontinuing its
business of providing future insurance coverage. The Company has not received
any communications from Kemper regarding any changes in the handling of the
Company's existing excess insurance coverage with Kemper. The Company is
uncertain as to the future impact this will have on its coverage with Kemper. As
of March 31, 2003, the Company has no workers' compensation claims insured by
Kemper in the layer of claims above $300,000.

24

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 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 first quarter of 2003 were $324.2 million compared to $288.6
million during the first quarter of 2002, representing a per-day increase of
12.3%. ABF generated operating income of $11.1 million for the first quarter of
2003 compared to $5.5 million during the same period in 2002.

ABF's increase in revenue is due to an increase in LTL tonnage, revenue per
hundredweight and fuel surcharges. ABF's LTL tonnage increased 2.7% during the
first three months of 2003 compared to the same period in 2002. As previously
discussed, ABF's business levels during the first three months of 2003 were
positively impacted by the CF closure. However, tonnage increases were
approximately 1.6 percentage points less than the Company's management
anticipated based upon normal fourth quarter to the first quarter trends,
indicating continued weakness in the U.S. economy.

ABF's LTL billed revenue per hundredweight, excluding fuel surcharges, increased
6.4% to $22.54 for the first quarter of 2003 compared to $21.19 for the first
quarter of 2002. Approximately one-half of this increase was a result of changes
in the profile of freight handled. ABF's average LTL length of haul increased
3.5%, its LTL Rated Commodity Class increased 1.4% and its LTL weight per
shipment declined 3.5%. Each of these changes in profile impacted LTL billed
revenue per hundredweight positively in the first quarter of 2003. Although
ABF's billed revenue per hundredweight improved, ABF has experienced some
indications of a moderately weakening pricing environment in the first quarter
of 2003.

ABF charges a fuel surcharge, based on the increase in diesel fuel prices
compared to an index price. The fuel surcharge in effect during the first
quarter of 2003 averaged 4.4% of revenue. The fuel surcharge in effect during
the first quarter of 2002 averaged 0.9% of revenue.

During the first quarter of 2003, ABF was impacted by adverse weather. A major
storm in the Upper Midwest, Northeast and Atlantic Coast regions around February
17 closed three of ABF's distribution centers and three of ABF's major line-haul
relay locations for almost two days. In addition, 38 of ABF's service centers
were fully or partially closed due to this storm. ABF's operations were also
affected by storms in the Southeast during mid-January and in the Rocky Mountain
region during mid-March. The impact on ABF's operating income of lost revenue
and increased costs related to the first quarter 2003 adverse weather was
approximately $2.0 million. Categories of ABF costs most adversely impacted were
salaries and wages; supplies and expenses; and rents and purchased
transportation.

ABF's first quarter 2003 operating ratio was 96.6% compared to 98.1% for the
same period in 2002, reflecting revenue increases as a result of improved
tonnage levels, primarily as a result of CF's closure, and increases in fuel
surcharges and revenue yields, as well as changes in certain other operating
expense categories as follows:

Salaries and wages expense for the three months ended March 31, 2003 decreased
1.9% as a percent of revenue compared to the same period in 2002. The decrease
results primarily from the fact that a portion of salaries and wages are fixed
in nature and decrease as a percent of revenue with increases in revenue levels,
as previously discussed. The decrease was 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 $2.5 million

25

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

due primarily to deterioration in claims experience resulting from more
increases on existing claims and greater severity of new claims. ABF's non-union
pension expense also increased during the first quarter of 2003 by approximately
$1.0 million. As previously discussed, salaries and wages were negatively
impacted by adverse weather as well.

On March 28, 2003, the IBT announced the ratification of its National Master
Freight Agreement with the Motor Freight Carriers Association ("MFCA") by its
membership. The agreement has a five-year term and is effective April 1, 2003.
The agreement provides for annual contractual wage and benefit increases of
approximately 3.2% to 3.4%.

Supplies and expenses increased 1.2% as a percent of revenue for the first
quarter of 2003 compared to the same period in 2002, due primarily to an
increase in fuel costs, excluding taxes, which on an average price-per-gallon
basis, increased to $1.08 for the three months ended March 31, 2003 from $0.64
for the same period in 2002. Supplies and expenses were also negatively impacted
by adverse weather costs.

