UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the fiscal year December 31, 2009.
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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
ARKANSAS BEST CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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71-0673405 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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3801 Old Greenwood Road, Fort Smith, Arkansas
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72903 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code 479-785-6000
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange |
Title of each class
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on which registered |
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Common Stock, $.01 Par Value
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The NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The aggregate market value of the Common Stock held by nonaffiliates of the registrant as of June
30, 2009, was $610,165,080.
The number of shares of Common Stock, $.01 par value, outstanding as of February 18, 2010, was
25,300,405.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Definitive Proxy Statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934 in connection with the registrants Annual Stockholders
Meeting to be held April 22, 2010, are incorporated by reference in Part III of this Form 10-K.
(This page intentionally left blank.)
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ARKANSAS BEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of
the federal securities laws. All statements, other than statements of historical fact, included or
incorporated by reference in this Form 10-K, including, but not limited to, those under Business
in Item 1, Risk Factors in Item 1A, Legal Proceedings in Item 3 and Managements Discussion
and Analysis of Financial Condition and Results of Operations in Item 7, are forward-looking
statements. These statements are based on managements belief and assumptions using currently
available information and expectations as of the date hereof, are not guarantees of future
performance and involve certain risks and uncertainties. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure you that our
expectations will prove to be correct. Therefore, actual outcomes and results could materially
differ from what is expressed, implied or forecast in these statements. Any differences could be
caused by a number of factors including, but not limited to:
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recessionary economic conditions; |
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competitive initiatives, pricing pressures and the effect of volatility in fuel prices
and the associated changes in fuel surcharges on securing increases in base freight rates; |
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the impact of any limitations on our customers access to adequate financial resources; |
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availability and cost of capital; |
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shifts in market demand; |
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the performance and needs of industries served by Arkansas Best Corporations
subsidiaries; |
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future costs of operating expenses such as fuel and related taxes; |
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self-insurance claims and insurance premium costs; |
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relationships with employees, including unions; |
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union and nonunion employee wages and benefits, including changes in required
contributions to multiemployer pension plans; |
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governmental regulations and policies; |
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future climate change legislation; |
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costs of continuing investments in technology; |
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the timing and amount of capital expenditures; |
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the cost, integration and performance of any future acquisitions; and |
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other financial, operational and legal risks and uncertainties detailed from time to
time in Arkansas Best Corporations Securities and Exchange Commission (SEC) public
filings. |
Cautionary statements identifying important factors that could cause actual results to differ
materially from our expectations are set forth in this Form 10-K, including, without limitation, in
conjunction with the forward-looking statements included or incorporated by reference in this Form
10-K that are referred to above. When considering forward-looking statements, you should keep in
mind the risk factors and other cautionary statements set forth in this Form 10-K in Risk Factors
under Item 1A. All forward-looking statements included or incorporated by reference in this Form
10-K and all subsequent written or oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by the cautionary statements. The
forward-looking statements speak only as of the date made and, other than as required by law, we
undertake no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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ITEM 1. BUSINESS
(a) General Development of Business
Corporate Profile
Arkansas Best Corporation (the Company), a Delaware corporation, is a holding company engaged
through its subsidiaries primarily in motor carrier freight transportation. The Companys
principal operations are conducted through ABF Freight System, Inc. and other subsidiaries of the
Company (collectively ABF).
Historical Background
The Company was publicly owned from 1966 until 1988, when it was acquired in a leveraged buyout by
a corporation organized by Kelso & Company, L.P. (Kelso).
In 1992, the Company completed a public offering of its Common Stock, par value $.01 (the Common
Stock). The Company also repurchased substantially all of the remaining shares of Common Stock
beneficially owned by Kelso, thus ending Kelsos investment in the Company.
In 1993, the Company completed a public offering of 1,495,000 shares of $2.875 Series A Cumulative
Convertible Exchangeable Preferred Stock (Preferred Stock). The Companys Preferred Stock was
traded on The Nasdaq National Market under the symbol ABFSP. In July 2000, the Company purchased
105,000 shares of its Preferred Stock at $37.375 per share, for a total cost of $3.9 million. All
of the shares purchased were retired. In August 2001, the Company announced the call for redemption
of the 1,390,000 shares of Preferred Stock that remained outstanding. At the end of the extended
redemption period in September 2001, 1,382,650 shares of the Preferred Stock were converted to
3,511,439 shares of Common Stock. The remaining 7,350 shares of Preferred Stock were redeemed at
the redemption price of $50.58 per share for a total cost of $0.4 million. The Company delisted its
Preferred Stock from trading on The Nasdaq National Market in September 2001.
In 1995, pursuant to a tender offer, a wholly owned subsidiary of the Company purchased the
outstanding shares of common stock of WorldWay Corporation (WorldWay), for a total purchase price
of approximately $76.0 million. WorldWay was a publicly held company engaged through its
subsidiaries in motor carrier freight transportation.
In 1999, the Company acquired 2,457,000 shares of Treadco, Inc. (Treadco) common stock for $23.7
million via a cash tender offer pursuant to a definitive merger agreement. As a result of the
transaction, Treadco became a wholly owned subsidiary of the Company. In September 2000, Treadco
entered into a joint venture agreement with The Goodyear Tire & Rubber Company (Goodyear) to
contribute its business to a new limited liability company called Wingfoot Commercial Tire
Systems, LLC (Wingfoot). In April 2003, the Company sold its 19.0% ownership interest in
Wingfoot to Goodyear for $71.3 million.
In 2001, the Company sold the stock of G.I. Trucking Company, a wholly owned subsidiary of the
Company acquired as part of the WorldWay transaction, for $40.5 million to a company formed by the
senior executives of G.I. Trucking Company and Estes Express Lines.
In 2003, Clipper Exxpress Company (Clipper), a wholly owned subsidiary of the Company acquired in
1994, sold all customer and vendor lists related to Clippers less-than-truckload (LTL) freight
business to Hercules Forwarding, Inc. of Vernon, California for $2.7 million. With this sale,
Clipper exited the LTL business.
In June 2006, the Company sold Clipper to a division of Wheels Group for $21.5 million. With this
sale, the Company exited the intermodal transportation business.
(b) Financial Information about Industry Segments
The response to this portion of Item 1 is included in Note L to the consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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ITEM 1. BUSINESS continued
(c) Narrative Description of Business
General
The Company is headquartered in Fort Smith, Arkansas. ABF, which is engaged in motor carrier
freight transportation, is the Companys only reportable operating segment. Note L to the
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K
contains additional information regarding the Companys operating segment for the year ended
December 31, 2009.
Employees
At December 31,
2009, the Company and its subsidiaries had a total of 10,347 active employees of
which approximately 72% were members of labor unions.
Motor Carrier Freight Transportation
General
The Companys LTL motor carrier operations are conducted through ABF Freight System, Inc., the
Companys largest subsidiary; ABF Freight System (B.C.), Ltd.; ABF Freight System Canada, Ltd.; ABF
Cartage, Inc.; and Land-Marine Cargo, Inc. (collectively ABF).
ABF provides shipping services to its customers by transporting a wide variety of large and small
shipments to geographically dispersed destinations. Typically, shipments are picked up at
customers places of business and consolidated at a local terminal. Shipments are consolidated by
destination for transportation by intercity units to their destination cities or to distribution
centers. At distribution centers, shipments from various terminals can be reconsolidated for other
distribution centers or, more typically, local terminals. Once delivered to a local terminal, a
shipment is delivered to the customer by local trucks operating from the terminal. In some cases,
when one large shipment or a sufficient number of different shipments at one origin terminal are
going to a common destination, they can be combined to make a full trailer load. A trailer is then
dispatched to that destination without rehandling. In addition to the traditional long-haul model,
the Company has implemented a regional network to facilitate its customers next-day and second-day
delivery needs. Development and expansion of the regional network required added labor flexibility,
strategically positioned freight exchange points and increased door capacity at a number of key
locations. Through a multi-phased program, ABFs regional network now covers the eastern two-thirds
of the United States. Marketing of the regional initiative was initiated in August 2006 in the East
Coast states and in January 2007 in the South and Central regions. Further operational changes,
which were implemented in August 2008 and marketed beginning in September 2008, reduced transit
times in the regional network and in certain of ABFs long-haul lanes. Although the timing is not
certain, ABF expects to expand the regional network to the Western region of the United States in
the future.
Competition, Pricing and Industry Factors
The trucking industry is highly competitive. The Companys LTL motor carrier subsidiaries actively
compete for freight business with other national, regional and local motor carriers and, to a
lesser extent, with private carriage, freight forwarders, railroads and airlines. Competition is
based primarily on price, service and personal relationships. Competition for freight revenue
has resulted in price reductions. In an effort to maintain and improve its market share,
the Companys LTL motor carrier subsidiaries offer and negotiate various discounts from established
pricing. ABF also charges a fuel surcharge based upon changes in diesel fuel prices compared to a
national index. Throughout 2009, the fuel surcharge mechanism continued to have strong market
acceptance among ABF customers, although certain nonstandard arrangements with some of ABFs
customers have limited the amount of fuel surcharge recovered.
The trucking industry, including the Companys LTL motor carrier subsidiaries, is directly affected
by the state of the residential and commercial construction, manufacturing and retail sectors of
the North American economy. The trucking industry faces rising costs, including costs of compliance
with government regulations on safety, equipment design and maintenance, driver utilization and
fuel economy. The trucking industry is dependent upon the availability of adequate fuel supplies.
The Company has not experienced a lack of available fuel but could be adversely impacted if a fuel
shortage were to develop. Freight shipments, operating costs and earnings are also adversely
affected by inclement weather conditions. In addition, seasonal fluctuations affect tonnage levels.
The second and third calendar quarters of each year usually have the
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ITEM 1. BUSINESS continued
highest tonnage levels while the first quarter generally has the lowest, although other factors,
including the state of the economy, may influence quarterly freight tonnage levels.
ABF competes with nonunion and union LTL carriers. Competitors include YRC National Transportation,
YRC Regional Transportation, FedEx Freight, FedEx National LTL, UPS Freight, Con-way Freight, Old
Dominion Freight Line, Inc., Saia, Inc. and Vitran Corporation, Inc.
The final hours of service rules regulating driving time for commercial truck drivers, announced by
the U.S. Department of Transportation (DOT) in April 2003, became effective in January 2009. The
rules, which were implemented by ABF in January 2004, allow a driver to drive up to 11 hours within
a 14-hour nonextendable window from the start of the workday, following at least 10 consecutive
hours off duty. The hours of service rules have been challenged in federal court, and future
modifications to the rules, if any, may impact ABFs operating practices. The operational impact of
these rules on ABFs over-the-road linehaul relay network has been to provide modest opportunity to
increase driver and equipment utilization and improve transit times. The rules also have allowed
LTL carriers, such as ABF, to adjust their over-the-road linehaul relay network to take advantage
of the 11 hours of drive time during a tour of duty. Impacts on the truckload industry have
included a decline in driver utilization and flexibility and, as a result, truckload carriers have
increased charges for stop-off and detention services, making LTL carriers somewhat more
competitive on many larger shipments.
Insurance, Safety and Security
Generally, claims exposure in the motor carrier industry consists of cargo loss and damage,
third-party casualty and workers compensation. The Companys motor carrier subsidiaries are
effectively self-insured for the first $1.0 million of each cargo loss, $1.0 million of each
workers compensation loss and generally $1.0 million of each third-party casualty loss. The
Company maintains insurance which it believes is adequate to cover losses in excess of such
self-insured amounts. However, the Company has experienced situations where excess insurance
carriers have become insolvent (see Note O to the consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K). The Company pays assessments and fees to state
guaranty funds in states where it has workers compensation self-insurance authority. In some of
these states, depending on each states rules, the guaranty funds may pay excess claims if the
insurer cannot pay due to insolvency. However, there can be no certainty of the solvency of
individual state guaranty funds. The Company has been able to obtain what it believes to be
adequate insurance coverage for 2010 and is not aware of any matters which would significantly
impair its ability to obtain adequate insurance coverage at market rates for its motor carrier
operations in the foreseeable future.
ABF has been subject to cargo security and transportation regulations issued by the Transportation
Security Administration (TSA) since 2001 and regulations issued by the U.S. Department of
Homeland Security (DHS) since 2002. ABF is not able to accurately predict how past or future
events will affect government regulations and the transportation industry. ABF believes that any
additional security measures that may be required by future regulations could result in additional
costs; however, other carriers would be similarly affected.
ABF
ABF accounted for 94% of the Companys consolidated revenues for 2009. ABF is one of North
Americas largest LTL motor carriers and provides direct service to more than 98% of U.S. cities
having a population of 30,000 or more. ABF provides interstate and intrastate direct service to
more than 44,000 communities through 281 service centers in all 50 states, Canada and Puerto Rico.
Through arrangements with trucking companies in Mexico, ABF provides motor carrier services to
customers in that country as well. ABF has been in continuous service since 1923. ABF was
incorporated in Delaware in 1982 and is the successor to Arkansas Motor Freight, a business
originally organized in 1935. Arkansas Motor Freight was the successor to a business originally
organized in 1923.
ABF offers transportation of general commodities through standard, expedited and guaranteed LTL
services. General commodities include all freight except hazardous waste, dangerous explosives,
commodities of exceptionally high value and commodities in bulk. ABFs shipments of general
commodities differ from shipments of bulk raw materials, which are commonly transported by
railroad, truckload tank car, pipeline and water carrier. General commodities transported by ABF
include, among other things, food, textiles, apparel, furniture, appliances, chemicals, nonbulk
petroleum products, rubber, plastics, metal and metal products, wood, glass, automotive parts,
machinery and miscellaneous manufactured products.
During the year ended December 31, 2009, no single customer accounted for more than 3.0% of ABFs
revenues, and the ten largest customers accounted for 8.8% of ABFs revenues.
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ITEM 1. BUSINESS continued
Employees
At December 31, 2009, ABF had a total of 9,814 active employees. Employee compensation and related
costs are the largest components of ABFs operating expenses. In 2009, such costs amounted to 70.1%
of ABFs revenues. Approximately 75% of ABFs employees are covered under a collective bargaining
agreement with the International Brotherhood of Teamsters (IBT). ABFs current five-year
agreement with the IBT extends through March 31, 2013. The agreement provides for compounded annual
contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living
adjustments, which includes ABF contributions to various multiemployer plans maintained for the
benefit of its employees who are members of the IBT. Amendments to the Employee Retirement Income
Security Act of 1974 (ERISA), pursuant to the Multiemployer Pension Plan Amendments Act of 1980
(the MPPA Act), substantially expanded the potential liabilities of employers who participate in
such plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer
pension plan and the members of such employers controlled group are jointly and severally liable
for their share of the plans unfunded vested liabilities in the event the employer ceases to have
an obligation to contribute to the plan or substantially reduces its contributions to the plan
(i.e., in the event of plan termination or withdrawal by the Company from the multiemployer plans).
See Note I to the consolidated financial statements included in Part II, Item 8 of this Annual
Report on Form 10-K for more specific disclosures regarding the multiemployer plans.
ABF operates in a highly competitive industry with both union and nonunion motor carriers. The
Companys nonunion competitors generally have a lower fringe benefit cost structure, and certain
carriers reduced their wage rates for their freight-handling and driving personnel during 2009. In
addition, wage and benefit concessions granted to certain union competitors allow for a lower cost
structure than that of ABF. Competitors with lower labor cost structures have reduced freight
rates resulting in increased pricing competition in the LTL market. The Company believes that
union companies experience lower employee turnover, higher productivity, lower loss and damage
claims and lower accident rates compared to some nonunion firms. Due to its national reputation,
its working conditions and its wages and benefits, ABF has not historically experienced any
significant long-term difficulty in attracting or retaining qualified employees, although
short-term difficulties have been encountered in certain situations.
Environmental and Other Government Regulations
The Company is subject to federal, state and local environmental laws and regulations relating to,
among other things: emissions control, transportation of hazardous materials, underground storage
tanks, contingency planning for spills of petroleum products and disposal of waste oil. New tractor
engine design requirements mandated by the Environmental Protection Agency (EPA) intended to
reduce emissions became effective on January 1, 2007, and more restrictive EPA emission-control
design requirements became effective for engines built beginning January 1, 2010.
The Companys subsidiaries store fuel for use in tractors and trucks in 69 underground tanks
located in 23 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 Companys 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 EPA and others that it has been identified as a
potentially responsible party under the Comprehensive Environmental Response Compensation and
Liability Act, or other federal or state environmental statutes, at several hazardous waste sites.
After investigating the Companys or its subsidiaries involvement in waste disposal or waste
generation at such sites, the Company has either agreed to de minimis settlements (aggregating
approximately $0.1 million over the last ten years, primarily at six 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.
At December 31, 2009 and 2008, the Companys reserve for estimated environmental clean-up costs of
properties currently or previously operated by the Company included in accrued expenses totaled
$1.2 million and $1.1 million, respectively. Amounts accrued reflect managements best estimate of
the Companys future undiscounted exposure related to identified properties based on current
environmental regulations. It is anticipated that the resolution of the Companys environmental
matters could take place over several years. The Companys estimate is based on managements
experience with similar environmental matters and on testing performed at certain sites.
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ITEM 1. BUSINESS continued
Certain states have enacted legislation relating to engine emissions. At the present time,
management believes that these regulations will not result in significant additional costs to the
Company. However, there can be no assurance that more restrictive regulations will not be enacted.
In addition, legislation has been introduced in the U.S. Congress related to climate change. The
Company is unable to determine with any certainty the effects of the proposals that have been
introduced. However, emission-related regulatory actions have historically resulted in increased
costs of revenue equipment and diesel fuel, and future legislation, if passed, could result in
increases in these and other costs.
Reputation and Responsibility
The Company has a corporate culture focused on quality service and responsibility. In March 2009,
the Company received the highest ranking of LTL carriers in FORTUNE magazines Worlds Most
Admired Companies. In September 2009, ABF was listed on Information Week magazines 2009
Information Week 500, which spotlights innovators in information technology. For the eighth
consecutive year, ABF was ranked in the top ten on Selling Power magazines list of Best Company
to Sell For. In February 2010, ABF was honored as one of the 2010 Training Top 125 companies by
Training magazine. The employees of the Company are committed to the communities in which they live
and work. In February 2009, the Company received the 2008 Outstanding Philanthropic Corporation
Award by the Arkansas Community Foundation in recognition of the service that our employees have
provided to exemplify the spirit of good citizenship, concern for the community and support of
worthy philanthropic endeavors.
ABF is dedicated to safety and security in providing transportation and freight-handling services
to its customers. ABF is the only five-time winner of the American Trucking Associations
Presidents Trophy for Safety, the only five-time winner of the Excellence in Security Award and
the only four-time winner of the Excellence in Claims/Loss Prevention Award. ABF is the only
carrier to earn both the Excellence in Claims/Loss Prevention Award and the Excellence in Security
Award in the same year, which it has accomplished twice.
ABF is actively involved in efforts to promote a cleaner environment by reducing both fuel
consumption and emissions. For many years, ABF voluntarily limited the maximum speed of its trucks,
which reduces fuel consumption and emissions and contributes to ABFs safety record. Fuel
consumption and emissions have also been minimized through a strict equipment maintenance schedule
and equipment replacement program. In 2006, ABF was accepted in the EPAs SmartWay Transportation
Partnership, a voluntary collaboration between the EPA and the freight industry designed to
increase energy efficiency while significantly reducing air pollution. Furthermore, in association
with the American Trucking Associations Sustainability Task Force, ABF is participating in other
opportunities to address environmental issues.
(d) Financial Information About Geographic Areas
Classifications of operations or revenues by geographic location beyond the descriptions previously
provided are impractical and, therefore, are not provided. The Companys foreign operations are not
significant.
(e) Available Information
The Company files its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, amendments to those reports, proxy and information statements and other information
electronically with the Securities Exchange Commission (SEC). All reports and financial
information filed with, or furnished to, the SEC can be obtained, free of charge, through the
Companys Web site located at arkbest.com or through the SEC Web site located at sec.gov as soon as
reasonably practical after such material is electronically filed with, or furnished to, the SEC.
The information contained on our Web site does not constitute part of this Annual Report on Form
10-K nor shall it be deemed incorporated by reference into this Annual Report on Form 10-K.
9
ITEM 1A. RISK FACTORS
Each of the following risk factors could adversely affect our business, operating results and
financial condition. Our operations include our primary operating subsidiary, ABF. For 2009, ABF
represented 94% of the Companys consolidated revenues.