Operating taxes and licenses decreased 0.4% as a percent of revenue for the
first quarter of 2003 compared to the same period in 2002, due primarily to the
fact that a portion of these costs are fixed in nature and decrease as a percent
of revenue with increases in revenue levels, as previously discussed.

Insurance expense decreased 0.4% as a percent of revenue for the first quarter
of 2003, compared to the same period in 2002. For 2003, the Company increased
its third-party casualty claims self-insurance retention layer from $500,000 to
$1.0 million per claim. As a result of increased retention levels, third-party
casualty insurance premiums were reduced by $0.6 million when comparing the
first quarter of 2003 to the same period in 2002.

Depreciation and amortization decreased 0.4% as a percent of revenue for the
first quarter of 2003 compared to the same period in 2002, due primarily to the
fact that a portion of these costs are fixed in nature and decrease as a percent
of revenue with increases in revenue levels, as previously discussed.

Rents and purchased transportation increased 0.4% as a percent of revenue for
the first quarter of 2003, compared to the same period in 2002, due primarily to
an increase in rail utilization to 14.4% of total miles for the three months
ended March 31, 2003, compared to 13.1% during the same period in 2002. Rail
miles for the first quarter of 2003 increased over the same period in 2002 due
to the higher use of the railroads to facilitate freight movement as a result of
backlogs caused by the adverse weather closures of distribution centers and
relay points in ABF's network.

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 showed moderate signs of weakening during the
first quarter of 2003. ABF could be impacted by fluctuating fuel prices in the
future. ABF has experienced an increase in fuel prices in the first quarter of
2003 as compared to the same period in 2002. ABF's fuel surcharges on revenue
are intended to offset any fuel cost increases. ABF's total insurance costs are
dependent on the insurance markets which have been adversely impacted by the
events of September 11 and a declining stock market. The Company anticipated
ABF's workers' compensation and third-party casualty premiums and claims for
2003 to be consistent with 2002, assuming similar claims experience and
considering cost differences that occur because of changes in business levels.
However, in the first quarter of 2003, ABF experienced a deterioration in
workers' compensation claims experience which resulted in additional costs of
$2.5 million over the same period in 2002. As previously discussed, the Company
increased its third-party casualty claims self-insurance retention layer for

26

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

2003. The Company anticipates ABF's non-union pension expense will increase in
2003 to approximately $9.0 million from $4.8 million in 2002, reflecting a
declining stock market and long-term interest rates. As previously discussed,
ABF's results of operations in 2003 will be impacted by the wage and benefit
increases associated with the new labor agreement with the IBT, which has an
effective date of April 1, 2003.

The Company's management expects ABF's business levels to continue to be
positively impacted through the first eight months of 2003, as compared to the
same period in 2002, as a result of additional business gained due to the CF
closure. However, management of the Company is uncertain about what the U.S.
economy will do and how it will impact business levels in the future quarters of
2003.

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 the
first quarter of 2003 increased to $28.5 million from $25.9 million during the
same period in 2002, representing a 10.1% increase.

LTL revenue per hundredweight, excluding fuel surcharge, increased 5.2% to
$17.94 for the first quarter of 2003, compared to $17.06 for the first quarter
of 2002. LTL hundredweight declined 0.8% from the first quarter 2002 to the
first quarter 2003. Intermodal shipments increased 8.5% and revenue per shipment
increased 1.8% for the first quarter of 2003, compared to the same period in
2002. Shipments for Clipper Controlled Logistics, Clipper's
temperature-controlled division, increased 3.6% and revenue per shipment
increased 11.9% for the first quarter of 2003, compared to the same period in
2002.

Clipper's operating ratio improved to 101.7% for the first quarter of 2003, from
102.9% during the first quarter 2002. Clipper's operating ratio was positively
impacted by the elimination of unprofitable accounts, higher utilization of rail
in line-haul movements and a reduction in bad debt expense. Clipper's rail
utilization for the first quarter of 2003 was 68.6% of total miles, compared to
60.3% for the first quarter of 2002. For Clipper, rail costs per mile are
generally less expensive than over-the-road costs per mile.

Clipper is continuing to solicit 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.

27

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

INVESTMENT IN WINGFOOT

The Company's accounting policy for its 19% investment in Wingfoot Commercial
Tire Systems, LLC ("Wingfoot") was the equity method of accounting, similar to a
partnership investment. Under the terms of the LLC operating agreement, the
Company did not share in the profits or losses of Wingfoot during the term of
the Company's "Put" option. Therefore, the Company's investment balance of $59.3
million at March 31, 2003 and December 31, 2002 did not change during the "Put"
period.

On March 19, 2003, the Company announced that it had notified The Goodyear Tire
& Rubber Company ("Goodyear") of its intention to sell its 19% ownership
interest in Wingfoot to Goodyear for a cash price of $71.3 million. The Company
closed the transaction and received the proceeds from Goodyear on April 28,
2003. The Company recorded a pre-tax gain of approximately $12.0 million ($8.4
million after tax, or $0.33 per diluted common share) during the second quarter
of 2003. The Company used the proceeds to reduce the outstanding debt under its
Credit Agreement.

INCOME TAXES

The difference between the effective tax rate for the three months ended March
31, 2003 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
the multiemployer pension issue was 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 the multiemployer pension issue and all other 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 that was less
than the liability the Company had estimated if the IRS prevailed on all issues.
As a result of the settlement, in 2002 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.

PREPAID EXPENSES

Prepaid expenses increased $8.1 million from December 31, 2002 to March 31,
2003, due primarily to the prepayment of 2003 annual insurance premiums for the
Company, which are typically paid in the first quarter of each year.

OTHER ASSETS

Other assets increased $4.5 million from December 31, 2002 to March 31, 2003,
due primarily to participant deferrals into the Company's Voluntary Savings
Plan.

28

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

STOCKHOLDERS' EQUITY

During the first quarter of 2003, management determined that it would use the
proceeds received from the sale of Wingfoot to Goodyear, as previously
discussed, to pay down its Credit Agreement borrowings. As a result, the Company
forecasts Credit Agreement borrowings to be below $110.0 million. As a result,
the Company has reclassified $8.5 million (pre-tax), representing the majority
of the negative fair value of the interest rate swap, or $5.2 million net of
taxes, from accumulated other comprehensive income into earnings on the income
statement, during the first quarter of 2003.

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.

29

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 was 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 (0.825% at both March 31, 2003 and
December 31, 2002). This instrument is recorded on the balance sheet of the
Company in other liabilities (see Note F). Details regarding the swap, as of
March 31, 2003, 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 March 31, 2003 to terminate the
agreement.

(3) The swap value changed from ($9.9) million at December 31, 2002. The fair
value is impacted by changes in rates of similarly termed Treasury
instruments.

OTHER MARKET RISKS

Since December 31, 2002, there have been no significant changes in the Company's
other market risks, as reported in the Company's Form 10-K Annual Report.

30

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 March 31,
2003. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to March 31, 2003.

31

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. The Company has
accruals for certain legal and environmental exposures.

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.

10.1 $225 million Credit Agreement dated as of May 15,
2002 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 (previously filed
as Exhibit 10.1 to the Company's Current Report on
8-K, filed with the Commission on May 17, 2002,
Commission File No. 0-19969 and incorporated herein
by reference).

99.1 Certifications Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) REPORTS ON FORM 8-K.

The Company filed Form 8-K dated January 24, 2003, for Item
No. 5 - Other Events. The filing announced the Company's
quarterly cash dividend and stock repurchase program.

The Company filed Form 8-K dated January 28, 2003, for Item
No. 5 - Other Events. The filing announced the Company's
fourth quarter and full year 2002 results.

The Company filed Form 8-K dated February 6, 2003, for Item
No. 5 - Other Events. The filing announced that a tentative
labor contract agreement had been reached with the
International Brotherhood of Teamsters.

32

(b) REPORTS ON FORM 8-K (CONTINUED).

The Company filed Form 8-K dated March 20, 2003, for Item No.
5 - Other Events. The filing announced that the Company had
notified The Goodyear Tire & Rubber Company of its intention
to sell its interest in Wingfoot Commercial Tire Systems, LLC
and that it would take a first quarter 2003 charge for the
fair value of its interest rate swap.

The Company filed Form 8-K dated April 30, 2003, for Item No.
2 - Acquisition or Disposition of Assets. The filing announced
that the Company had completed the sale of its 19% ownership
interest in Wingfoot Commercial Tire Systems, LLC to The
Goodyear Tire & Rubber Company.

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: May 6, 2003 /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: May 6, 2003 /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: May 6, 2003 /s/ David E. Loeffler
---------------------- ------------------------------------------
David E. Loeffler
Vice President - Chief Financial Officer
and Treasurer

36

INDEX TO EXHIBITS