The transportation industry is affected by business risks that are largely out of our control, any
of which could significantly reduce our operating margins and income.
Factors that could have a negative impact on our performance in the future include general economic
factors; loss of key employees; antiterrorism measures; an increasingly competitive freight rate
environment; volatile fuel prices as well as the rate of changes in associated fuel surcharges and
the effect of fuel surcharge changes on securing increases in base freight rates and the inability
to collect fuel surcharges or to obtain sufficient fuel supplies; loss of third-party rail service
providers; increasing capital requirements; increases in new equipment costs and decreases in the
amount we are able to obtain for sales of our used equipment; emissions-control regulations;
climate change legislation; decreases in the availability of new equipment; increases in the
frequency and/or the severity of workers compensation and/or third-party casualty claims;
increases in workers compensation and/or third-party casualty insurance premiums; violation of
federal regulations and increasing costs for compliance with regulations; a workforce stoppage by
our employees covered under our collective bargaining agreement; difficulty in attracting and
retaining qualified drivers and/or dockworkers; increases in the required contributions under our
collective bargaining agreements with the IBT for wage contributions and/or benefits contributions
to multiemployer plans; a failure of our information systems; a violation of an environmental law
or regulation; and/or weather or seasonal fluctuations, including any influence of climate change.
The foregoing risks are largely out of our control and any one of these risks could have a
significant adverse effect on our results of operations.
We are subject to general economic factors that are largely beyond our control, any of which could
significantly reduce our operating margins and income.
Our performance is affected by recessionary economic cycles and downturns in customers business
cycles and changes in their business practices. Recessionary economic conditions may result in a
general decline in demand for freight transportation services. The pricing environment generally
becomes more competitive during economic recessions which adversely affects the profit margin for
our services. Customers may select transportation services based on pricing alone, which may result
in a loss of business for us in some cases. Economic conditions could adversely affect our
customers business levels, the amount of transportation services they need and their ability to
pay for our services. Customers encountering adverse economic conditions represent a greater
potential for uncollectible accounts receivable, and, as a result, we may be required to increase
our allowances for uncollectible accounts receivable. In addition, customers could reduce the
number of carriers they use by selecting so-called core carriers as approved transportation
service providers, and in some instances, we may not be selected.
We are affected by the instability in the financial and credit markets that has created volatility
in various interest rates and returns on invested assets in recent years. We have historically been
subject to market risk due to variable interest rates, on all or a part of our borrowings under
bank credit lines, and continue to be subject to such risk on our accounts receivable
securitization facility which became effective in December 2009 (see Note G to the Companys
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K).
Changes in interest rates may increase our financing costs in the event we need to borrow against
our accounts receivable securitization facility, enter into additional capital lease arrangements
or obtain additional sources of financing.
Our qualified nonunion defined benefit pension plan trust also holds investments in equity and debt
securities. Declines in the value of plan assets resulting from the instability in the financial
markets, general economic downturn or other economic factors beyond our control could further
diminish the funded status of the nonunion pension plan and potentially increase our requirement to
make contributions to the plan. Significant plan contribution requirements could reduce the cash
available for working capital and other business needs and opportunities. An increase in required
pension plan contributions may adversely impact our financial condition and liquidity. Substantial
future investment losses on plan assets would also increase pension expense in the years following
the losses. Investment returns that differ from expected returns are amortized to expense over the
remaining active service period of plan participants. An increase in pension expense may adversely
impact our results of operations. We could also experience losses on investments related to our
cash surrender value of variable life insurance policies which may reduce our net income.
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ITEM 1A. RISK FACTORS continued
It is not possible to predict the effects of armed conflicts or terrorist attacks and subsequent
events on the economy or on consumer confidence in the United States or the impact, if any, on our
future results of operations or financial condition.
We operate in a highly competitive industry and our business could suffer if our operating
subsidiaries were unable to adequately address downward pricing pressures and other factors that
could adversely affect their ability to compete with other companies.
Numerous competitive factors could adversely impact our operating results. These factors include:
|
|
|
We compete with many other LTL carriers of varying sizes, including both union and
nonunion LTL carriers and, to a lesser extent, with truckload carriers and railroads. |
|
|
|
Our nonunion competitors generally have a lower fringe benefit cost structure for their
freight-handling and driving personnel than union carriers. Wage and benefit concessions
granted to certain union competitors allow for a lower cost structure than ours and may
impact our competitiveness in the LTL industry. Our competitors could reduce their freight
rates to gain market share, especially during times of reduced growth rates in the economy.
This could limit our ability to maintain or increase freight rates, maintain our operating
margins or grow tonnage levels. |
|
|
|
Some of our competitors periodically reduce their prices to gain business, especially
during times of reduced growth rates in the economy, which limits our ability to maintain
or increase prices or maintain or grow our business. |
|
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|
Competition from non-asset-based logistics and freight brokerage companies may adversely
affect our customer relationships and prices. |
|
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|
The trend toward consolidation in the transportation industry could continue to create
larger LTL carriers with greater financial resources and other competitive advantages
relating to their size. We could experience some difficulty if the remaining LTL carriers,
in fact, have a competitive advantage because of their size. |
Our management team is an important part of our business and loss of key employees could impair our
success.
We benefit from the leadership and experience of our senior management team and depend on their
continued services to successfully implement our business strategy. The unexpected loss of key
employees could have an adverse effect on our operations and profitability.
We depend on our employees to support our operating business and future growth opportunities. If
our relationship with our employees were to deteriorate, we could be faced with labor disruptions
or stoppages, which could have a material adverse effect on our business, reduce our operating
results and place us at a disadvantage relative to nonunion competitors.
Most of our union employees are covered under a five-year collective bargaining agreement with the
IBT which expires on March 31, 2013. The agreement with the IBT provides for compounded annual
contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living
adjustments.
We compete against both union and nonunion LTL carriers. Union companies typically have similar
wage costs and significantly higher fringe benefit costs compared to nonunion companies. However,
certain nonunion carriers reduced their wage rates in 2009 for freight-handling and driving
personnel, and wage and benefit concessions granted to certain union competitors have also allowed
for a lower cost structure than that of ABF. We have not historically experienced any significant
long-term difficulty in attracting or retaining qualified drivers, although short-term difficulties
have been encountered in certain situations, such as periods of significant increases in tonnage
levels. Difficulty in attracting and retaining qualified drivers or increases in compensation or
fringe benefit costs could affect our profitability and our ability to grow. If we were unable to
continue to attract and retain qualified drivers, we could incur higher driver recruiting expenses
or a loss of business.
We depend heavily on the availability of fuel for our trucks. Fuel shortages, increases in fuel
costs and the inability to collect fuel surcharges or obtain sufficient fuel supplies could have a
material adverse effect on our operating results.
The transportation industry is dependent upon the availability of adequate fuel supplies. We have
not experienced a lack of available fuel but could be adversely impacted if a fuel shortage were to
develop. Fuel prices have fluctuated significantly in
recent years. For example, the average monthly price per gallon, excluding taxes, that we paid for
fuel in 2008 and 2009
11
ITEM 1A. RISK FACTORS continued
ranged from $1.38 to $4.03. We charge a fuel surcharge based on changes in
diesel fuel prices compared to a national index. The fuel surcharge rate in effect is available on
the ABF Web site at abf.com. (The information contained on the ABF Web site is not a part of this
Annual Report on Form 10-K nor shall it be deemed incorporated by reference into this Annual Report
on Form 10-K.) Although revenues from fuel surcharges generally more than offset increases in
direct diesel fuel costs, other operating costs have been, and may continue to be, impacted by
fluctuating fuel prices. The total impact of higher energy prices on other nonfuel-related expenses
is difficult to ascertain. We cannot predict, with reasonable certainty, future fuel price
fluctuations, the impact of higher energy prices on other cost elements, recoverability of higher
fuel costs through fuel surcharges, the effect of fuel surcharges on our overall rate structure or
the total price that we will receive from our customers. During periods of changing diesel fuel
prices, the fuel surcharge and associated direct diesel fuel costs also vary by different degrees.
Depending upon the rates of these changes and the impact on costs in other fuel- and energy-related
areas, operating margins could be impacted. Whether fuel prices fluctuate or remain constant,
operating income may be adversely affected if competitive pressures limit our ability to recover
fuel surcharges. Throughout 2009, the fuel surcharge mechanism continued to have strong market
acceptance among our customers, although certain nonstandard arrangements with some of ABFs
customers have limited the amount of fuel surcharge recovered. While the fuel surcharge is one of
several components in our overall rate structure, the actual rate paid by customers is governed by
market forces based on value provided to the customer. As fuel prices decline, lower fuel surcharge
levels may over time improve our ability to increase other elements of margin, although there can
be no assurances in this regard. When fuel surcharges constitute a higher proportion of the total
freight rate paid, our customers are less receptive to increases in base freight rates. Prolonged
periods of inadequate base rate improvements could adversely impact operating profit as elements of
costs, including contractual wage rates, continue to increase.
We do not have any long-term fuel purchase contracts or any hedging arrangements to protect against
fuel price increases. Significant changes in diesel fuel prices and the associated fuel surcharge
may increase volatility in our fuel surcharge revenue and fuel-related costs. Volatile fuel prices
will continue to impact the base rate increases we are able to secure and could continue to have an
adverse effect on our operating margin.
Our business could be harmed by antiterrorism measures.
As a result of terrorist attacks on the United States, federal, state and municipal authorities
have implemented and may implement in the future various security measures, including checkpoints
and travel restrictions on large trucks. Although many companies will be adversely affected by any
slowdown in the availability of freight transportation, the negative impact could affect our
business disproportionately. For example, we offer specialized services that guarantee on-time
delivery. If security measures disrupt the timing of deliveries, we could fail to meet the needs of
our customers or could incur increased costs in order to do so.
We depend on transportation provided by rail services and a disruption of this service could
adversely affect our operations.
In 2009, rail utilization was 12.0% of our total miles. If a disruption in transportation services
from our rail service providers occurred, we could be faced with business interruptions that could
cause us to fail to meet the needs of our customers. If these situations occurred, our results of
operations and cash flows could be adversely impacted.
We operate in a highly regulated industry and costs of compliance with, or liability for violations
of, existing or future regulations could have a material adverse effect on our operating results.
Various federal and state agencies exercise broad regulatory powers over the transportation
industry, generally governing such activities as authorization to engage in motor carrier
operations, safety, contract compliance, insurance requirements and financial reporting. We could
also become subject to new or more restrictive regulations, such as regulations relating to engine
emissions, drivers hours of service, ergonomics or cargo security. Compliance with such
regulations could substantially reduce equipment productivity, and the costs of compliance could
increase our operating expenses.
In January 2004, we implemented the DOT rules regulating driving time for commercial truck drivers.
The rules have had a minimal impact upon our operations. However, future changes in these rules
could materially and adversely affect our operating efficiency and increase costs.
12
ITEM 1A. RISK FACTORS continued
Our drivers and dockworkers also must comply with the safety and fitness regulations promulgated by
the DOT, including those relating to drug and alcohol testing and hours of service. The TSA has
adopted regulations that require all drivers who carry hazardous materials to undergo background
checks by the Federal Bureau of Investigation when they obtain or renew their licenses.
Failures to comply with DOT safety regulations or downgrades in our safety rating could have a
material adverse impact on our operations or financial condition. A downgrade in our safety rating
could cause us to lose the ability to self-insure. The loss of our ability to self-insure for any
significant period of time could materially increase insurance costs. In addition, we could
experience difficulty in obtaining adequate levels of insurance coverage in that event.
Increases in license and registration fees could also have an adverse effect on our operating
results.
Our operations are subject to various environmental laws and regulations, the violation of which
could result in substantial fines or penalties.
We are subject to various environmental laws and regulations dealing with the handling of hazardous
materials and similar matters. We operate in industrial areas where truck terminals and other
industrial activities are located and where groundwater or other forms of environmental
contamination could occur. We also store fuel in underground tanks at some facilities. Our
operations involve the risks of, among others, fuel spillage or leakage, environmental damage and
hazardous waste disposal. If we were involved in a spill or other accident involving hazardous
substances, or if we were found to be in violation of applicable laws or regulations, it could have
a material adverse effect on our business and operating results. If we should fail to comply with
applicable environmental regulations, we could be subject to substantial fines or penalties and to
civil and criminal liability.
Concern over climate change, including the impact of global warming, has led to significant
legislative and regulatory efforts to limit greenhouse gas emissions, and some form of federal
climate change legislation is possible in the relatively near future. Climate change legislation
has been introduced in the U.S. Congress. The Company is unable to determine with any certainty the
effects of the proposals that have been introduced. However, emission-related regulatory actions
have historically resulted in increased costs of revenue equipment and diesel fuel, and future
legislation, if passed, could result in increases in these and other costs. Increased regulation
regarding greenhouse gas emissions, including diesel engine emissions, could impose substantial
costs on us that may adversely impact our results of operations. Until the timing, scope and extent
of any future regulation becomes known, we cannot predict its effect on our cost structure or our
operating results.
We have significant ongoing capital requirements that could affect profitability if we were unable
to generate sufficient cash from operations.
We have significant ongoing capital requirements. If we are not able to generate sufficient cash
from operations in the future, our growth could be limited, we could have to utilize our existing
financing arrangements to a greater extent or enter into additional leasing arrangements, or our
revenue equipment may have to be held for longer periods, which would result in increased
maintenance costs. If these situations occurred, there could be an adverse effect on our
profitability.
Increased prices for new revenue equipment and decreases in the value of used revenue equipment
could adversely affect our earnings and cash flows.
Manufacturers have raised the prices of new revenue equipment significantly due to increased costs
of materials and, in part, to offset their costs of compliance with new tractor engine design
requirements mandated by the EPA intended to reduce emissions. New EPA engine design requirements
became effective on January 1, 2007, and more restrictive EPA emission-control design requirements
became effective for engines built beginning January 1, 2010. Further equipment price increases may
result from these requirements. If new equipment prices increase more than anticipated, we could
incur higher depreciation and rental expenses than anticipated. If we were unable to offset any
such increases in expenses with freight rate increases, our results of operations could be
adversely affected. If the market value of revenue equipment being used in our operations were to
decrease, we could incur impairment losses and our cash flows could be adversely affected.
During prolonged periods of decreased tonnage levels, we may make strategic fleet reductions. In
addition, other trucking companies may reduce fleet levels during recessionary economic cycles
which could result in an increase in the supply of
13
ITEM 1A. RISK FACTORS continued
used equipment. If market prices for used revenue equipment decline, we could incur impairment
losses on assets held for sale and our cash flows could be adversely affected.
The engines used in our newer tractors are subject to new emissions-control regulations, which
could substantially increase operating expenses.
Tractor engines that comply with the EPA emission-control design requirements that took effect on
January 1, 2007 are generally less fuel-efficient and have increased maintenance costs compared to
engines in tractors manufactured before these requirements became effective. However, the
adjustments engine manufacturers have made to the operating software on these engines have resulted
in slightly improved fuel economy. Although we anticipate additional improvement in fuel economy as
a result of the technologies to be implemented for compliance with the more stringent EPA
requirements that became effective for engines built beginning January 1, 2010, our costs to
acquire compliant equipment could increase substantially. If we are unable to offset resulting
increases in equipment costs with higher freight rates, our results of operations could be
adversely affected.
Decreases in the availability of new tractors and trailers could have a material adverse effect on
our operating results.
From time to time, some tractor and trailer vendors have reduced their manufacturing output due,
for example, to lower demand for their products in economic downturns or a shortage of component
parts. As a result of the current economic environment, component suppliers have reduced production
creating difficulty for vehicle manufacturers to source materials in a timely manner in reaction to
increased demand for new equipment as economic conditions change. An inability to continue to
obtain an adequate supply of new tractors or trailers could have a material adverse effect on our
results of operations and financial condition.
We could be obligated to make additional significant contributions to multiemployer pension plans.
Under the provisions of the Taft-Hartley Act, retirement and health care benefits for our
contractual employees are provided by a number of multiemployer plans. The trust funds for these
plans are administered by trustees, an equal number of whom generally are appointed by the IBT and
certain management carrier organizations or other appointing authorities for employer trustees as
set forth in the funds trust agreements. We contribute to these plans monthly based generally on
the time worked by our contractual employees, as specified in the collective bargaining agreement
and other supporting supplemental agreements. We recognize as expense the contractually required
contribution for the period and recognize as a liability any contributions due and unpaid.
In 2006, the Pension Protection Act (the PPA) became law and together with related regulations
established new minimum funding requirements for multiemployer pension plans. The PPA mandates that
multiemployer pension plans that are below certain funding levels or that have projected funding
deficiencies adopt a funding improvement plan or a rehabilitation program to improve the funding
levels over a defined period of time. The PPA also accelerates the timing of annual funding notices
and requires additional disclosures from multiemployer pension plans if such plans fall below the
required funding levels. In December 2008, the Worker, Retiree, and Employer Recovery Act of 2008
(the Recovery Act) became law. For plan years beginning October 1, 2008 through September 30,
2009, the Recovery Act allows multiemployer plans the option to freeze their funding certification
based on the funding status of the previous plan year. In addition, for multiemployer plans in
endangered or critical status in plan years beginning in 2008 or 2009, the Recovery Act provides a
three-year extension of the plans funding improvement or rehabilitation period.
We currently contribute to 26 multiemployer pension plans, which vary in size and in funding
status. In the event of the termination of certain multiemployer pension plans or if ABF were to
withdraw from certain multiemployer pension plans, under current law, we would have material
liabilities, the amounts of which could be in excess of our current ability to adequately finance,
for our share of the unfunded vested liabilities of each such plan. We have not received
notification of any plan termination, and we do not currently intend to withdraw from these plans.
Approximately 50% of our multiemployer pension contributions are made to the Central States
Southeast and Southwest Area Pension Fund (the Central States Pension Fund). The Central States
Pension Fund adopted a rehabilitation plan as a result of its actuarial certification for the plan
year beginning January 1, 2008 which placed the Central States Pension Fund in critical status in
accordance with the PPA. Our current collective bargaining agreement complies with the
rehabilitation plan which was adopted by the Central States Pension Fund prior to the April 1, 2008
effective date of the collective
14
ITEM 1A. RISK FACTORS continued
bargaining agreement. The actuarial certification for the plan year beginning January 1, 2009
certified that the Central States Pension Fund remains in critical status with a funded percentage
of 58%.
In 2005, the U.S. Internal Revenue Service (IRS) extended the period over which the Central
States Pension Fund amortizes unfunded liabilities by ten years subject to the condition that a
targeted funding ratio will be maintained by the fund. Due, in part, to the decline in asset values
associated with the returns in the financial markets during 2008, the funding level of the Central
States Pension Fund as of the January 1, 2009 actuarial valuation dropped below the targeted
funding ratio set forth as a condition of the ten-year amortization extension. However, the
amortization extension approved by the IRS in 2005 expressly indicated that modifications of
conditions would be considered in the event of unforeseen market fluctuations which cause the plan
to fail the funded ratio condition for a certain plan year. Based on information currently
available to the Company, the Central States Pension Fund has not received notice of revocation of
the ten-year amortization extension by the IRS. In the unlikely event the IRS were to revoke the
extension, revocation would apply retroactively to the 2004 plan year, which would result in a
material liability for ABFs share of the resulting funding deficiency, the extent of which is
currently unknown to the Company.
Other multiemployer pension plans in which ABF participates have adopted or will have to adopt
either a funding improvement plan or a rehabilitation program, depending on their current funding
status as required by the PPA. We believe that the contribution rates under the current collective
bargaining agreement will comply with any rehabilitation plan that has been or may be adopted by
the majority of the multiemployer pension plans in which we participate. If the contribution rates
in the collective bargaining agreement fail to meet the requirements established by the
rehabilitation or funding improvement plan required by the PPA for underfunded plans, the PPA would
impose additional contribution requirements in the form of a surcharge of an additional 5% to 10%.
However, under our collective bargaining agreement which expires March 31, 2013, any surcharges
that may be required by the PPA are covered by the contractual contribution rate and should not
increase our overall contribution obligation. The plans trustees have the ability to take a wide
range of actions to improve the funding status of the plans which include adopting an automatic
five-year extension of the amortization period available under the PPA; requesting an additional
five-year extension from the IRS; obtaining changes to or waivers of the requirements used by the
plans to calculate funding levels; or modifying pension benefits.
The underfunded status of many plans in which we participate occurred over many years, and we
believe that an improved funded status will also take time to be achieved. We believe that the
trustees of these funds will take appropriate measures to fulfill their fiduciary duty to preserve
the integrity of the plans, utilizing a combination of several possible initiatives as they have
done in the past, although we cannot make any assurances in this regard. While increasing employer
contributions is one potential remedy to address the underfunded status, it is our understanding
that our annual contribution increases are limited to negotiated contribution rates through March
31, 2013 as provided in the current collective bargaining agreement. Other alternatives that may be
pursued by the trustees of underfunded plans include reducing or eliminating certain adjustable
benefits of the plan or redesigning the plan structure. Furthermore, additional legislative
changes or action taken by governmental agencies could provide relief.
As previously mentioned, the highly competitive industry in which we operate could impact the
viability of contributing employers. In 2009, a contributing competitor of ABF was granted
concessions from the IBT which allowed for the suspension of multiemployer pension plan
contributions for the eighteen-month period ending December 31, 2010. The reduction of
contributions by member employers and the effect of any one or combination of the aforementioned
business risks, which are outside our control, have the potential to adversely affect the funding
status of the multiemployer pension plans, potential withdrawal liabilities and our future
contribution requirements.
Ongoing claims expenses could have a material adverse effect on our operating results.
Our self-insurance retention levels are currently $1.0 million for each workers compensation loss,
$1.0 million for each cargo loss and generally $1.0 million for each third-party casualty loss.
Effective February 1, 2010, our self-insurance retention levels for medical benefits increased from
$175,000 to $225,000 per person, per claim year. We maintain insurance for liabilities above the
amounts of self-insurance to certain limits. If the frequency and/or severity of claims increase,
our operating results could be adversely affected. The timing of the incurrence of these costs
could significantly and adversely impact our operating results compared to prior periods. In
addition, if we were to lose our ability to self-insure for any significant period of time,
insurance costs could materially increase and we could experience difficulty in obtaining adequate
levels of insurance coverage in that event.
15
ITEM 1A. RISK FACTORS continued
Increased insurance premium costs could have an adverse effect on our operating results.
Our recent insurance renewals did not result in significant changes in premiums; however, insurance
carriers are expected to increase premiums for many companies, including transportation companies,
in the coming years. We could experience additional increases in our insurance premiums in the
future. If our insurance or claims expenses increase and we were unable to offset the increase with
higher freight rates, our earnings could be adversely affected.
Market penetration of our service and growth initiatives may take longer than anticipated.
The level of revenues expected to be generated from our development of second-day service lanes,
overnight lanes and same-day service offerings may be impacted by actions of our competitors and by
general economic conditions. Maintaining and developing these services requires ongoing investment
in personnel and infrastructure. Depending on the timing and level of revenues generated from these
service initiatives, the results of operations and cash flows we anticipate from these service
initiatives may not be achieved.
We may be unsuccessful in realizing all or any part of the anticipated benefits of any future
acquisitions.
We evaluate acquisition candidates from time to time and may acquire assets and businesses that we
believe complement our existing assets and business. Acquisitions may require substantial capital
or the incurrence of substantial indebtedness. If we consummate any future acquisitions, our
capitalization and results of operations may change significantly. The degree of success of
acquisitions will depend, in part, on our ability to realize anticipated cost savings and growth
opportunities. Our success in realizing these benefits and the timing of this realization depends
in part upon the successful change of ownership structure. The difficulties of managing this change
include, among others: unanticipated issues in the assimilation and consolidation of information,
communications and other systems; inefficiencies and difficulties that arise because of
unfamiliarity with potentially new geographic areas and new assets and the businesses associated
with them; retaining customers and key employees; consolidating corporate and administrative
infrastructures; the diversion of managements attention from ongoing business concerns; the effect
on internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act
of 2002; and unanticipated issues, expenses and liabilities. The diversion of the attention of
management from our current operations to the acquired operations and any difficulties encountered
in combining operations could prevent us from realizing the full benefits anticipated to result
from the acquisitions and could adversely impact our results of operations and financial condition.
Also, following an acquisition, we may discover previously unknown liabilities associated with the
acquired business for which we have no recourse under applicable indemnification provisions.
Our information technology systems are subject to certain risks that are beyond our control.
We depend on the proper functioning and availability of our information systems, including
communications and data processing systems, in operating our business. Our information systems are
protected through physical and software safeguards. However, they are still vulnerable to fire,
storm, flood, power loss, telecommunications failures, physical or software break-ins and similar
events. To mitigate the potential for such occurrences at our corporate headquarters, we have
implemented various systems including redundant telecommunication facilities; a fire suppression
system to protect our on-site data center; and a generator that is able to adequately supply power
to the headquarters building in the event of power outages. We have a catastrophic disaster
recovery plan and alternate processing capability, which is designed so that critical data
processes should be fully operational within 48 hours. This plan provides for work space, phones,
and desktop computers for basic operations within 48 hours of a catastrophe which renders our
corporate headquarters unusable. An emergency communications Web site has also been constructed to
provide information to our employees and customers during such a disaster. We have business
interruption insurance, including, in certain circumstances, insurance against terrorist attacks
under the federal Terrorism Risk Insurance Act of 2002, which would offset losses up to certain
coverage limits in the event of a catastrophe. However, a significant system failure, security
breach, disruption by a virus or other damage could still interrupt or delay our operations, damage
our reputation and cause a loss of customers.
Our results of operations can be impacted by seasonal fluctuations or adverse weather conditions.
We can be impacted by seasonal fluctuations which affect tonnage and shipment levels. Freight
shipments, operating costs and earnings can also be adversely affected by inclement weather
conditions. Climate change may have an influence on the severity of weather conditions, which could
adversely affect our freight shipments and, consequently, our operating results.
16
ITEM 1A. RISK FACTORS continued
We are also subject to risks and uncertainties that affect many other businesses, including:
Any liability resulting from and the cost of defending against class-action litigation, such as
alleged violations of anti-trust laws, wage-and-hour and discrimination claims, and any other legal
proceedings;
Widespread outbreak of an illness or communicable disease or public health crisis; and
Operational or market disruptions, including infrastructure damage, arising from natural
calamities, such as hurricanes or earthquakes, and from illegal acts including terrorist attacks.
Our results of operations and financial condition could be adversely affected by an unfavorable
outcome resulting from these risks and uncertainties.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
17
ITEM 2. PROPERTIES
The Company owns its executive office building in Fort Smith, Arkansas, which contains
approximately 189,000 square feet.
ABF currently operates out of 281 terminal facilities, 10 of which also serve as distribution
centers. The Company owns 124 of these facilities and leases the remainder from nonaffiliates.
ABFs distribution centers are as follows:
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No. of Doors |
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Square Footage |
|
|
|
|
|
|
|
|
|
|
Owned: |
|
|
|
|
|
|
|
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Dayton, Ohio |
|
|
330 |
|
|
|
250,704 |
|
Carlisle, Pennsylvania |
|
|
333 |
|
|
|
196,200 |
|
Kansas City, Missouri |
|
|
252 |
|
|
|
166,235 |
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Winston-Salem, North Carolina |
|
|
150 |
|
|
|
164,200 |
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Atlanta, Georgia |
|
|
226 |
|
|
|
158,209 |
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South Chicago, Illinois |
|
|
274 |
|
|
|
152,810 |
|
North Little Rock, Arkansas |
|
|
196 |
|
|
|
150,512 |
|
Dallas, Texas |
|
|
196 |
|
|
|
144,170 |
|
Albuquerque, New Mexico |
|
|
85 |
|
|
|
71,020 |
|
|
|
|
|
|
|
|
|
|
Leased from nonaffiliate: |
|
|
|
|
|
|
|
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Salt Lake City, Utah |
|
|
89 |
|
|
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53,916 |
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The Company believes that its facilities are suitable and adequate and that they have sufficient
capacity to meet current business requirements.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions, the majority of which arise in the normal course of business, are pending.
These legal actions are not expected to have a material adverse effect, individually or in the
aggregate, on the Companys financial condition, cash flows or results of operations. The Company
maintains 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter ended December 31,
2009.
18
PART II
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ITEM 5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information, Dividends and Holders
The Common Stock of Arkansas Best Corporation (the Company) trades on The NASDAQ Global Select
Market (NASDAQ) under the symbol ABFS. The following table sets forth the high and low recorded
sale prices of the Common Stock during the periods indicated as reported by NASDAQ and the cash
dividends declared:
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Cash |
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High |
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Low |
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Dividend |
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|
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|
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2008 |
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
35.32 |
|
|
$ |
17.94 |
|
|
$ |
0.15 |
|
Second quarter |
|
|
42.45 |
|
|
|
30.31 |
|
|
|
0.15 |
|
Third quarter |
|
|
45.13 |
|
|
|
30.10 |
|
|
|
0.15 |
|
Fourth quarter |
|
|
34.04 |
|
|
|
19.41 |
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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2009 |
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|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
31.24 |
|
|
$ |
15.84 |
|
|
$ |
0.15 |
|
Second quarter |
|
|
31.56 |
|
|
|
17.98 |
|
|
|
0.15 |
|
Third quarter |
|
|
34.56 |
|
|
|
24.02 |
|
|
|
0.15 |
|
Fourth quarter |
|
|
33.54 |
|
|
|
23.31 |
|
|
|
0.15 |
|
At February 18, 2010,
there were 25,300,405 shares of the Companys Common Stock outstanding, which
were held by 334 stockholders of record.
The Company expects to continue to pay quarterly dividends in the foreseeable future, although
there can be no assurances in this regard since future dividends will be at the discretion of the
Board of Directors and will depend upon the Companys future earnings, capital requirements,
financial condition and other factors. There are no material contractual restrictions on our
ability to declare dividends. In response to the current prolonged freight recession, the Board of
Directors of the Company reduced the quarterly dividend and in January 2010 declared a dividend of
$0.03 per share to stockholders of record on February 9, 2010.
Issuer Purchases of Equity Securities
The Company has a program to repurchase its Common Stock in the open market or in privately
negotiated transactions. The Companys Board of Directors authorized stock repurchases of up to
$25.0 million in 2003 and an additional $50.0 million in 2005. The repurchases may be made either
from the Companys cash reserves or from other available sources. The program has no expiration
date but may be terminated at any time at the Boards discretion. The Company made no repurchases
of its Common Stock during 2009.
As of December 31, 2009, the Company has purchased 1,618,150 shares for an aggregate cost of $56.8
million, leaving $18.2 million available for repurchase under the program. The total shares
repurchased by the Company, since the inception of the program, have been made at an average price
of $35.11 per share.
19
ITEM 6. SELECTED FINANCIAL DATA
The following table includes selected financial and operating data for the Company as of and for
each of the five years in the period ended December 31, 2009. This information should be read in
conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations, and Item 8, Financial Statements and Supplementary Data, in Part II of this
Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009(1) |
|
|
2008 |
|
|
2007 |
|
|
2006(2) |
|
|
2005(3) |
|
|
|
($ thousands, except per share data) |
|
Statement of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
1,472,901 |
|
|
$ |
1,833,052 |
|
|
$ |
1,836,878 |
|
|
$ |
1,881,500 |
|
|
$ |
1,769,576 |
|
Operating income (loss) |
|
|
(168,706 |
) |
|
|
48,524 |
|
|
|
84,844 |
|
|
|
124,679 |
|
|
|
166,524 |
|
Income (loss) from continuing operations
before income taxes |
|
|
(165,518 |
) |
|
|
49,910 |
|
|
|
90,791 |
|
|
|
131,519 |
|
|
|
168,451 |
|
Provision (benefit) for income taxes |
|
|
(37,996 |
) |
|
|
20,742 |
|
|
|
33,966 |
|
|
|
51,018 |
|
|
|
65,698 |
|
Income (loss) from continuing operations(4) |
|
|
(127,889 |
) |
|
|
29,168 |
|
|
|
56,825 |
|
|
|
80,501 |
|
|
|
102,753 |
|
Income (loss) from continuing operations
per common share, diluted(4,5) |
|
|
(5.12 |
) |
|
|
1.14 |
|
|
|
2.23 |
|
|
|
3.13 |
|
|
|
3.98 |
|
Cash dividends declared per common share(6) |
|
|
0.60 |
|
|
|
0.60 |
|
|
|
0.60 |
|
|
|
0.60 |
|
|
|
0.54 |
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
869,546 |
|
|
|
972,298 |
|
|
|
983,349 |
|
|
|
938,716 |
|
|
|
921,060 |
|
Current portion of long-term debt |
|
|
3,603 |
|
|
|
159 |
|
|
|
171 |
|
|
|
249 |
|
|
|
317 |
|
Long-term debt (including capital leases
and excluding current portion) |
|
|
13,373 |
|
|
|
1,457 |
|
|
|
1,400 |
|
|
|
1,184 |
|
|
|
1,433 |
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net capital expenditures, including
capital leases(7) |
|
|
43,676 |
|
|
|
41,996 |
|
|
|
86,102 |
|
|
|
135,550 |
|
|
|
64,309 |
|
Depreciation and amortization of
property, plant and equipment |
|
|
75,226 |
|
|
|
76,872 |
|
|
|
77,318 |
|
|
|
67,727 |
|
|
|
61,851 |
|
|
|
|
(1) |
|
2009 includes a goodwill impairment charge of $64.0 million (nondeductible for tax
purposes), or $2.55 per share, (see Note D to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K) and pre-tax pension
settlement expense of $4.6 million, or $0.11 per share, related to the supplemental benefit
plan (see Note I to the Companys consolidated financial statements included in Part II, Item
8 of this Annual Report on Form 10-K). |
|
(2) |
|
2006 includes pre-tax pension settlement expense of $10.2 million, or $0.24 per share,
related to the supplemental benefit plan. |
|
(3) |
|
2005 includes a pre-tax gain of $15.4 million, or $0.38 per share, from the sale of
properties to G.I. Trucking Company. |
|
(4) |
|
In 2009, loss from continuing operations excludes a noncontrolling interest in net income of a
subsidiary of $0.4 million. |
|
(5) |
|
Effective January 1, 2009, the Company adopted new accounting guidance that requires an
allocation of dividends paid and a portion of undistributed net income to unvested restricted
stock for calculating per share amounts. As a result, per share amounts for 2005 through 2008
have been retrospectively adjusted to be consistent with the 2009 presentation. |
|
(6) |
|
In January 2010, the Companys Board of Directors reduced the quarterly cash dividend to
$0.03 per share. |
|
(7) |
|
Capital expenditures are shown net of proceeds from the sale of property, plant and equipment.
|
20
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |
Arkansas Best Corporation (the Company), a Delaware corporation, is a holding company engaged
through its subsidiaries primarily in motor carrier freight transportation. The Companys principal
operations are conducted through ABF Freight System, Inc. and other subsidiaries of the Company
that are engaged in motor carrier freight transportation (collectively ABF).
Organization of Information
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
comprised of three major sections: Results of Operations, Liquidity and Capital Resources and
Critical Accounting Policies. These sections include the following information:
|
|
|
Results of Operations includes an overview of the Companys consolidated 2009 results
compared to 2008, and 2008 results compared to 2007. The consolidated overview is followed
by a financial summary and analysis of ABFs 2009 results compared to 2008, and 2008
results compared to 2007. This section also includes a discussion of key actions and events
that impacted the results. |
|
|
|
Liquidity and Capital Resources provides an analysis of key elements of the cash flow
statements, borrowing capacity and contractual cash obligations, including a discussion of
financial commitments. |
|
|
|
Critical Accounting Policies discusses those accounting policies that are important to
understanding certain of the material judgments and assumptions incorporated in the
reported financial results. |
The key indicators necessary to understand the Companys operating results include:
|
|
|
the overall customer demand for ABFs freight transportation services; |
|
|
|
the volume of transportation services provided by ABF, primarily measured by average
daily shipment weight (tonnage); |
|
|
|
the prices ABF obtains for its services, primarily measured by yield (revenue per
hundredweight); and |
|
|
|
ABFs ability to manage its cost structure as measured on an overall basis by the
percent of operating expenses to revenue levels (operating ratio). |
Results of Operations
Executive Overview
Consolidated net loss was $127.9 million in 2009 compared to net income of $29.2 million in 2008
and net income of $56.8 million in 2007. These results primarily reflect the operations of ABF,
including the impact of a noncash goodwill impairment charge in 2009 in the amount of $64.0
million, which is nondeductible for tax purposes.
ABF represented 94% of the Companys consolidated revenues for the year ended December 31, 2009
and 96% of the Companys consolidated revenues for the years ended December 31, 2008 and 2007. On
an ongoing basis, ABFs ability to operate profitably and generate cash is impacted by tonnage,
which influences operating leverage as tonnage levels vary; the pricing environment; customer
account mix; and the ability to manage costs effectively, primarily in the area of salaries, wages
and benefits (labor).
During the year ended December 31, 2009, ABFs revenues decreased 21.0% on a per-day basis
compared to 2008. ABFs 2008 revenues decreased 0.9% on a per-day basis compared to 2007 revenues.
These revenue declines primarily reflect decreases in tonnage levels and changes in revenue per
hundredweight, including fuel surcharges. Tonnage per day for the year ended December 31, 2009
decreased by 11.4% compared to 2008, and was preceded by year-over-year declines of 4.2% in 2008
and 5.3% in 2007. ABFs 2009 operating ratio increased to 112.2%, or 107.2% after excluding
goodwill impairment and supplemental pension settlements, from 97.2% in 2008 and 95.2% in 2007.
The ABF operating results are more fully discussed below in the ABF sections of MD&A.
ABFs operations are affected by general economic conditions, as well as a number of other
competitive factors that are more fully described in the Business and Risk Factors sections of
this Annual Report on Form 10-K. The prolonged unfavorable economic environment has adversely
impacted business activities of ABFs customers which has had a corresponding adverse effect on
ABFs tonnage levels and limited ABFs ability to secure adequate pricing for its services.
21
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
ABFs management believes that the declining tonnage trends which have continued since the fourth
quarter of 2006 are representative of the weakened domestic and global economies due, in part, to
turmoil in the financial markets and the related effects on industrial production and the
residential and commercial construction and retail sectors. Although ABF has experienced
improvements in year-over-year tonnage comparisons each month since June 2009, including a
year-over-year increase for the month of December 2009, the comparison was influenced by declining
tonnage trends experienced by the Company in the second half of 2008.
ABFs tonnage trends continued to be positive during the first quarter of 2010, although
tonnage levels have been impacted by severe weather conditions. Quarter-to-date through
mid-February 2010, average daily total tonnage for ABF increased
slightly more than 1% compared to the
same period last year. There can be no assurances that ABF will not experience declines in tonnage
levels due to a number of factors including, but not limited to, continued weakness in general
economic activity. First quarter tonnage levels are normally lower during January and February
while March provides a disproportionately higher amount of the quarters business. The first
quarter of each year generally has the highest operating ratio of the year, although other
factors, including the state of the economy, may influence quarterly comparisons.
As a result of the extended period of an adverse economic environment and the historically severe
tonnage declines, ABF has implemented cost reduction programs. ABF is generally effective in
managing its costs to business levels. However, incremental reductions in labor and other operating
costs become increasingly challenging and less effective as ABF maintains service levels and
continues its focus on serving the regional markets, including next-day and second-day markets,
during prolonged periods of depressed tonnage levels. A larger proportion of ABFs costs are fixed
in nature when maintaining customer service levels. Shipments per dock, street and yard (DSY)
hour and total pounds per mile are measures ABF uses to assess the effectiveness of labor costs.
Shipments per DSY hour is used to measure effectiveness in ABFs local operations, although total
pounds per DSY hour is also a relevant measure when the average shipment size is changing. Total
pounds per mile is used by ABF to measure the effectiveness of its linehaul operations, although
this metric is influenced by other factors including freight density, loading efficiency, average
length of haul and the degree to which rail service is used. ABFs ability to effectively manage
labor costs, which amounted to 70.1%, 59.6% and 60.5% of ABFs revenues for 2009, 2008 and 2007,
respectively, has a direct impact on its operating performance. Labor costs, including retirement
and health care benefits for ABFs contractual employees that are provided by a number of
multiemployer plans (see Note I to the Companys consolidated financial statements included in Part
II, Item 8 of this Annual Report on
Form 10-K), are impacted by ABFs contractual obligations under its labor agreement primarily with
the IBT. The current five-year collective bargaining agreement, which became effective April 1,
2008, provides for compounded annual contractual wage and benefit increases of approximately 4%,
subject to wage rate cost-of-living adjustments, as further discussed in the ABF section of MD&A.
In addition to reducing headcount, equipment levels and costs in a number of areas in relation to
available business levels, the Company has taken further actions to reduce nonunion fringe benefit
costs in 2010. However, ABFs operating results will continue to be adversely impacted if tonnage
remains at the current levels.
The industry pricing environment is another key to ABFs operating performance. The pricing
environment, which generally becomes more competitive during periods of lower tonnage levels,
influences ABFs ability to obtain compensatory margins and price increases on customer accounts.
ABFs pricing is typically measured by billed revenue per hundredweight, which is a reasonable,
although approximate, measure of price change. This measure is affected by freight profile factors
such as average shipment size, average length of haul, freight density and customer and geographic
mix. ABF focuses on individual account profitability rather than billed revenue per hundredweight
when considering customer account or market evaluations due to the difficulty in quantifying, with
sufficient accuracy, the impact of changes in freight profile characteristics, which is necessary
to estimate true price changes. However, total company profitability for ABF is considered
together with measures of billed revenue per hundredweight. Total billed revenue per hundredweight
decreased 10.8% during 2009 versus 2008 primarily due to lower fuel surcharges resulting from
lower fuel-related costs. The fuel surcharge constituted a higher proportion of the total freight
rate during the majority of 2008, as further discussed in the paragraph below. During 2009, ABF
also experienced freight profile changes that impacted the reported billed revenue per
hundredweight, as further discussed in the ABF section of MD&A. Excluding freight profile changes
and the changes in fuel surcharges, pricing on ABFs traditional less-than-truckload (LTL)
business weakened in 2009 with percentage declines in the low single digits as compared to 2008.
The pricing environment was very competitive in 2009 and management expects the pricing
environment in 2010 to remain very competitive, although there can be no assurances in this
regard. Effective January 11, 2010, ABF implemented a general rate increase of 5.70% to cover
known and expected cost increases, although the amounts vary by lane and shipment characteristic.
The 2010 general rate increase, which is in line with increases announced by other LTL carriers,
was implemented one week later than the 2009 increase. The general rate increase affected
approximately 45% of ABFs business, and rate increases on the remaining business are subject to
individual negotiations. ABFs ability to
22
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
retain the general rate increase
and to increase rates on the remainder of its business is dependent on the competitive pricing
environment. Obtaining overall base rate increases involves a lengthy process to address the
pricing and resulting profitability
of individual customer accounts. Prolonged periods with insufficient base LTL rate improvements
result in higher operating ratios as elements of unit cost, including contractual wage and benefit
rates, continue to increase.
The transportation industry is dependent upon the availability of adequate fuel supplies. The
Company has not experienced a lack of available fuel but could be adversely impacted if a fuel
shortage were to develop. ABF charges a fuel surcharge based on changes in diesel fuel prices
compared to a national index. The ABF fuel surcharge rate in effect is available on the ABF Web
site at abf.com. (The information contained on the ABF Web site is not a part of this Annual
Report on Form 10-K nor shall it be deemed incorporated by reference into this Annual Report on
Form 10-K.) Although revenues from fuel surcharges generally more than offset increases in direct
diesel fuel costs, other operating costs have been, and may continue to be, impacted by
fluctuating fuel prices. The total impact of energy prices on other nonfuel-related expenses is
difficult to ascertain. ABF cannot predict, with reasonable certainty, future fuel price
fluctuations, the impact of energy prices on other cost elements, recoverability of fuel costs
through fuel surcharges, and the effect of fuel surcharges on ABFs overall rate structure or the
total price that ABF will receive from its customers. During periods of changing diesel fuel
prices, the fuel surcharge and associated direct diesel fuel costs also vary by different degrees.
Depending upon the rates of these changes and the impact on costs in other fuel- and
energy-related areas, operating margins could be impacted. Whether fuel prices fluctuate or remain
constant, ABFs operating income may be adversely affected if competitive pressures limit its
ability to recover fuel surcharges. Throughout 2009, the fuel surcharge mechanism had strong
market acceptance among ABF customers, although certain nonstandard arrangements with some of
ABFs customers have limited the amount of fuel surcharge recovered. While the fuel surcharge is
one of several components in ABFs overall rate structure, the actual rate paid by customers is
governed by market forces based on value provided to the customer. ABF experienced significantly
higher fuel prices in the first ten months of 2008 compared to the same period in 2007. After
reaching a peak in the middle of July 2008, fuel prices declined steadily through mid-March 2009.
Although fuel prices have increased over 50% from the March 2009 low to the end of 2009, the 2009
average fuel surcharge rate was approximately 13 revenue percentage points below the 2008 average.
While fuel prices and the related fuel surcharge levels declined in 2009 compared to 2008, ABF has
not been able to increase other elements of margin primarily due to the competitive freight
environment which has been influenced by lower levels of available tonnage.
ABF operates in a highly competitive industry with both union and nonunion motor carriers. The
Companys nonunion competitors generally have a lower fringe benefit cost structure, and certain
carriers reduced their wage rates for their freight-handling and driving personnel. In addition,
wage and benefit concessions granted to certain union competitors allow for a lower cost structure
than that of ABF. Competitors with lower labor cost structures have reduced freight rates to gain
market share which may further limit ABFs ability to maintain or increase base freight rates. ABF
has communicated and continues its attempts to address with the IBT the effect of these matters on
ABFs operating results.
2009 Compared to 2008
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands, except workdays and per share data) |
|
WORKDAYS |
|
|
251.5 |
|
|
|
252.5 |
|
|
|
|
|
|
OPERATING REVENUES |
|
|
|
|
|
|
|
|
ABF |
|
$ |
1,384,419 |
|
|
$ |
1,758,780 |
|
Other revenues and eliminations |
|
|
88,482 |
|
|
|
74,272 |
|
|
|
|
|
|
|
|
|
|
$ |
1,472,901 |
|
|
$ |
1,833,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
ABF |
|
$ |
(168,465 |
) |
|
$ |
48,435 |
|
Other and eliminations |
|
|
(241 |
) |
|
|
89 |
|
|
|
|
|
|
|
|
|
|
$ |
(168,706 |
) |
|
$ |
48,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE |
|
$ |
(5.12 |
) |
|
$ |
1.14 |
|
23
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
The 2009 operating loss includes a goodwill impairment charge of $64.0 million (nondeductible for
tax purposes), or $2.55 per share, and pension settlement expense of $4.6 million (pre-tax), or
$0.11 per share. The comparable pension settlement expense for 2008 was $1.5 million (pre-tax), or
$0.04 per share. Consolidated revenues for the year ended December 31, 2009 decreased 19.3% on a
per-day basis compared to 2008. Excluding impairment and settlement charges, consolidated operating
loss for 2009 was $100.2 million, compared to operating income of $50.1 million for 2008. Excluding
charges, consolidated net loss was $2.46 per share for the year ended December 31, 2009 compared to
net income of $1.18 per share for 2008. The decrease in revenues, operating income and earnings per
share primarily reflect the operating results of ABF, as discussed in the ABF section that follows.
ABF
The following table sets forth a summary of operating expenses and operating income (loss) as a
percentage of revenue for ABF:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
ABF Operating Expenses and Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
70.1 |
% |
|
|
59.6 |
% |
Fuel, supplies and expenses |
|
|
16.0 |
|
|
|
19.4 |
|
Operating taxes and licenses |
|
|
3.1 |
|
|
|
2.7 |
|
Insurance |
|
|
1.5 |
|
|
|
1.2 |
|
Communications and utilities |
|
|
1.0 |
|
|
|
0.9 |
|
Depreciation and amortization |
|
|
5.2 |
|
|
|
4.2 |
|
Rents and purchased transportation |
|
|
9.9 |
|
|
|
9.0 |
|
Pension settlement expense |
|
|
0.4 |
|
|
|
|
|
Gain on sale of property and equipment |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
Other |
|
|
0.5 |
|
|
|
0.4 |
|
Goodwill impairment charge |
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112.2 |
% |
|
|
97.2 |
% |
|
|
|
|
|
|
|
|
|
ABF Operating Income (Loss) |
|
|
(12.2 |
)% |
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a comparison of key operating statistics for ABF:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workdays |
|
|
251.5 |
|
|
|
252.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed revenue(1) per hundredweight, including fuel surcharges |
|
$ |
23.81 |
|
|
$ |
26.70 |
|
|
|
(10.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds |
|
|
5,814,325,308 |
|
|
|
6,586,822,376 |
|
|
|
(11.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per day |
|
|
23,118,590 |
|
|
|
26,086,425 |
|
|
|
(11.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments per DSY hour |
|
|
0.485 |
|
|
|
0.483 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per DSY hour |
|
|
641.87 |
|
|
|
633.97 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per shipment |
|
|
1,323 |
|
|
|
1,313 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per mile |
|
|
19.11 |
|
|
|
18.97 |
|
|
|
0.7 |
% |
|
|
|
(1) |
|
Billed revenue does not include revenue deferral required for financial statement purposes
under the Companys revenue recognition policy. |
24
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
ABFs revenue for the year ended December 31, 2009 was $1,384.4 million, compared to $1,758.8
million reported in 2008, for a decrease of 21.0% on a per-day basis. The revenue decrease in 2009
compared to 2008 primarily reflects tonnage declines of 11.4% per day and a decrease in billed
revenue per hundredweight of 10.8%, which was attributable to lower fuel surcharges and a very
competitive pricing environment. Excluding changes in freight profile and the decrease in fuel
surcharges, management believes that pricing on ABFs traditional LTL business experienced low
single-digit percentage declines in 2009 compared to 2008. ABF charges a fuel surcharge based on
changes in diesel fuel prices compared to a national index. The ABF fuel surcharge rate in effect
is available at abf.com. (The information contained on the ABF Web site is not a part of this
Annual Report on Form 10-K nor shall it be deemed incorporated by reference into this Annual
Report on Form 10-K.)
Effective January 5, 2009 and February 4, 2008, ABF implemented general rate increases to cover
known and expected cost increases. Nominally, the increases were 5.79% and 5.45%, respectively,
although the amounts vary by lane and shipment characteristics. For 2009, the general rate
increase affected approximately 45% of ABFs business, while rate increases on the remaining
business are subject to individually negotiated pricing arrangements that are effective at various
times throughout the year. As previously mentioned in the Executive Overview, ABF put into place a
general rate increase on January 11, 2010, to cover known and expected cost increases during the
remainder of 2010. ABFs ability to retain this rate increase is dependent on the competitive
pricing environment. The reduction of wage rates for freight-handling and driving personnel by
certain nonunion carriers and wage and benefit concessions granted to certain union carriers allow
these LTL carriers to have a lower labor cost structure than is afforded to ABF and, as a result,
may limit ABFs ability to maintain or increase base freight rates. Despite the general rate
increase implemented in 2009, pricing on ABFs traditional LTL business experienced low
single-digit percentage declines, as previously discussed.
ABFs 10.8% decrease in billed revenue per hundredweight for the year ended December 31, 2009
compared to 2008 was also impacted by changes in freight profile such as length of haul, pounds
per shipment, freight density and customer and geographic mix. Total weight per shipment for 2009
increased 0.8% compared to 2008 while ABFs length of haul in 2009 was relatively consistent with
2008. Increased weight per shipment has the effect of decreasing the nominal revenue per
hundredweight without a commensurate impact on effective pricing or shipment profitability. For
the year ended December 31, 2009, the decrease in billed revenue per hundredweight compared to
2008 reflected a very competitive pricing environment.
ABF generated an operating loss of $168.5 million in 2009 versus operating income of $48.4 million
in 2008. ABFs 2009 operating ratio increased to 112.2% from 97.2% in 2008. The increase in ABFs
operating ratio in 2009 was influenced by the declines in tonnage levels and billed revenue per
hundredweight mentioned above, as well as a goodwill impairment charge of $64.0 million and
pension settlement expense of $4.6 million. These charges added 5% to ABFs operating ratio in
2009 with no comparable impact in 2008. The increase in ABFs operating ratio, excluding the
impact of the 2009 charges, reflects the effect of base LTL rates not adequately covering
increases in elements of unit cost, including contractual wage rates,
as discussed below. ABFs
operating ratio was also impacted by other changes in operating expenses as discussed in the
following paragraphs.
Salaries, wages and benefits expense decreased $78.3 million for the year ended December 31, 2009
but as a percentage of revenue increased by 10.5% compared to 2008. Portions of salaries, wages
and benefits are fixed in nature and increase, as a percent of revenue, during periods of lower
revenues, including fuel surcharge revenues which ABF experienced during 2009 as compared to 2008.
The increase in salaries, wages and benefits as a percentage of revenue was impacted by
contractual increases under the IBT National Freight Industry Standards Agreement that extends
through March 31, 2013. The annual contractual wage increases effective on April 1, 2009 and 2008
were 1.8% and 2.2%, respectively. On August 1, 2009 and August 1, 2008, health, welfare and
pension benefit costs under the agreement increased 7.5% and 8.1%, respectively. The increase in
salaries, wages and benefits as a percentage of revenue in 2009 was also impacted by an $8.4
million increase in nonunion employee benefit plan costs, primarily attributable to an increase in
amortization of net actuarial losses related to the nonunion pension plan in 2009 as a result of
the effect of 2008 market declines on pension assets.
Although ABF has implemented cost reduction programs, incremental reductions in labor and other
operating costs become increasingly challenging and less effective as ABF maintains customer
service levels and continues its focus on serving the regional markets. Salaries, wages and
benefits expense was favorably impacted by managing labor costs to business levels as measured by
pounds per DSY hour and pounds per mile. For 2009, pounds per DSY hour increased 1.2% and pounds
per mile increased 0.7%, reflecting improved management of labor costs but also the effect of a
0.8% increase in pounds per
25
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
shipment. However, the historically depressed tonnage levels that have continued since the fourth
quarter of 2008 and the prolonged period of an unfavorable economic environment had a significant
impact on ABFs operating results due to ABFs inability to correspondingly adjust its cost
structure throughout the ABF system. ABFs operating results will continue to be adversely
impacted if tonnage remains at these levels. ABFs ability to improve its operating ratio is
dependent on securing price increases to cover contractual wage rates and other inflationary
increases in cost elements.
Fuel, supplies and expenses as a percentage of revenue decreased by 3.4% for 2009 compared to
2008, primarily reflecting a 37.3% decrease in the average price per gallon of diesel fuel.
Insurance expense as a percentage of revenue increased by 0.3% over 2008 primarily due to an
increase in severity of third-party casualty claims. Third-party casualty claims in 2009 as a
percent of revenue were approximately 0.2% above ABFs ten-year historical average.
Depreciation and amortization as a percentage of revenue increased by 1.0% compared to 2008
reflecting higher depreciation on road tractors and trailers due to increased unit costs of
equipment purchased in 2008 and 2009 and the effect of replacing older, fully depreciated trailers
with new trailers.
Rents and purchased transportation as a percentage of revenue increased by 0.9% in 2009 compared to
2008. This change was primarily attributable to an increase in amounts paid to service providers
associated with ABFs import business and an increase in rail utilization from 11% of total miles
in 2008 to 12% in 2009.
Operating taxes and licenses and communications and utilities decreased in amount during 2009
compared to 2008, primarily due to lower business levels. As a percent of revenue, these costs were
higher during 2009 compared to 2008 as a portion of these items are fixed in nature and increase as
a percent of revenue with decreases in revenue levels including fuel surcharges.
2008 Compared to 2007
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands, except workdays and per share data) |
|
WORKDAYS |
|
|
252.5 |
|
|
|
252.0 |
|
|
|
|
|
|
OPERATING REVENUES |
|
|
|
|
|
|
|
|
ABF |
|
$ |
1,758,780 |
|
|
$ |
1,770,749 |
|
Other revenues and eliminations |
|
|
74,272 |
|
|
|
66,129 |
|
|
|
|
|
|
|
|
|
|
$ |
1,833,052 |
|
|
$ |
1,836,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
ABF |
|
$ |
48,435 |
|
|
$ |
84,521 |
|
Other and eliminations |
|
|
89 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
$ |
48,524 |
|
|
$ |
84,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE |
|
$ |
1.14 |
|
|
$ |
2.23 |
|
Consolidated revenues for the year ended December 31, 2008 decreased 0.4% on a per-day basis
compared to 2007. Consolidated operating income for 2008 decreased $36.3 million, or 42.8%,
compared to 2007. Consolidated earnings per share for the year ended December 31, 2008 decreased
49.1% compared to 2007. The decrease in revenues, operating income and earnings per share primarily
reflect the operating results of ABF, as discussed in the ABF section that follows.
26
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
ABF
The following table sets forth a summary of operating expenses and operating income as a
percentage of revenue for ABF:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
ABF Operating Expenses and Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
|
59.6 |
% |
|
|
60.5 |
% |
Fuel, supplies and expenses |
|
|
19.4 |
|
|
|
16.5 |
|
Operating taxes and licenses |
|
|
2.7 |
|
|
|
2.7 |
|
Insurance |
|
|
1.2 |
|
|
|
1.3 |
|
Communications and utilities |
|
|
0.9 |
|
|
|
0.9 |
|
Depreciation and amortization |
|
|
4.2 |
|
|
|
4.2 |
|
Rents and purchased transportation |
|
|
9.0 |
|
|
|
9.0 |
|
Pension settlement expense |
|
|
|
|
|
|
0.1 |
|
Gain on sale of property and equipment |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Other |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
97.2 |
% |
|
|
95.2 |
% |
|
|
|
|
|
|
|
|
|
ABF Operating Income |
|
|
2.8 |
% |
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a comparison of key operating statistics for ABF:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workdays |
|
|
252.5 |
|
|
|
252.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed revenue(1) per hundredweight, including fuel surcharges |
|
$ |
26.70 |
|
|
$ |
25.81 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds |
|
|
6,586,822,376 |
|
|
|
6,860,725,274 |
|
|
|
(4.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per day |
|
|
26,086,425 |
|
|
|
27,225,100 |
|
|
|
(4.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments per DSY hour |
|
|
0.483 |
|
|
|
0.482 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per DSY hour |
|
|
633.97 |
|
|
|
613.30 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per shipment |
|
|
1,313 |
|
|
|
1,272 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds per mile |
|
|
18.97 |
|
|
|
18.54 |
|
|
|
2.3 |
% |
|
|
|
(1) |
|
Billed revenue does not include revenue deferral required for financial statement purposes
under the Companys revenue recognition policy. |
ABFs revenue for the year ended December 31, 2008 was $1,758.8 million, compared to $1,770.7
million in 2007, for a decrease of 0.9% on a per-day basis. The revenue decrease primarily
reflects tonnage declines of 4.2% per day compared to 2007. The impact of the tonnage decrease on
revenue was partially offset by a 3.4% increase in billed revenue per hundredweight for 2008, as
compared to 2007, which was primarily attributable to higher fuel surcharges.
The fuel surcharge constituted a higher proportion of the total freight rate during the majority
of 2008 due to substantially higher fuel prices for the first ten months of 2008 compared to the
same period of 2007. As a result, ABF was unable to secure adequate increases in base LTL rates.
Excluding freight profile changes and the increase in fuel surcharges, management believes that
pricing on ABFs traditional LTL business improved only slightly during 2008 compared to 2007.
27
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
Effective February 4, 2008 and March 26, 2007, ABF implemented general rate increases to cover
known and expected cost increases. Nominally, the increases were 5.45% and 4.95%, respectively,
although the amounts vary by lane and shipment characteristics. For 2008, the general rate
increase affected approximately 45% of ABFs business, while rate increases on the remaining
business are subject to individually negotiated pricing arrangements that are effective at various
times throughout the year.
ABFs 3.4% increase in billed revenue per hundredweight for the year ended December 31, 2008
compared to 2007 was impacted not only by the general rate increase and fuel surcharge, but also
by changes in freight profile such as length of haul, pounds per shipment, freight density and
customer and geographic mix. Total weight per shipment for 2008 increased 3.2% compared to 2007.
ABFs length of haul decreased 1.6% in 2008 compared to 2007, influenced in part by the regional
freight initiative. In addition, ABF experienced a higher proportion of truckload-rated shipments,
including business in the volume spot market. Increased weight per shipment, combined with a
shorter length of haul and higher mix of truckload-rated shipments, has the effect of decreasing
the nominal revenue per hundredweight without a commensurate impact on effective pricing or
shipment profitability.
ABF generated operating income of $48.4 million in 2008 versus $84.5 million in 2007, a decrease
of 42.7%. ABFs 2008 operating ratio increased to 97.2% from 95.2% in 2007. The increase in ABFs
operating ratio in 2008 was influenced by the decline in tonnage levels mentioned above, as well
as the effect of base LTL rates not adequately covering increases in elements of unit cost,
including contractual wage rates. ABFs operating ratio was also impacted by other changes in
operating expenses as discussed in the following paragraphs.
Salaries, wages and benefits expense for the year ended December 31, 2008 as a percentage of
revenue decreased by 0.9%. Portions of salaries, wages and benefits are fixed in nature and
decrease as a percent of revenue during periods of higher revenues, including fuel surcharge
revenues which ABF experienced during the majority of 2008 as compared to 2007. Salaries, wages
and benefits expense was favorably impacted by managing labor costs to business levels as measured
by pounds per DSY hour and pounds per mile. For 2008, pounds per DSY hour increased 3.4% and
pounds per mile increased 2.3%, compared with 2007, reflecting improved management of labor costs
but also the effect of a 3.2% increase in pounds per shipment and a shorter length of haul.
In 2008, salaries, wages and benefits expense was also positively impacted by a $7.8 million
reduction in workers compensation costs primarily reflecting fewer new claims, a decline in the
frequency of existing claim changes and the associated loss development on those claims. In
addition, the reduction in workers compensation costs was also influenced by lower development
factors applied to existing claims resulting from ABFs annual first quarter review of historical
claims development. Workers compensation costs as a percent of revenue for 2008 were below ABFs
ten-year historical average.
The decrease in salaries, wages and benefits described above was offset, in part, by contractual
increases under the IBT National Freight Industry Standards Agreement. The annual contractual wage
increases effective on April 1, 2008 and 2007 were 2.2% and 2.3%, respectively. On August 1, 2008
and August 1, 2007, health, welfare and pension benefit costs under the agreement increased 8.1%
and 6.0%, respectively.
Fuel, supplies and expenses as a percentage of revenue increased by 2.9% for 2008 compared to
2007, primarily reflecting a 37.5% increase in the average price per gallon of diesel fuel.
28
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
Liquidity and Capital Resources
The Companys primary sources of liquidity are cash generated by operations, short-term investments
and borrowing capacity under its accounts receivable securitization program.
Cash Flow and Short-Term Investments: Components of cash and cash equivalents and short-term
investments at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
Cash and cash equivalents, primarily money market funds |
|
$ |
39,332 |
|
|
$ |
100,880 |
|
Short-term investments (FDIC-insured certificates of deposit) |
|
|
93,861 |
|
|
|
117,855 |
|
|
|
|
|
|
|
|
Total unrestricted |
|
|
133,193 |
|
|
|
218,735 |
|
Restricted(1) |
|
|
50,857 |
|
|
|
2,299 |
|
|
|
|
|
|
|
|
Total(2) |
|
$ |
184,050 |
|
|
$ |
221,034 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Restricted cash equivalents and short-term investments represent certificates of deposit,
cash deposits and money market funds pledged as collateral for outstanding letters of credit
in support of workers compensation and third-party casualty claims liabilities (see Financing
Arrangements in this section of Managements Discussion and Analysis of Financial Condition
and Results of Operations and Note F to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K). Restricted cash equivalents
at December 31, 2008 were reclassified to conform to the current years presentation (see
Notes B and C to the Companys consolidated financial statements included in Part II, Item 8
of this Annual Report on Form 10-K). |
|
(2) |
|
Cash and certificates of deposit are recorded at cost plus accrued interest, which
approximates fair value. Money market funds are recorded at fair value based on quoted prices. |
Cash, cash equivalents and short-term investments declined $37.0 million from December 31, 2008 to
December 31, 2009. During 2009, cash, cash equivalents and short-term investments on hand combined
with cash provided by operations of $11.8 million and proceeds from the issuance of long-term debt
related to capital leases of $15.0 million were used primarily for the purchase of revenue
equipment (tractors and trailers used primarily in ABFs operations) and other property and
equipment totaling $43.1 million net of asset sales and the payment of dividends of $15.5 million.
The $93.5 million decline in cash provided by operations during 2009 compared to 2008 primarily
reflects the impact of the continued weak freight tonnage environment on ABFs operating income.
The Company made contributions to the nonunion pension plan of $15.5 million in 2009 compared to
$25.0 million in 2008.
Cash, cash equivalents and short-term investments increased $45.5 million from December 31, 2007 to
December 31, 2008. During 2008, cash provided by operations of $105.3 million was primarily used to
purchase revenue equipment and other property and equipment totaling $41.7 million net of asset
sales and pay dividends of $15.3 million. The $37.8 million decline in cash provided by operations
during 2008 compared to 2007 primarily reflects the impact of the weaker freight tonnage
environment on ABFs operating income. In addition, contributions to the nonunion pension plan were
$25.0 million in 2008 versus $5.0 million in 2007.
During 2007, cash provided from operations of $143.1 million was primarily used to purchase revenue
equipment and other property and equipment totaling $84.6 million net of asset sales, purchase
125,000 shares of the Companys Common Stock for $4.9 million and pay dividends of $15.2 million.
Financing Arrangements: On December 30, 2009, the Company entered into a two-year, asset-backed
securitization program with SunTrust Bank, which provides for cash proceeds of up to $75.0 million.
Under this agreement, ABF continuously sells a designated pool of trade accounts receivables to a
wholly owned subsidiary, which in turn may borrow funds on a revolving basis. This wholly-owned
consolidated subsidiary is a separate bankruptcy-remote entity and its assets would be available
only to satisfy the claims related to the interest in the trade accounts receivables. Advances
under the facility bear interest based upon LIBOR, plus a margin. The Company also pays annual fees
equal to 0.75% of the unused portion of the accounts receivable facility. This agreement contains
representations and warranties, affirmative and negative covenants and events of default that are
customary for financings of this type, including maintaining consolidated tangible net worth, as
defined, of $375.0 million. As of December 31, 2009, the Company was in compliance with the
covenants. There
were no borrowings under this facility, and, based on qualifying accounts, the borrowing capacity
was $74.0 million as of December 31, 2009.
29
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
In 2009, the Company entered into agreements with four financial institutions to provide
collateralized facilities for the issuance of letters of credit (LC Agreements). The Company
issues letters of credit primarily in support of workers compensation and third-party casualty
claims liabilities in various states in which the Company is self-insured. The Company has up to
$90.0 million of availability for the issuance of letters of credit under the LC Agreements of
which $75.0 million is committed subject to the Companys compliance with the requirements of
issuance. The LC Agreements require cash or short-term investments to be pledged as collateral for
outstanding letters of credit. As of December 31, 2009, the Company had $48.9 million of letters of
credit outstanding under the LC Agreements of which $48.5 million were collateralized by restricted
cash equivalents and short-term investments. Prior to the LC Agreements, the Company arranged for
the letters of credit as a part of the Second Amended and Restated Credit Agreement (the Credit
Agreement) dated May 4, 2007. The Company terminated the Credit Agreement in December 2009. There
were no borrowings outstanding under the Credit Agreement on the date of termination. Deferred
financing costs of $1.0 million were expensed in the fourth quarter of 2009 in conjunction with the
termination of the Credit Agreement. Prior to termination, the Companys borrowing capacity was
limited to $22.6 million under the Credit Agreement as disclosed in the Companys Quarterly Report
on Form 10-Q for the third quarter of 2009.
In December 2009, ABF entered into capital lease agreements to finance $15.0 million of revenue
equipment. These capital lease agreements specify the monthly base rent and interest rates for the
36-month lease terms as well as a rental adjustment clause for which the maximum amounts due to the
lessor are included in the recorded capital lease obligation and the future minimum rent payments
shown in the Contractual Obligations within this section. The present values of net minimum lease
payments are recorded in long-term debt. In January 2010, $11.4 million of revenue equipment was
financed under capital lease transactions. The Company could utilize capital lease arrangements to
finance future purchases of revenue equipment.
Contractual Obligations: The following table provides the aggregate annual contractual obligations
of the Company including capital and operating lease obligations, purchase obligations and
near-term estimated benefit plan distributions as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less Than |
|
|
1-3 |
|
|
3-5 |
|
|
More Than |
|
|
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, including interest(1) |
|
$ |
18,730 |
|
|
$ |
4,205 |
|
|
$ |
8,409 |
|
|
$ |
5,011 |
|
|
$ |
1,105 |
|
Operating lease obligations(2) |
|
|
51,969 |
|
|
|
11,410 |
|
|
|
17,452 |
|
|
|
10,268 |
|
|
|
12,839 |
|
Purchase obligations(3) |
|
|
26,885 |
|
|
|
26,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary savings plan distributions(4) |
|
|
6,303 |
|
|
|
1,479 |
|
|
|
2,207 |
|
|
|
594 |
|
|
|
2,023 |
|
Postretirement health expenditures(5) |
|
|
7,713 |
|
|
|
597 |
|
|
|
1,352 |
|
|
|
1,471 |
|
|
|
4,293 |
|
Deferred salary distributions(6) |
|
|
12,286 |
|
|
|
1,158 |
|
|
|
2,310 |
|
|
|
2,002 |
|
|
|
6,816 |
|
Supplemental pension distributions(7) |
|
|
18,539 |
|
|
|
7,753 |
|
|
|
3,651 |
|
|
|
|
|
|
|
7,135 |
|
Noncontrolling interest in subsidiary(8) |
|
|
2,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
144,704 |
|
|
$ |
53,487 |
|
|
$ |
35,381 |
|
|
$ |
19,346 |
|
|
$ |
36,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The future minimum rental commitments are presented exclusive of executory costs such as
insurance, maintenance and taxes. |
|
|
|
(2) While the Company owns the majority of its larger terminals and distribution centers,
certain facilities and equipment are leased. As of December 31, 2009, the Company had future
minimum rental commitments, net of noncancelable subleases, totaling $51.7 million for terminal
facilities and $0.3 million for other equipment. The future minimum rental commitments are
presented exclusive of executory costs such as insurance, maintenance and taxes. In addition,
the Company has provided lease guarantees through March 2012 totaling $0.6 million related to
Clipper Exxpress Company, a former subsidiary of the Company. |
|
|
|
(3) Purchase obligations primarily includes purchase orders or authorizations to purchase rather
than binding agreements relating to revenue equipment and property. These purchase
authorizations are included in the Companys 2010 capital expenditure plan (see the following
Capital Expenditures section). |
30
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
|
|
|
|
|
(4) The Company maintains a Voluntary Savings Plan (VSP), a nonqualified deferred compensation
plan for the benefit of certain executives of the Company and certain subsidiaries. Eligible
employees may defer receipt of a portion of their regular compensation, incentive compensation
and other bonuses into the VSP. The Company credits participants accounts with applicable
matching contributions and rates of return based on investments selected by the participants.
All deferrals, Company match and investment earnings are considered part of the general assets
of the Company until paid. Accordingly, the consolidated balance sheets reflect the fair value
of the aggregate participant balances, based on quoted prices of the mutual fund investments, as
both an asset and a liability of the Company. As of December 31, 2009, VSP related assets
totaling $6.3 million were included in other assets with a corresponding amount recorded in
other liabilities. Elective distributions anticipated under this plan are included in the
contractual obligations table above. Future distributions are subject to change for retirement,
death or disability of current employees. |
|
|
|
(5) The Company sponsors an insured postretirement health benefit plan that provides
supplemental medical benefits, life and accident insurance and vision care to certain officers
of the Company and certain subsidiaries. The plan is generally noncontributory, with the Company
paying the premiums. The Companys projected distributions for premiums related to
postretirement health benefits, which represent estimates for the next ten years, are subject to
change based upon increases and other changes in premiums and medical costs and continuation of
the plan for current participants. Postretirement health benefit plan liabilities accrued in the
consolidated balance sheet totaled $13.5 million as of December 31, 2009. |
|
|
|
(6) The Company has deferred salary agreements with certain employees of the Company. The
Companys projected deferred salary agreement distributions are subject to change based upon
assumptions for projected salaries and retirements, deaths, disabilities or early retirements of
current employees. Liabilities for deferred salary agreements accrued in the consolidated
balance sheet totaled $8.7 million as of December 31, 2009. |
|
|
|
(7) The Company has an unfunded supplemental benefit plan (SBP) for the purpose of
supplementing benefits under the nonunion pension plan for executive officers of the Company and
certain subsidiaries. Distributions presented above represent estimated amounts over the next
ten years. The Company anticipates making distributions of $7.8 million during 2010 under this
plan related to retirements in 2009. The amounts and dates of distributions in future periods
are dependent upon actual retirement dates of eligible officers and other events and factors.
SBP liabilities accrued in the consolidated balance sheet totaled $16.5 million at December 31,
2009. |
|
|
|
Effective January 1, 2006, the Compensation Committee of the Companys Board of Directors
(Compensation Committee) elected to close the SBP and deferred salary agreement programs to
new entrants. In place of these programs, officers appointed after 2005 participate in a
long-term cash incentive plan that is based 60% on the Companys three-year average return on
capital employed and 40% on the Company achieving specified levels of profitability or earnings
per share growth, as defined in the plan. Effective December 31, 2009, the Compensation
Committee elected to freeze the accrual of benefits under the SBP, resulting in a plan
curtailment (see Note I to the Companys consolidated financial statements included in Part II,
Item 8 of this Annual Report on Form 10-K). In connection with the election to freeze benefits,
the Compensation Committee provided the SBP participants an option to freeze their SBP benefits
without early retirement penalties and continue participation in the deferred salary agreement
program or to freeze their benefits in both the SBP and deferred salary agreement program and
begin participation in the long-term cash incentive plan. |
|
|
|
(8) Noncontrolling interest in subsidiary represents the option, provided to noncontrolling
shareholders, to sell to the Company their remaining interest in a logistics business. The
option to sell may not be exercised until the sixth anniversary of the acquisition date at a
price determined by a formula, which amount is consistent with the noncontrolling interest
recorded in the balance sheet. The Company acquired a controlling interest in this logistics
business during the second quarter of 2009. |
Based upon current information, the Company does not expect to have cash outlays for required
minimum contributions, but could make tax-deductible contributions, to its nonunion pension plan in
2010. As of December 31, 2009, the nonunion
pension plan was underfunded by $45.8 million on a projected benefit obligation basis (see Note I
to the Companys consolidated financial statements included in Part II, Item 8 of this Annual
Report on Form 10-K).
31
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
ABF contributes to multiemployer health, welfare and pension plans based on the time worked by its
contractual employees, as specified in the collective bargaining agreement and other supporting
supplemental agreements (see Note I to the Companys consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K).
Capital Expenditures: The following table sets forth the Companys historical capital expenditures,
net of proceeds from asset sales, for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, gross including capital leases |
|
$ |
48,589 |
|
|
$ |
59,069 |
|
|
$ |
98,169 |
|
Less proceeds from capital lease obligations(1) |
|
|
(545 |
) |
|
|
(340 |
) |
|
|
(1,499 |
) |
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of capital leases |
|
|
48,044 |
|
|
|
58,729 |
|
|
|
96,670 |
|
Less proceeds from asset sales |
|
|
(4,913 |
) |
|
|
(17,073 |
) |
|
|
(12,067 |
) |
|
|
|
|
|
|
|
|
|
|
Total capital expenditures, net |
|
$ |
43,131 |
|
|
$ |
41,656 |
|
|
$ |
84,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Capital lease proceeds presented do not include proceeds from the issuance of $15.0 million
of long-term debt in 2009 associated with capital lease transactions which have been presented
as financing activities in the consolidated statements of cash flows included in Part II, Item
8 of this Annual Report on Form 10-K. |
The variation in the Companys net capital expenditures for the years presented above primarily
relate to changes in ABFs capital expenditures. ABFs 2009 net capital expenditures were above
2008 levels primarily reflecting lower proceeds from asset sales partially offset by $4.0 million
less spending on road trailers and $5.6 million less spending on real estate for terminal
operations. In 2008, ABF spent $14.9 million less on road trailers and $9.8 million less on road
tractors than in 2007. ABFs lower net capital expenditures in 2008 compared to 2007 were also
impacted by lower expenditures related to city delivery and other equipment.
In 2010, net capital expenditures are estimated to be in a range of $45.0 million to $50.0
million, which relates primarily to ABF. The low end of this expected 2010 range consists of road
and city equipment replacements of approximately $35.0 million and real estate for terminal
operations and other capital expenditures (including dock/yard equipment and technology) of
approximately $10.0 million. The 2010 plan does not include an expansion in the road tractor and
trailer fleets. The Company has the flexibility to adjust planned 2010 capital expenditures as
business levels dictate. There is the potential for additional 2010 capital expenditures above the
low-end figure of $45.0 million. These expenditures could include purchases of real estate for
terminal operations, if needs and opportunities arise.
Depreciation and amortization expense is estimated to be approximately $70 million to $75 million
in 2010.
Other Liquidity Information: Cash, cash equivalents and short-term investments, including amounts
restricted, totaled $184.1 million at December 31, 2009. The Company has generated $11.8 million,
$105.3 million and $143.1 million of operating cash flow for the years 2009, 2008 and 2007,
respectively. Continued operating losses, primarily resulting from depressed tonnage levels, could
continue to adversely affect the Companys ability to generate cash from operations. Management
believes cash generated by operations, existing cash, cash equivalents and short-term investments
and amounts available under the accounts receivable securitization program will be sufficient for
the foreseeable future to maintain current operations; finance the Companys lease commitments;
letter of credit commitments; quarterly dividends; nonunion benefit plan distributions; capital
expenditures; health, welfare and pension contributions under collective bargaining agreements; and
other expenditures. Additional capital lease and other secured financing may also be used to fund
capital expenditures. The Company also anticipates receiving approximately $30 million in tax
refunds during 2010 resulting primarily from net operating loss carrybacks to prior period federal
income tax returns.
The Company expects to continue to pay quarterly dividends in the foreseeable future, although
there can be no assurances in this regard since future dividends are dependent upon future
earnings, capital requirements, the Companys financial condition and other factors, including net
worth limitations under the Companys securitized accounts receivable facility. In
response to the current prolonged freight recession, the Board of Directors of the Company reduced
the quarterly dividend declared in January 2010 to $0.03 per share.
32
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
Financial Instruments: The Company has not historically entered into financial instruments for
trading purposes, nor has the Company historically engaged in a program for fuel price hedging. No
such instruments were outstanding as of December 31, 2009 or 2008.
Off-Balance-Sheet Arrangements
The Companys off-balance-sheet arrangements include future minimum rental commitments, net of
noncancelable subleases, of $52.0 million under operating lease agreements primarily for terminal
facilities (see Note F to the Companys consolidated financial statements included in Part II, Item
8 of this Annual Report on Form 10-K).
The Company has no investments, loans or any other known contractual arrangements with
unconsolidated special-purpose entities, variable interest entities or financial partnerships and
has no outstanding loans with executive officers or directors of the Company.
Balance Sheet Changes
Goodwill: Goodwill decreased $60.2 million from December 31, 2008 to December 31, 2009, primarily
due to the fourth quarter 2009 impairment charge related to ABF goodwill (see Note D to the
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K).
Long-Term Debt and Current Portion of Long-Term Debt: Long-term debt, including the current
portion, increased $15.4 million from December 31, 2008 to December 31, 2009, due primarily to new
capital leases related to ABF revenue equipment (see Note G to the consolidated financial
statements included in Part II, Item 8 of this Annual Report on
Form 10-K).
Pension and Postretirement Liabilities: Liabilities for pension and postretirement benefits
decreased $22.0 million from December 31, 2008 to December 31, 2009, due primarily to $15.5 million
of contributions to the Companys nonunion pension plan and the classification of $7.8 million of
SBP liabilities, which will be distributed to retired officers in 2010, in accrued expenses at
December 31, 2009. (see Note I to the consolidated financial statements included in Part II, Item 8
of this Annual Report on Form 10-K).
Income Taxes
The difference between the Companys effective tax rate and the federal statutory rate primarily
results from the effect of state income taxes, nondeductible expenses, and alternative fuel tax
credits in 2007, 2008 and 2009; tax-exempt income in 2007; and the write-off of nondeductible
goodwill in 2009. The Companys effective tax benefit rate for 2009 was 23.0% compared to the
effective tax provision rate of 41.6% for 2008 and 37.4% for 2007. The low effective tax benefit in
2009 primarily reflects the write-off of goodwill which is a nondeductible item. The 2010 effective
tax rate will depend on pre-tax income or loss levels. The U.S. statutory rate of the Company is
35% and the average state tax rate, net of the associated federal deduction, is approximately 3%.
However, various factors could cause the 2010 tax rate to vary significantly from the statutory
rate. Specifically, continued losses could limit the Companys ability to recognize tax benefits,
which would result in a significantly lower benefit rate. Low levels of financial reporting income
could produce a very high effective tax rate because of the proportionately large impact of
permanent nondeductible expenses.
Management does not expect that the cash outlays for income taxes will materially exceed income tax
expense during the foreseeable future. Because of statutory limitations on tax loss carrybacks,
cash refunds for income taxes in 2010 may be substantially less than tax benefits that may be
recorded related to any continuing operating losses, although these tax benefits may be offset in
whole or in part by valuation allowances in the event the realization of these tax benefits is not
judged by management to be more likely than not.
At December 31, 2009, the Company had recorded total deferred tax assets of $84.5 million and total
deferred tax liabilities of $76.5 million, resulting in net deferred tax assets of $8.0 million.
Net deferred tax assets include $28.0 million related to
unamortized nonunion pension and postretirement benefit costs which are included in accumulated
other comprehensive loss. The Company has evaluated the need for a valuation allowance for deferred
tax assets by considering the future reversal of existing taxable temporary differences, taxable
income in prior carryback years, future taxable income and tax-planning
33
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
strategies. Deferred tax
liabilities scheduled to reverse in future years will offset the majority of deferred tax assets.
Federal legislative changes in 2009 allow taxable losses for 2008 or 2009 to be carried back five
years. After 2009, the federal loss carryback period reverts to two years. In 2008, the Company had
a net operating tax loss of $29.5 million. The Company had taxable income of $88.5 million, $122.1
million, $157.1 million and $99.5 million in 2007, 2006, 2005 and 2004, respectively. Federal taxes
paid in 2004 through 2007, and in some cases, state taxes paid would be available for recovery by
carryback of losses incurred for 2009 and through February 28, 2010, the end of the Companys tax
year. Because of the uncertainty regarding the level and timing of future taxable income, the
expectation of future taxable income alone does not make realization of deferred tax assets more
likely than not. There are tax-planning strategies available which would support deferred tax
assets recorded at December 31, 2009. For example, certain expense components that generate
deferred tax assets are eligible for a significantly longer carryback period if the Company so
elects. Because there is sufficient taxable income in the longer carryback period, these assets,
which amount to approximately $11.0 million, will be fully realized. Also, payments on the
Companys non-union pension obligation prior to September 15, 2010, and payment acceleration of
other types that relate to deferred tax assets, are also available to convert deferred tax assets
to refundable taxes. The Company would need approximately $23.0 million of future taxable income to
realize net deferred tax assets at December 31, 2009.
At December 31, 2009 and 2008, the Companys valuation allowances totaled $3.0 million and $0.8
million, respectively. The Company had a valuation allowance of $0.9 million at December 31, 2009
and $0.8 million at December 31, 2008 for state net operating loss and contribution carryovers for
which realization is not more likely than not. Management considered that the realization of
certain state net operating losses and contribution carryovers in the state of Arkansas was not
likely because the state does not allow loss carrybacks and limits the loss carryforward period to
five years, and only about 5% of ABFs business is conducted in Arkansas. The Company has a history
of low levels of taxable income in Arkansas and some loss carryovers have expired unused in
previous years. Due to the same factors, the Company has also established a valuation allowance of
$1.3 million at December 31, 2009, for deferred tax assets related to Arkansas operations. The
Company has established a valuation allowance of $0.7 million for foreign tax credit carryforwards
at December 31, 2009. Foreign tax credits can be carried forward; however, the annual amount that
may be used is dependent on future taxable income and realization is not more likely than not. The
need for additional valuation allowances will be continually monitored by management.
Financial reporting income differs significantly from taxable income because of such items as the
charge for goodwill impairment, accelerated depreciation, including bonus depreciation amounts
available in recent years, pension accounting rules, and a significant number of liabilities such
as vacation pay, workers compensation reserves and other reserves, which, for tax purposes, are
generally only deductible when paid. In recent years, financial reporting income has exceeded
taxable income. In 2009, the financial reporting loss exceeded the tax loss.
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 under different assumptions or conditions.
The accounting policies (see Note B to the Companys consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K) that are critical to understand the
Companys financial condition and results of operations and that require management to make the
most difficult judgments are described as follows.
Revenue Recognition: The Company utilizes a bill-by-bill analysis to establish estimates of
revenue in transit for recognition in the appropriate reporting period under the accounting policy
for revenue recognition. The Company recognizes revenue based on relative transit times in each
reporting period with expenses being recognized as incurred. Because the bill-by-bill methodology
utilizes the approximate location of the shipment in the delivery process to determine the revenue
to recognize, management believes it to be a reliable method. The Company reports revenue and
purchased transportation expense on a gross basis for certain shipments where ABF utilizes a
third-party carrier for pickup or delivery of freight but remains the primary obligor.
Allowance for Doubtful Accounts: The Company estimates its allowance for doubtful accounts based
on the Companys historical write-offs, as well as trends and factors surrounding the credit risk
of specific customers. In order to gather
34
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
information regarding these trends and factors, the
Company performs ongoing credit evaluations of its customers. The allowance for revenue
adjustments is an estimate based on historical revenue adjustments. Actual write-offs or
adjustments could differ from the allowance estimates due to 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. Management believes this methodology to be reliable in estimating the allowances for
doubtful accounts and revenue adjustments. A ten percent increase in the estimate of allowances
for doubtful accounts and revenue adjustments would decrease operating results by $0.3 million on
a pre-tax basis.
Revenue Equipment: The Company utilizes tractors and trailers in its motor carrier freight
transportation operations. Tractors and trailers are commonly referred to as revenue equipment
in the transportation business. Under its accounting policy for property, plant and equipment,
management establishes appropriate depreciable lives and salvage values for revenue equipment
based on their estimated useful lives and estimated fair values to be received when the equipment
is sold or traded. Management continually monitors salvage values and depreciable lives in order
to make timely, appropriate adjustments to them. ABF has reported gains on the sale of its assets
in the amount of $1.4 million, $3.7 million and $4.3 million in 2009, 2008 and 2007, respectively.
The Company has historically purchased revenue equipment with cash or financed through capital
leases rather than utilizing off-balance-sheet financing.
The Company reviews its long-lived assets, including property, plant, equipment and capitalized
software that are held and used in its operations for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. If such an
event or change in circumstances is present, the Company will estimate the undiscounted future
cash flows 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. The economic factors and industry environment that were
considered in the goodwill impairment evaluation discussed below were also considered in assessing
recoverability of long-lived assets, including revenue equipment. ABFs equipment replacement
program and strict maintenance schedules have served to minimize declines in the value of revenue
equipment. Management determined that long-lived assets were not impaired as of December 31, 2009.
Goodwill: Goodwill represents the excess of the purchase price in a business combination over the
fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is
evaluated for impairment annually or more frequently if indicators of impairment exist. The
measurement of goodwill impairment consists of two steps. In the first step, a comparison is made
of the estimated fair value of a reporting unit to its carrying value. If the results of the first
test indicate that the fair value of the reporting unit is less than the carrying value, the second
step of the impairment test is required. In the second step, an estimate of the current fair values
of all assets and liabilities is made to determine the amount of implied goodwill and consequently
the amount of any goodwill impairment.
While the Companys annual impairment test date is January 1, the Companys fourth quarter 2009
losses, combined with the challenging industry environment reflected in historically low daily
tonnage levels and an aggressive pricing environment, indicated that the goodwill associated with
ABF may be impaired. In the prior year goodwill evaluation, the Company assumed that available LTL
tonnage would improve in the fourth quarter of 2009. However, ABF experienced reduced tonnage and
pricing on its LTL business and consequently lower operating results in the fourth quarter of 2009.
Based on the results of the impairment testing of goodwill, the Company recorded a noncash charge
of $64.0 million for impairment of the value of ABFs entire goodwill balance in the fourth quarter
of 2009. The goodwill impairment charge, which is not tax deductible, was included in operating
expenses within the ABF segment. The goodwill balance remaining at December 31, 2009 of $3.7
million was related to the second quarter 2009 acquisition of a privately-owned logistics company
that is included in the Companys business operations other than ABF.
The evaluation of goodwill impairment requires managements judgment and the use of estimates and
assumptions to determine the fair value of the ABF reporting unit. Assumptions require considerable
judgment because changes in broad economic factors and industry factors can result in variable and
volatile fair values. Changes in key estimates and assumptions that impact the fair value of the
operations could materially affect the impairment analysis. Key assumptions in determining the step
one estimated fair value for ABF included a continuing competitive freight environment, overall
weakness in the
economy, longer term growth rates consistent with historical trends, an increased weighted average
cost of capital, and anticipated expenses including costs under the Companys collective bargaining
agreement.
35
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
Under the first step of the goodwill impairment evaluation, the aggregate carrying amount of ABF
was compared to its fair value utilizing an equal combination of valuation methods, including
earnings before interest, taxes, depreciation and amortization (EBITDA) multiples (market
approach) and the present value of discounted cash flows (income approach). Incorporation of the
two methods into the impairment test supported the reasonableness of conclusions reached. The
valuation determined by the market approach was not significantly different from the value derived
by the income approach in the current year evaluation.
To determine the EBITDA multiple, the Company obtained information from third parties for the
EBITDA multiples observed for recent acquisitions in the trucking industry. For the annual
impairment tests performed by the Company in the last three years, this marketplace EBITDA multiple
was in the mid-single digit range. The fair value that was estimated from the market approach was
negatively impacted by ABFs recent operating losses.
The discounted cash flows model utilized in the income approach incorporates discount rates and
projections of future revenue growth rates, operating margins and net capital expenditures. The
projections used have changed over time based on historical performance and changing business
conditions. Assumptions with respect to rates used to discount cash flows are dependent upon market
interest rates and the cost of capital for the Company and the industry at a point in time. In the
recent evaluation process, the 12.5% discount rate used was higher than the rate used in the prior
year due to increased risk associated with extremely challenging freight conditions. The Company
included a cash flow period of ten years in the income approach that, due to the length of time,
assumed the occurrence of another recessionary cycle. In addition, the near-term outlook for the
LTL market is highly uncertain due to the current freight recession and the negative impact of
aggressive pricing. The resulting annual revenue growth rate assumption in the low to mid-single
digits was generally consistent with historical trends. The assumed revenue projections were lower
than the prior year estimates due to the impact of the recent recessionary period on the revenues
in the base year of the cash flow model and the resulting influence on the assumed timing of a
recovery in available freight tonnage. In addition, the revenue projections did not assume regional
or long-haul market share gains or significant pricing improvement. The timing of estimated
measurable tonnage and pricing improvement and the assumption related to future market share were
significant to the associated cash flows and resulting valuation.
Based on the first step of the analysis, the carrying amount of ABF was determined to be in excess
of its fair value. In completing the step two estimate of the current fair value of identifiable
assets and liabilities, significant assumptions included the estimated value of previously
unrecognized intangible assets, as well as the estimated appreciation in value of land and
structures. These currently unrecognized amounts reduced the amount of implied goodwill in ABF. The
resulting estimated values of ABFs net assets were deducted from the fair value of ABF determined
in the first step of the analysis to determine the implied fair value of goodwill. The carrying
value of ABFs goodwill exceeded its implied fair value, and, as a result, the value of ABFs
entire goodwill balance was impaired.
Management believes that the long-term economics of ABFs business operations remain intact and
that operating results will ultimately improve, although it cannot predict the timing of an
economic recovery. The noncash goodwill impairment charge does not directly impact the Companys
normal business operations, liquidity or credit availability under its existing facilities,
although the factors leading to the goodwill impairment have negatively impacted the Companys
operating results.
Nonunion Pension Expense: The Company has a noncontributory defined benefit pension plan covering
substantially all noncontractual employees hired before January 1, 2006. Benefits are generally
based on years of service and employee compensation. Nonunion pension expense and liability are
estimated based upon a number of assumptions and using the services of a third-party actuary. The
assumptions with the greatest impact on expense are the expected return on plan assets, the rate
used to discount the plans obligations and the assumed compensation cost increase.
36
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
The following table provides the key assumptions used for 2009 compared to those it anticipates
using for 2010 nonunion pension expense:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.3 |
% |
|
|
6.3 |
% |
Expected return on plan assets |
|
|
7.5 |
% |
|
|
6.0 |
% |
Rate of compensation increase |
|
|
3.2 |
% |
|
|
3.3 |
% |
The assumptions directly impact the nonunion 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 discount rate is determined by matching projected cash distributions with the
appropriate high-quality corporate bond yields in a yield curve analysis. A quarter percentage
point decrease in the discount rate would increase annual nonunion pension expense by $0.3 million
on a pre-tax basis. The Company establishes the expected rate of return on plan assets by
considering the historical returns for the plans current investment mix and its investment
advisors range of expected returns for the plans current investment mix. The expected rate of
return on plan assets is a long-term rate, and the Company can make no assurances that the rate
will be achieved. A decrease in expected returns on plan assets increases nonunion pension expense.
A quarter percentage point decrease in the expected rate of return on plan assets would increase
annual pension expense by approximately $0.4 million on a pre-tax basis. The Company establishes
the assumed rate of compensation increase considering historical changes in compensation combined
with an estimate of compensation rates for the next two years. A quarter percentage point increase
in the rate of compensation increase would increase annual pension expense by approximately $0.6
million on a pre-tax basis.
At December 31, 2009, the nonunion pension plan had $70.2 million in unamortized actuarial losses,
for which the amortization period is approximately nine years. The Company amortizes actuarial
losses over the average remaining active service period of the plan participants. A corridor
approach is not used for determining amounts to be amortized. The Companys 2010 nonunion pension
expense will include amortization of actuarial losses of approximately $7.7 million. The
comparable amounts for 2009 and 2008 were $9.4 million and $3.3 million, respectively. The
Companys 2010 total nonunion pension expense will be available before its first quarter 2010 Form
10-Q filing and, based on currently available information, is expected to be approximately 10% to
15% below the 2009 expense of $20.6 million, with the decrease primarily due to the lower
amortization of actuarial losses.
The nonunion pension plan assets include investments in cash equivalents, fixed income securities
and equity mutual funds totaling $138.8 million, which are reported at fair value based on quoted
market prices (i.e., classified as Level 1 investments in the fair value hierarchy). The remaining
nonunion pension plan assets of $33.8 million are fixed income security investments, primarily
corporate debt instruments, for which fair value is determined by a pricing service using a market
approach with inputs derived from observable market data (i.e., classified as Level 2 investments
in the fair value hierarchy). See Note I to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K for disclosures related to the
nonunion pension plan.
Share-Based Compensation: Effective January 1, 2006, the Company adopted the fair value recognition
provisions for accounting for share-based payments using the modified-prospective transition
method, which requires that the fair value of unvested stock options be recognized in the income
statement over the remaining vesting period. The Company has not granted stock options since
January 2004. Recognition of compensation expense related to the cost of stock options, which was
based on estimated grant date fair values and assumed forfeitures, was completed in December 2008.
Since 2005, the Company has granted restricted stock and restricted stock units under its
share-based compensation program. The Company amortizes the fair value of restricted stock and
restricted stock unit awards, which is based on the closing market price on the date of grant, to
compensation expense generally on a straight-line basis over the vesting period, taking into
consideration an estimate of shares expected to vest. Share-based compensation expense totaled $6.2
million, $6.1 million and $4.9 million in 2009, 2008 and 2007, respectively. See Notes B and J to
the Companys consolidated financial statements included in Part II, Item 8 of this Annual Report
on Form 10-K for disclosures related to share-based compensation.
37
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
Insurance Reserves: The Company is self-insured up to certain limits for workers compensation and
certain third-party casualty claims. For 2009 and 2008, these limits are $1.0 million for each
workers compensation loss and generally $1.0 million for each third-party casualty loss. Workers
compensation and third-party casualty claims liabilities, which are reported in accrued expenses,
totaled $70.2 million and $72.3 million at December 31, 2009 and 2008, respectively. The Company
does not discount its claims liabilities.
Management estimates the development of the claims by applying the Companys historical claim
development factors to incurred claim amounts. Actual payments may differ from managements
estimates as a result of a number of factors, including increases in medical costs and other
case-specific factors. The actual claims payments are charged against the Companys accrued claims
liabilities and have been reasonable with respect to the estimates of the liabilities made under
the Companys methodology.
Environmental Matters
The Companys subsidiaries store fuel for use in tractors and trucks in 69 underground tanks
located in 23 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 these regulations. The
Companys 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 and others that it has
been identified as a potentially responsible party under the Comprehensive Environmental Response
Compensation and Liability Act, or other federal or state environmental statutes, at several
hazardous waste sites. After investigating the Companys or its subsidiaries involvement in waste
disposal or waste generation at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $0.1 million over the last ten years, primarily at six 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.
At December 31, 2009 and 2008, the reserve for estimated environmental clean-up costs of properties
currently or previously operated by the Company totaled $1.2 million and $1.1 million,
respectively, which is included in accrued expenses in the consolidated balance sheets. Amounts
accrued reflect managements best estimate of the future undiscounted exposure related to
identified properties based on current environmental regulations. This estimate is based on
managements experience with similar environmental matters and on testing performed at certain
sites.
Concern over climate change, including the impact of global warming, has led to significant
legislative and regulatory efforts to limit greenhouse gas emissions, and some form of federal
climate change legislation is possible in the relatively near future. Climate change legislation
has been introduced in the U.S. Congress. The Company is unable to determine with any certainty the
effects of the proposals that have been introduced. However, emission-related regulatory actions
have historically resulted in increased costs of revenue equipment and diesel fuel, and future
legislation, if passed, could result in increases in these and other costs. Increased regulation
regarding greenhouse gas emissions, including diesel engine emissions, could impose substantial
costs on the Company that may adversely impact the results of operations. Until the timing, scope
and extent of any future regulation becomes known, management cannot predict its effect on the
Companys cost structure or operating results.
Seasonality
ABF is impacted by seasonal fluctuations, which affect tonnage and shipment levels. Freight
shipments, operating costs and earnings are also affected adversely by inclement weather
conditions. The second and third calendar quarters of each year usually have the highest tonnage
levels while the first quarter generally has the lowest, although other factors, including the
state of the economy, may influence quarterly freight tonnage levels.
Effects of Inflation
Generally, inflationary and contractual increases in labor and fuel costs, which are discussed in
the Results of Operations section of MD&A, have historically been offset through price increases
and fuel surcharges. In periods of increasing fuel
38
|
|
ITEM 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued |
prices, the effect of higher associated fuel surcharges on the overall price to the customer
influences ABFs ability to obtain increases in base freight rates. In periods with declining fuel
surcharge levels, the timing and extent of base price increases on ABFs revenues may not
correspond with contractual increases in wage rates and other inflationary increases in cost
elements and as a result could adversely impact the Companys operating results. During 2009,
management believes ABFs base LTL pricing was negative while wage rates increased on April 1, 2009
and health, welfare and pension rates increased on August 1, 2009 under the collective bargaining
agreement with its union employees. ABFs revenue equipment (tractors and trailers used primarily
in ABFs operations) will likely be replaced during its normal replacement cycles at higher costs
which could result in higher depreciation charges on a per-unit basis. ABF considers these costs in
setting its pricing policies, although ABFs overall freight rate structure is governed by market
forces based on value provided to the customer. As discussed above, the pricing environment has
been very competitive during the economic recession and has limited ABFs ability to offset
inflationary and contractual cost increases.
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in certain interest rates, prices of diesel
fuel, credit ratings, and foreign currency exchange rates. These market risks arise in the normal
course of business, as the Company does not engage in speculative trading activities.
Interest Rate Risk
The instability in the financial and credit markets has created volatility in various interest
rates and returns on invested assets during 2009. At December 31, 2009 and 2008, cash and cash
equivalents and short-term investments subject to fluctuations in interest rates totaled $184.1
million and $221.0 million, respectively. The weighted-average yield on cash equivalents and
short-term investments was 1.5% and 2.8% in 2009 and 2008, respectively. The yield decline reflects
changes in market rates.
Liabilities associated with the nonunion defined benefit pension plan, the supplemental benefit
plan and the postretirement health benefit plan are remeasured on an annual basis based on discount
rates which are determined by matching projected cash distributions from the plans with the
appropriate high-quality corporate bond yields in a yield curve analysis. Changes in high-quality
corporate bond yields will impact interest expense associated with the benefit plans as well as the
amount of liabilities recorded.
The Company has historically been subject to market risk due to variable interest rates on all or a
part of its borrowings under bank credit lines and continues to be subject to such risk on its
accounts receivable securitization facility which became effective December 30, 2009 (see Note G to
the Companys consolidated financial statements included in Part II, Item 8 of this Annual Report
on Form 10-K). During 2009 and 2008, the Company incurred no borrowings and had no outstanding debt
obligations other than capital leases and letters of credit which were issued under the letters of
credit agreements (LC Agreements) (see Note F to the Companys consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K) and the Credit Agreement, as
applicable (see Note G to the Companys consolidated financial statements included in Part II, Item
8 of this Annual Report on Form 10-K).
In December 2009 and January 2010, ABF entered into capital lease arrangements to finance certain
revenue equipment (see Notes G and P to the Companys consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10-K). The monthly base rent for the lease terms is
specified in the lease agreements and is not subject to interest rate changes. However, ABF could
enter into additional capital lease arrangements which will be impacted by changes in interest
rates until the transactions are finalized.
Other Market Risks
The Company is subject to market risk for increases in diesel fuel prices; however, this risk is
mitigated by fuel surcharges which are included in the revenues of ABF based on increases in diesel
fuel prices compared to relevant indexes. When fuel surcharges constitute a higher proportion of
the total freight rate paid, our customers are less receptive to increases in base freight rates.
Prolonged periods of inadequate base rate improvements adversely impact operating profit as
elements of costs, including contractual wage rates, continue to annually increase. The Company has
not historically engaged in a program for fuel price hedging and had no fuel hedging agreements
outstanding at December 31, 2009 and 2008.
Financial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash, cash equivalents and short-term investments. The Company reduces credit risk by
placing its cash, cash equivalents and short-term investments with major financial institutions
with high credit ratings and by investing unrestricted short-term investments in FDIC-insured
certificates of deposit with varying original maturities of ninety-one days to one year. However,
restricted short-term investments in certificates of deposit pledged as collateral for outstanding
letters of credit under the Companys LC Agreements may exceed federally insured limits. At
December 31, 2009, the Company had certificates of deposit of $29.4 million which exceeded the
FDIC-insured limit.
40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Continued
Equity and fixed income assets held in the Companys qualified nonunion defined benefit pension
plan trust are subject to market risk. Declines in the value of plan assets resulting from the
instability in the financial markets, general economic downturn or other economic factors beyond
our control could diminish the funded status of the nonunion pension plan and potentially increase
our requirement to make contributions to the plan. An increase in required pension plan
contributions may adversely impact our financial condition and liquidity. Substantial investment
losses on plan assets will also increase pension expense in the years following the losses.
Investment returns that differ from expected returns are amortized to expense over the remaining
active service period of plan participants (see Note I to the Companys consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10-K). An increase in pension
expense may adversely impact our results of operations. In addition, the cash surrender value of
variable life insurance contracts, which totaled $13.1 million and $13.4 million at December 31,
2009 and 2008, respectively, are subject to equity and fixed income market returns and,
consequently, market risk.
Foreign operations are not significant to the Companys total revenues or assets, and accordingly
the Company does not have a formal foreign currency risk management policy. Revenues from non-U.S.
operations amounted to approximately 2% of total revenues for 2009. Foreign currency exchange rate
fluctuations have not had a material impact on the Company and they are not expected to in the
foreseeable future.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is included in this Item 8:
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Arkansas Best Corporation
We have audited the accompanying consolidated balance sheets of Arkansas Best Corporation as of
December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period ended December 31, 2009. Our
audits also included the financial statement schedule listed in Part IV, Item 15(a)(2). These
financial statements and the schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Arkansas Best Corporation at December 31, 2009 and
2008, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Arkansas Best Corporations internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 24, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Rogers, Arkansas
February 24, 2010
43
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
39,332 |
|
|
$ |
100,880 |
|
Short-term investment securities |
|
|
93,861 |
|
|
|
117,855 |
|
Restricted cash equivalents and short-term investments |
|
|
50,857 |
|
|
|
2,299 |
|
Accounts receivable, less allowances (2009 $3,470; 2008 $3,513) |
|
|
115,459 |
|
|
|
111,452 |
|
Other accounts receivable, less allowances (2009 $1,149; 2008 $1,001) |
|
|
6,749 |
|
|
|
6,611 |
|
Prepaid expenses |
|
|
10,390 |
|
|
|
10,670 |
|
Deferred income taxes |
|
|
39,035 |
|
|
|
36,079 |
|
Prepaid and refundable income taxes |
|
|
24,726 |
|
|
|
17,661 |
|
Other |
|
|
4,333 |
|
|
|
4,683 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
384,742 |
|
|
|
408,190 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
|
|
|
|
|
|
Land and structures |
|
|
240,185 |
|
|
|
235,861 |
|
Revenue equipment |
|
|
514,481 |
|
|
|
514,503 |
|
Service, office and other equipment |
|
|
157,885 |
|
|
|
150,524 |
|
Leasehold improvements |
|
|
21,839 |
|
|
|
21,697 |
|
|
|
|
|
|
|
|
|
|
|
934,390 |
|
|
|
922,585 |
|
Less allowances for depreciation and amortization |
|
|
505,538 |
|
|
|
473,010 |
|
|
|
|
|
|
|
|
|
|
|
428,852 |
|
|
|
449,575 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
52,292 |
|
|
|
50,636 |
|
|
|
|
|
|
|
|
|
|
GOODWILL |
|
|
3,660 |
|
|
|
63,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
869,546 |
|
|
$ |
972,298 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
44
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands, except share data) |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Bank overdraft and drafts payable |
|
$ |
21,941 |
|
|
$ |
15,189 |
|
Accounts payable |
|
|
59,386 |
|
|
|
51,646 |
|
Income taxes payable |
|
|
826 |
|
|
|
758 |
|
Accrued expenses |
|
|
150,799 |
|
|
|
147,540 |
|
Current portion of long-term debt |
|
|
3,603 |
|
|
|
159 |
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
236,555 |
|
|
|
215,292 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, less current portion |
|
|
13,373 |
|
|
|
1,457 |
|
|
|
|
|
|
|
|
|
|
PENSION AND POSTRETIREMENT LIABILITIES |
|
|
67,445 |
|
|
|
89,472 |
|
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES |
|
|
20,254 |
|
|
|
17,314 |
|
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAXES |
|
|
31,023 |
|
|
|
24,017 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, authorized 70,000,000 shares;
issued 2009: 26,749,265 shares; 2008: 26,702,222 shares |
|
|
267 |
|
|
|
267 |
|
Additional paid-in capital |
|
|
274,663 |
|
|
|
268,396 |
|
Retained earnings |
|
|
327,948 |
|
|
|
471,360 |
|
Treasury stock, at cost, 1,677,932 shares |
|
|
(57,770 |
) |
|
|
(57,770 |
) |
Accumulated other comprehensive loss |
|
|
(44,212 |
) |
|
|
(57,507 |
) |
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY |
|
|
500,896 |
|
|
|
624,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
869,546 |
|
|
$ |
972,298 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
45
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES |
|
$ |
1,472,901 |
|
|
$ |
1,833,052 |
|
|
$ |
1,836,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES AND COSTS (1) |
|
|
1,641,607 |
|
|
|
1,784,528 |
|
|
|
1,752,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
(168,706 |
) |
|
|
48,524 |
|
|
|
84,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income |
|
|
2,853 |
|
|
|
5,937 |
|
|
|
5,671 |
|
Interest expense and other related financing costs |
|
|
(2,389 |
) |
|
|
(1,181 |
) |
|
|
(1,189 |
) |
Other, net |
|
|
2,724 |
|
|
|
(3,370 |
) |
|
|
1,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,188 |
|
|
|
1,386 |
|
|
|
5,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(165,518 |
) |
|
|
49,910 |
|
|
|
90,791 |
|
|
|
|
|
|
FEDERAL AND STATE INCOME TAXES |
|
|
|
|
|
|
|
|
|
|
|
|
Current (benefit) provision |
|
|
(33,054 |
) |
|
|
8,171 |
|
|
|
27,806 |
|
Deferred (benefit) provision |
|
|
(4,942 |
) |
|
|
12,571 |
|
|
|
6,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,996 |
) |
|
|
20,742 |
|
|
|
33,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
(127,522 |
) |
|
|
29,168 |
|
|
|
56,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS: NONCONTROLLING INTEREST IN
NET INCOME OF SUBSIDIARY |
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO
ARKANSAS BEST CORPORATION |
|
$ |
(127,889 |
) |
|
$ |
29,168 |
|
|
$ |
56,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(5.12 |
) |
|
$ |
1.14 |
|
|
$ |
2.25 |
|
Diluted |
|
|
(5.12 |
) |
|
|
1.14 |
|
|
|
2.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE COMMON SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
25,052,303 |
|
|
|
24,976,412 |
|
|
|
24,822,673 |
|
Diluted |
|
|
25,052,303 |
|
|
|
25,110,539 |
|
|
|
25,018,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS DECLARED AND PAID
PER COMMON SHARE |
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The year ended December 31, 2009 includes a $64.0 million goodwill impairment charge
(nondeductible for tax purposes). See Note D. |
The accompanying notes are an integral part of the consolidated financial statements.
46
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Retained |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Equity |
|
|
|
($ and shares, thousands) |
|
Balances at January 1, 2007 |
|
|
26,407 |
|
|
$ |
264 |
|
|
$ |
250,469 |
|
|
$ |
415,876 |
|
|
|
1,553 |
|
|
$ |
(52,825 |
) |
|
$ |
(34,389 |
) |
|
$ |
579,395 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,825 |
|
Change in foreign currency
translation, net of tax of $40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61 |
|
|
|
61 |
|
Amortization of unrecognized net periodic
benefit costs, net of tax of $2,831: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,030 |
|
|
|
4,030 |
|
Prior service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405 |
|
|
|
405 |
|
Net transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
11 |
|
Pension settlement expense,
net of tax of $647(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018 |
|
|
|
1,018 |
|
Unrecognized net actuarial gain,
net of tax of $1,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,341 |
|
|
|
2,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
share-based compensation plans |
|
|
142 |
|
|
|
1 |
|
|
|
2,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,683 |
|
Tax effect of share-based compensation
plans (including excess tax benefits
of $683) and other |
|
|
|
|
|
|
|
|
|
|
816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
4,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,911 |
|
Purchases of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
(4,945 |
) |
|
|
|
|
|
|
(4,945 |
) |
Dividends paid on common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007 |
|
|
26,549 |
|
|
|
265 |
|
|
|
258,878 |
|
|
|
457,536 |
|
|
|
1,678 |
|
|
|
(57,770 |
) |
|
|
(26,523 |
) |
|
|
632,386 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,168 |
|
Change in foreign currency translation,
net of tax of $232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368 |
) |
|
|
(368 |
) |
Amortization of unrecognized net periodic
benefit costs, net of tax of $2,098: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,845 |
|
|
|
2,845 |
|
Prior service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405 |
|
|
|
405 |
|
Net transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
47 |
|
Pension settlement expense,
net of tax of $599(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
941 |
|
|
|
941 |
|
Unrecognized net actuarial loss,
net of tax benefits of $22,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,854 |
) |
|
|
(34,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
share-based compensation plans |
|
|
153 |
|
|
|
2 |
|
|
|
2,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,976 |
|
Tax effect of share-based compensation
plans (including excess tax benefits
of $692) and other |
|
|
|
|
|
|
|
|
|
|
438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
438 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
6,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,106 |
|
Dividends paid on common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
|
26,702 |
|
|
|
267 |
|
|
|
268,396 |
|
|
|
471,360 |
|
|
|
1,678 |
|
|
|
(57,770 |
) |
|
|
(57,507 |
) |
|
|
624,746 |
|
Net loss (excluding noncontrolling interest
in net income of subsidiary of $367) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,889 |
) |
Change in foreign currency translation,
net of tax of $149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
|
234 |
|
Amortization of unrecognized net periodic
benefit costs, net of tax of $4,376: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,486 |
|
|
|
6,486 |
|
Prior service costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
305 |
|
Net transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82 |
|
|
|
82 |
|
Pension settlement expense,
net of tax of $1,785(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,803 |
|
|
|
2,803 |
|
Unrecognized net actuarial gain,
net of tax of $2,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,266 |
|
|
|
3,266 |
|
Increase in fair value of available
for sale security, net of tax of $63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
share-based compensation plans |
|
|
47 |
|
|
|
|
|
|
|
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469 |
|
Tax effect of share-based compensation
plans and other |
|
|
|
|
|
|
|
|
|
|
(359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359 |
) |
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
6,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,157 |
|
Dividends paid on common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009 |
|
|
26,749 |
|
|
$ |
267 |
|
|
$ |
274,663 |
|
|
$ |
327,948 |
|
|
|
1,678 |
|
|
$ |
(57,770 |
) |
|
$ |
(44,212 |
) |
|
$ |
500,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of adjustments to unrecognized actuarial loss and transition obligation in 2007 and
2008 and to unrecognized actuarial loss in 2009 as a result of pension settlement expense (see
Note I). |
The accompanying notes are an integral part of the consolidated financial statements.
47
ARKANSAS BEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(127,522 |
) |
|
$ |
29,168 |
|
|
$ |
56,825 |
|
Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
75,226 |
|
|
|
76,872 |
|
|
|
77,318 |
|
Other amortization |
|
|
1,278 |
|
|
|
293 |
|
|
|
261 |
|
Goodwill impairment charge |
|
|
63,958 |
|
|
|
|
|
|
|
|
|
Pension settlement expense |
|
|
4,588 |
|
|
|
1,540 |
|
|
|
1,665 |
|
Share-based compensation expense |
|
|
6,157 |
|
|
|
6,106 |
|
|
|
4,911 |
|
Provision for losses on accounts receivable |
|
|
2,587 |
|
|
|
1,623 |
|
|
|
1,056 |
|
Deferred income tax provision (benefit) |
|
|
(4,942 |
) |
|
|
12,571 |
|
|
|
6,160 |
|
Gain on sales of assets |
|
|
(1,409 |
) |
|
|
(3,720 |
) |
|
|
(4,351 |
) |
Excess tax benefits from share-based compensation |
|
|
|
|
|
|
(692 |
) |
|
|
(683 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(3,735 |
) |
|
|
30,568 |
|
|
|
533 |
|
Prepaid expenses |
|
|
429 |
|
|
|
573 |
|
|
|
491 |
|
Other assets |
|
|
790 |
|
|
|
11,087 |
|
|
|
(676 |
) |
Accounts payable, taxes payable,
accrued expenses and other liabilities(1, 2) |
|
|
(5,615 |
) |
|
|
(60,652 |
) |
|
|
(377 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
11,790 |
|
|
|
105,337 |
|
|
|
143,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net of capital leases(1) |
|
|
(48,044 |
) |
|
|
(58,729 |
) |
|
|
(96,670 |
) |
Proceeds from asset sales |
|
|
4,913 |
|
|
|
17,073 |
|
|
|
12,067 |
|
Purchases of short-term investment securities |
|
|
(109,806 |
) |
|
|
(146,655 |
) |
|
|
(292,064 |
) |
Proceeds from sales of short-term investment securities |
|
|
133,800 |
|
|
|
107,404 |
|
|
|
348,008 |
|
Business acquisition, net of cash acquired |
|
|
(4,873 |
) |
|
|
|
|
|
|
|
|
Capitalization of internally developed software and other |
|
|
(5,176 |
) |
|
|
(5,325 |
) |
|
|
(4,599 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY INVESTING ACTIVITIES |
|
|
(29,186 |
) |
|
|
(86,232 |
) |
|
|
(33,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(1,433 |
) |
|
|
(295 |
) |
|
|
(1,360 |
) |
Proceeds from issuance of long-term debt |
|
|
14,958 |
|
|
|
|
|
|
|
|
|
Net change in bank overdraft |
|
|
6,752 |
|
|
|
(59 |
) |
|
|
(2,175 |
) |
Change in restricted cash equivalents and short-term investments |
|
|
(48,558 |
) |
|
|
|
|
|
|
|
|
Deferred financing costs |
|
|
(817 |
) |
|
|
|
|
|
|
(800 |
) |
Payment of common stock dividends |
|
|
(15,523 |
) |
|
|
(15,344 |
) |
|
|
(15,165 |
) |
Excess tax benefits from share-based compensation |
|
|
|
|
|
|
692 |
|
|
|
683 |
|
Purchases of treasury stock |
|
|
|
|
|
|
|
|
|
|
(4,945 |
) |
Proceeds from the exercise of stock options and other |
|
|
469 |
|
|
|
2,976 |
|
|
|
2,683 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY FINANCING ACTIVITIES |
|
|
(44,152 |
) |
|
|
(12,030 |
) |
|
|
(21,079 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(61,548 |
) |
|
|
7,075 |
|
|
|
88,796 |
|
Cash and cash equivalents at beginning of period |
|
|
100,880 |
|
|
|
93,805 |
|
|
|
5,009 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
39,332 |
|
|
$ |
100,880 |
|
|
$ |
93,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include $0.1 million and $0.7 million of equipment which was received but not yet
paid for at December 31, 2008 and 2007, respectively. |
|
(2) |
|
Includes contributions to the Companys nonunion pension plan of $15.5 million, $25.0 million
and $5.0 million in 2009, 2008 and 2007, respectively, and payments to retiring officers under
the Companys unfunded supplemental benefit plan of $7.8 million, $6.2 million and $5.3
million in 2009, 2008 and 2007, respectively. |
The accompanying notes are an integral part of the consolidated financial statements.
48
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Arkansas Best Corporation (the Company) is a holding company engaged, through its subsidiaries,
primarily in motor carrier freight transportation. The Companys principal operations are
conducted through ABF Freight System, Inc. and other subsidiaries of the Company that are engaged
in motor carrier freight transportation (collectively ABF).
Approximately 75% of ABFs employees are covered under a five-year collective bargaining agreement
with the International Brotherhood of Teamsters (IBT). The agreement with the IBT, which became
effective April 1, 2008, provides for compounded annual contractual wage and benefit increases of
approximately 4%, subject to wage rate cost-of-living adjustments.
NOTE B ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions are eliminated in
consolidation.
Cash and Cash Equivalents: Short-term investments that have a maturity of ninety days or less when
purchased are considered cash equivalents. Cash and cash equivalents, which totaled $39.3 million
at December 31, 2009, consisted primarily of money market funds. Interest and dividends related to
cash and cash equivalents are included in interest and dividend income.
Short-Term Investments: Short-term investments consist of FDIC-insured certificates of deposit with
original maturities ranging from ninety-one days to one year. Interest related to these investments
is included in interest and dividend income.
Restricted Cash Equivalents and Short-Term Investments: Cash, cash equivalents and short-term
investments that are pledged as collateral, primarily for the Companys outstanding letters of
credit, are classified as restricted. The Companys letters of credit are primarily issued in
support of certain workers compensation and third-party casualty claims liabilities in various
states in which the Company is self-insured. The restricted cash equivalents and short-term
investments are classified consistent with the classification of liabilities to which they relate
and in accordance with the duration of the letters of credit. Changes in the amount of restricted
funds are reflected as financing activities in the statements of cash flows.
Concentration of Credit Risk: The Companys services are provided primarily to customers throughout
the United States and Canada. ABF, which represented 94% of the Companys annual revenues for 2009,
had no single customer representing more than 3% of its 2009 revenues or 8% of its accounts
receivable balance at December 31, 2009. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains an allowance for
doubtful accounts based upon historical trends and factors surrounding the credit risk of specific
customers. Historically, credit losses have been within managements expectations.
The Company is potentially subject to concentrations of credit risk related to financial
instruments which consist primarily of cash, cash equivalents and short-term investments. The
Company reduces credit risk by placing its cash, cash equivalents and short-term investments with
major financial institutions with high credit ratings and by investing unrestricted short-term
investments in FDIC-insured certificates of deposit with varying original maturities of ninety-one
days to one year. However, restricted short-term investments in certificates of deposit pledged as
collateral for outstanding letters of credit under the Companys letter of credit agreements may
exceed federally insured limits. At December 31, 2009, the Company had certificates of deposit of
$29.4 million which exceeded the FDIC-insured limit.
Allowances: The Company maintains allowances for doubtful accounts, revenue adjustments and
deferred tax assets. The Companys allowance for doubtful accounts represents an estimate of
potential accounts receivable write-offs associated with recognized revenue based on historical
trends and factors surrounding the credit risk of specific customers. The Company writes off
accounts receivable when accounts are turned over to a collection agency or when determined to be
uncollectible.
49
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Receivables written off are charged against the allowance. The Companys allowance for revenue
adjustments represents an estimate of potential adjustments associated with recognized revenue
based upon historical trends. The Companys valuation allowance for deferred tax assets is
determined by evaluating whether it is more likely than not that the benefits of its deferred tax
assets will be realized through future reversal of existing taxable temporary differences, taxable
income in carryback years, the reduction of future taxable income or tax-planning strategies.
Property, Plant and Equipment Including Repairs and Maintenance: The Company utilizes tractors and
trailers in its motor carrier freight transportation operations. Tractors and trailers are commonly
referred to as revenue equipment in the transportation business. Purchases of property, plant and
equipment are recorded at cost. For financial reporting purposes, property, plant and equipment is
depreciated principally by the straight-line method, using the following lives: structures
primarily 15 to 20 years; revenue equipment 3 to 12 years; other equipment 2 to 15 years; and
leasehold improvements 4 to 20 years, or over the remaining life of the lease, whichever is
shorter. For tax reporting purposes, accelerated depreciation or cost recovery methods are used.
Gains and losses on asset sales are reflected in the year of disposal. Exchanges of nonmonetary
assets that have commercial substance are measured based on the fair value of the assets exchanged.
Tires purchased with revenue equipment are capitalized as a part of the cost of such equipment,
with replacement tires being expensed when placed in service. Repair and maintenance costs
associated with property, plant and equipment are expensed as incurred if the costs do not extend
the useful life of the asset. If such costs do extend the useful life of the asset, the costs are
capitalized and depreciated over the appropriate remaining useful life.
Computer Software Developed or Obtained for Internal Use, Including Web Site Development Costs: The
Company capitalizes qualifying computer software costs incurred during the application development
stage. For financial reporting purposes, capitalized software costs are amortized by the
straight-line method over 2 to 3 years. The amount of costs capitalized within any period is
dependent on the nature of software development activities and projects in each period.
Impairment Assessment 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 operations for
impairment whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. If such an event or change in circumstances is present, the Company
will estimate the undiscounted future cash flows 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. The Company
records impairment losses in operating income.
Assets to be disposed of are reclassified as assets held for sale at the lower of their carrying
amount or fair value less cost to sell. Assets held for sale primarily represent ABFs nonoperating
properties, older revenue equipment and other equipment. Write-downs to fair value less cost to
sell are reported in operating income. Assets held for sale are expected to be disposed of by
selling the properties or assets within the next 12 months. Gains and losses on property and
equipment are reported in operating income.
Assets held for sale are included in other noncurrent assets. During 2009, property and equipment
classified as held for sale and carried at $2.8 million was sold for net gains totaling $1.2
million. At December 31, 2009, management was not aware of any events or circumstances indicating
the Companys long-lived assets would not be recoverable.
The following table is a summary of assets held for sale for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
Assets held for sale January 1 |
|
$ |
1,133 |
|
|
$ |
10,127 |
|
Reclassifications of assets |
|
|
3,713 |
|
|
|
2,819 |
|
Sale of assets |
|
|
(2,837 |
) |
|
|
(11,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale December 31 |
|
$ |
2,009 |
|
|
$ |
1,133 |
|
|
|
|
|
|
|
|
Asset Retirement Obligations: The Company records estimated liabilities for the cost to remove
underground storage tanks, dispose of tires and return leased real property to its original
condition at the end of a lease term. The liabilities are discounted using the Companys credit
adjusted risk-free rate. Revisions to these liabilities for such costs may occur due to changes in
the estimates for fuel tank removal costs, tire disposal fees and real property lease restoration
costs, or changes in
50
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
regulations or agreements affecting these obligations. At December 31, 2009
and 2008, the Companys estimated asset retirement obligations totaled $2.2 million and $2.0
million, respectively.
Goodwill: Goodwill represents the excess of the purchase price in a business combination over the
fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is
evaluated for impairment annually or more frequently if indicators of impairment exist. The
measurement of goodwill impairment consists of two steps. In the first step, a comparison is made
of the estimated fair value of a reporting unit to its carrying value. If the results of the first
test indicate that the fair value of the reporting unit is less than the carrying value, the second
step of the impairment test is required. In the second step, an estimate of the current fair values
of all assets and liabilities is made to determine the amount of implied goodwill and consequently
the amount of any goodwill impairment. The application of the impairment test resulted in a
goodwill impairment charge of $64.0 million in 2009 (see Note D).
Income Taxes: Deferred income taxes are accounted for under the liability method, which takes into
account the differences between the tax basis of the assets and liabilities for financial reporting
purposes and amounts recognized for income tax purposes. Deferred income taxes relate principally
to asset and liability basis differences resulting from the timing of the depreciation and cost
recovery deductions and to temporary differences in the recognition of certain revenues and
expenses. The Company classifies interest and penalty amounts related to income tax matters as
interest expense and operating expenses, respectively.
Claims Liabilities: The Company is self-insured up to certain limits for workers compensation,
certain third-party casualty claims and cargo loss and damage claims. Amounts in excess of the
self-insured limits are fully insured to levels which management considers appropriate for the
Companys operations. The Companys claims liabilities have not been discounted.
The Company records a liability for self-insured workers compensation and third-party casualty
claims based on the incurred claim amount plus an estimate of future claim development and a
reserve for claims incurred but not reported. Management estimates the development of the claims by
applying the Companys historical claim development factors to incurred claim amounts. The Company
is entitled to recover, from insurance carriers and insurance pool arrangements, amounts which have
been previously paid by the Company for claims above the self-insurance retention level. These
amounts are included in other accounts receivable, net of allowances for potentially unrecoverable
amounts.
The Company records an estimate of its potential self-insured cargo loss and damage claims by
estimating the amount of potential claims based on the Companys historical trends and certain
event-specific information.
Insurance-Related Assessments: The Company recorded estimated liabilities for state guaranty fund
assessments and other insurance-related assessments of $0.8 million at December 31, 2009 and 2008.
Management has estimated the amounts incurred using the best available information regarding
premiums and guaranty assessments by state. These amounts are expected to be paid within a period
not to exceed one year. The liabilities recorded have not been discounted.
Nonunion Defined Benefit Pension, Supplemental Pension and Postretirement Health Plans: The Company
recognizes the funded status (the difference between the fair value of plan assets and the benefit
obligation) of its defined benefit pension plan, supplemental benefit plan (SBP) and
postretirement health benefit plan in the balance sheet and recognizes changes in the funded
status, net of tax, in the year in which they occur as a component of other comprehensive loss.
Amounts recognized in other comprehensive loss are subsequently expensed as components of net
periodic benefit cost in the consolidated statements of income by amortizing the amounts over the
average remaining active service period of the plan participants. A corridor approach is not used
for determining amounts to be amortized.
The expense and liability related to the Companys defined benefit pension plan, SBP and
postretirement health benefit plan are measured based upon a number of assumptions and using the
services of a third-party actuary. Assumptions are made regarding expected retirement age,
mortality, employee turnover and future increases in healthcare costs. The assumptions with the
greatest impact on the Companys expense are the discount rate used to discount the plans
obligations, the expected return on plan assets and the assumed compensation cost increase. The
discount rate is determined by matching projected cash distributions with appropriate high quality
corporate bond yields in a yield curve analysis. The Company establishes the expected rate of
return on plan assets by considering the historical returns for the plans current investment mix
and its investment advisors range of expected returns for the plans current investment mix. The
Company establishes the assumed rate of compensation increase considering historical changes in
compensation combined with an estimate of compensation rates for the next two years.
51
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The assumptions used directly impact the defined benefit pension expense for a particular year. If
actual results vary from the assumption, an actuarial gain or loss results. Actuarial gains and
losses that arise which are not included in net periodic
benefit cost in the same period are recognized as a component of other comprehensive loss and
subsequently amortized as a component of net periodic benefit cost.
The Company uses December 31 as the measurement date for its defined benefit pension plan, SBP and
postretirement health benefit plan.
Comprehensive Income or Loss: The Company reports the components of other comprehensive income or
loss by their nature in the financial statements and displays the accumulated balance of other
comprehensive income or loss separately in the consolidated statements of stockholders equity.
Other comprehensive income or loss refers to revenues, expenses, gains and losses that are included
in comprehensive income or loss but excluded from net income or loss.
Revenue Recognition: Revenue is recognized based on relative transit time in each reporting period
with expenses recognized as incurred. The Company utilizes a bill-by-bill analysis to establish
estimates of revenue in transit for recognition in the appropriate reporting period. The Company
reports revenue and purchased transportation expense on a gross basis for certain shipments where
ABF utilizes a third-party carrier for pickup, linehaul or delivery of freight but remains the
primary obligor.
Earnings Per Share: The calculation of earnings per share is based on the weighted-average number
of common (basic earnings per share) or common equivalent shares outstanding (diluted earnings per
share) during the applicable period. The dilutive effect of common stock equivalents is excluded
from basic earnings per share and included in the calculation of diluted earnings per share.
Share-Based Compensation: For share-based awards granted prior to January 1, 2006, the Company
amortized the fair value of the awards to compensation expense on a straight-line basis over the
five-year vesting period and accelerated unrecognized compensation upon a grantees death,
disability or retirement. Share-based awards granted or modified subsequent to January 1, 2006 are
amortized to compensation expense over the five-year vesting period or the period to which the
employee first becomes eligible for retirement, whichever is shorter, with vesting accelerated upon
death or disability. Compensation expense reflects an estimate of shares expected to be forfeited
over the service period. Estimated forfeitures, which are based on historical experience, are
adjusted to the extent that actual forfeitures differ, or are expected to differ, from these
estimates.
The fair value of restricted stock awards is determined based upon the closing market price of the
Companys Common Stock on the date of grant. The restricted stock awards generally vest at the end
of a five-year period following the date of grant, subject to accelerated vesting due to death,
disability, retirement or change-in-control provisions. The Company issues new shares upon the
granting of restricted stock. However, no new shares are issued upon the granting of restricted
stock units until such units become vested. Dividends or dividend equivalents are paid on all
restricted stock awards during the vesting period.
The Company has not granted stock options since January 2004. Compensation expense for 2008 and
2007 includes the pro rata cost of stock options granted prior to but not yet vested as of January
1, 2006, based upon the grant date fair value. Tax benefits in excess of the compensation cost
recognized for stock options (excess tax benefits) are reported as financing cash flows for those
same years. Stock options generally vested in equal amounts over a five-year period and expire ten
years from the date of grant. The Company issues new shares upon the exercise of stock options. The
grant date fair value of stock options was estimated based on a Black-Scholes-Merton option pricing
model that utilizes several assumptions, including expected volatility, weighted-average life and a
risk-free interest rate. Expected volatilities were estimated using the historical volatility of
the Companys stock, based upon the expected term of the option. The Company was not aware of
information in determining the grant date fair value that would have indicated that future
volatility would be expected to be significantly different than historical volatility. The expected
term of the option was derived from historical data and represents the period of time that options
are estimated to be outstanding. The risk-free interest rate for periods within the estimated life
of the option was based on the U.S. Treasury Strip rate in effect at the time of the grant.
Fair Value Measurements: The Company adopted fair value disclosure provisions with respect to its
financial assets and liabilities that are measured at fair value on a recurring basis effective
January 1, 2008, and adopted the provisions with respect to its nonfinancial assets and liabilities
that are measured at fair value on a nonrecurring basis effective January 1,
52
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
2009. The Company is
required to disclose its fair value measurements using a hierarchy of valuation techniques based on
whether the inputs to those valuation techniques are observable or unobservable.
Environmental Matters: The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current or future benefit is
discernible. Expenditures which extend the life of the related property or mitigate or prevent
future environmental contamination are capitalized. Amounts accrued reflect managements best
estimate of the future undiscounted exposure related to identified properties based on current
environmental regulations. The Companys estimate is based on managements experience with similar
environmental matters and on testing performed at certain sites. The estimated liability is not
reduced for possible recoveries from insurance carriers or other third parties.
Exit or Disposal Activities: The Company recognizes liabilities for costs associated with exit or
disposal activities when the liability is incurred.
Variable Interest Entities: The Company has no investments in or known contractual arrangements
with variable interest entities.
Segment Information: The Company uses the management approach for determining its reportable
segment information. The management approach is based on the way management organizes the
reportable segments within the Company for making operating decisions and assessing performance.
Use of 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 amounts may
differ from those estimates.
Reclassifications: Certain reclassifications of restricted cash equivalents have been made to the
prior years financial statements to conform to the current years presentation. Restricted cash
equivalents and short-term investments are further discussed in Note C.
NOTE C FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments.
Cash and Cash Equivalents: Cash and cash equivalents totaling $39.3 million and $100.9 million at
December 31, 2009 and 2008, respectively, consist primarily of money market funds for which quoted
prices are used to determine fair value.
Short-Term Investments: Short-term investments totaling $93.9 million and $117.9 million at
December 31, 2009 and 2008, respectively, consist of FDIC-insured certificates of deposit which are
recorded at cost plus accrued interest, which approximates fair value. The Company sold $133.8
million, $107.4 million and $348.0 million in short-term investments during the years ended
December 31, 2009, 2008 and 2007, respectively, with no realized gains or losses.
Restricted Cash Equivalents and Short-Term Investments: At December 31, 2009, $48.0 million of
restricted funds were invested in cash and certificates of deposit and recorded at cost plus
accrued interest, which approximates fair value. The remaining balance of $2.9 million at December
31, 2009 and $2.3 million at December 31, 2008 consist of money market funds which are recorded at
fair value as determined by quoted prices.
Long-Term Investments: Long-term investments which are reported at fair value within other
long-term assets at December 31, 2009 and 2008 consist of mutual fund investments held in trust
related to the Companys Voluntary Savings Plan (VSP) and an insured, investment-grade available
for sale auction rate debt security. The available for sale security, for which the underlying debt
instrument matures in 2025, is valued using the income approach with inputs derived from observable
market data. The VSP is a nonqualified deferred compensation plan (see Note I). The mutual fund
investments held in trust related to the VSP are associated with the deferral of compensation, the
Companys match on deferred
53
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
compensation and investment earnings related to the plan. These
securities are considered general assets of the Company until distributed to the participant.
Quoted market prices were used to determine fair values of the mutual fund investments.
Debt: Debt reported in the consolidated balance sheets consists of capital lease obligations (see
Note G).
Financial Assets Measured at Fair Value
Fair value is generally determined based on the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants at the measurement
date. In the absence of active markets for the identical assets or liabilities, such measurements
generally involve developing assumptions based on observable market data. Observable inputs reflect
market data obtained from independent sources, while unobservable inputs reflect the Companys
market assumptions. These inputs form a three-level valuation hierarchy as follows:
|
|
|
Level 1 Quoted prices for identical assets and liabilities in active markets. |
|
|
|
Level 2 Quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets and liabilities in markets that are not active, or
other inputs that are observable or can be corroborated by observable market data. |
|
|
|
Level 3 Unobservable inputs that are significant to the valuation model. |
Assets Measured at Fair Value on a Recurring Basis
The following table presents, for each of the fair value hierarchy levels, the Companys assets
that are measured at fair value on a recurring basis at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
($ thousands) |
|
Money market funds(1) |
|
$ |
34,437 |
|
|
$ |
34,437 |
|
|
$ |
|
|
|
$ |
|
|
Available for sale security(2) |
|
|
780 |
|
|
|
|
|
|
|
780 |
|
|
|
|
|
Equity, bond and money market mutual funds held in trust
related to a nonqualified deferred compensation plan(3) |
|
|
6,303 |
|
|
|
6,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
41,520 |
|
|
$ |
40,740 |
|
|
$ |
780 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
|
|
|
($ thousands) |
|
Money market funds(1) |
|
$ |
95,605 |
|
|
$ |
95,605 |
|
|
$ |
|
|
|
$ |
|
|
Available for sale security(2) |
|
|
608 |
|
|
|
|
|
|
|
608 |
|
|
|
|
|
Equity, bond and money market mutual funds held in trust
related to a nonqualified deferred compensation plan(3) |
|
|
7,427 |
|
|
|
7,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
103,640 |
|
|
$ |
103,032 |
|
|
$ |
608 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in cash equivalents and restricted cash equivalents. |
|
(2) |
|
Consists of an insured, investment-grade auction rate debt security which is included in
other long-term assets. An unrealized gain of $0.1 million, net of taxes, related to the
security is included in accumulated other comprehensive loss as of December 31, 2009. |
|
(3) |
|
Securities related to the Companys VSP and included in other long-term assets consist of
U.S. and international equity mutual funds, government and corporate bond mutual funds and
money market funds, held in a trust with a third-party brokerage firm. A corresponding
liability is included in other long-term liabilities in the consolidated balance sheet. |
NOTE D GOODWILL
While the Companys annual goodwill impairment test date is January 1, the Companys fourth quarter
2009 losses, combined with the challenging industry environment reflected in historically low daily
tonnage levels and an aggressive pricing environment, indicated that the goodwill associated with
ABF may be impaired. In the prior year goodwill evaluation, the Company assumed that available LTL
tonnage would improve in the fourth quarter of 2009. However, ABF experienced reduced tonnage and
pricing on its LTL business and consequently lower operating results in the fourth quarter
54
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
of 2009.
Based on the results of the impairment testing of goodwill, the Company recorded a noncash charge
of $64.0 million for impairment of the value of ABFs entire goodwill balance in the fourth quarter
of 2009. The goodwill impairment charge, which is not tax deductible, was included in operating
expenses within the ABF segment. Goodwill of $63.9 million at
December 31, 2008 was attributable to ABF as a result of a 1988 leveraged buyout. Changes occurred
in ABFs goodwill asset balance during 2009 because of foreign currency translation adjustments on
the portion of the goodwill related to ABFs Canadian operations. The goodwill balance remaining at
December 31, 2009 of $3.7 million was related to the second quarter 2009 acquisition of a
privately-owned logistics company that is included in the Companys business operations other than
ABF.
Under the first step of the goodwill impairment evaluation, the aggregate carrying amount of ABF
was compared to its fair value utilizing an equal combination of valuation methods, including
earnings before interest, taxes, depreciation and amortization (EBITDA) multiples (market
approach) and the present value of discounted cash flows (income approach). Incorporation of the
two methods into the impairment test supported the reasonableness of conclusions reached. The
valuation determined by the market approach was not significantly different from the value derived
by the income approach in the current year evaluation.
To determine the EBITDA multiple, the Company obtained information from third parties for the
EBITDA multiples observed for recent acquisitions in the trucking industry. For the annual
impairment tests performed by the Company in the last three years, this marketplace EBITDA
multiple was in the mid-single digit range. The fair value that was estimated from the market
approach was negatively impacted by ABFs recent operating losses.
The discounted cash flows model utilized in the income approach incorporates discount rates and
projections of future revenue growth rates, operating margins and net capital expenditures. The
projections used have changed over time based on historical performance and changing business
conditions. Assumptions with respect to rates used to discount cash flows are dependent upon market
interest rates and the cost of capital for the Company and the industry at a point in time. In the
recent evaluation process, the 12.5% discount rate used was higher than the rate used in the prior
year due to increased risk associated with extremely challenging freight conditions. The Company
included a cash flow period of ten years in the income approach that, due to the length of time,
assumed the occurrence of another recessionary cycle. In addition, the near-term outlook for the
LTL market is highly uncertain due to the current freight recession and the negative impact of
aggressive pricing. The resulting annual revenue growth rate assumption in the low to mid-single
digits was generally consistent with historical trends. The assumed revenue projections were lower
than the prior year estimates due to the impact of the recent recessionary period on the revenues
in the base year of the cash flow model and the resulting influence on the assumed timing of a
recovery in available freight tonnage. In addition, the revenue projections did not assume regional
or long-haul market share gains or significant pricing improvement. The timing of estimated
measurable tonnage and pricing improvement and the assumptions related to future market share were
significant to the associated cash flows and resulting valuation.
Based on the first step of the analysis, the carrying amount of ABF was determined to be in excess
of its fair value. In completing the step two estimate of the current fair value of identifiable
assets and liabilities, significant assumptions included the estimated value of previously
unrecognized intangible assets, as well as the estimated appreciation in value of land and
structures. These currently unrecognized amounts reduced the amount of implied goodwill in ABF.
The resulting estimated values of ABFs net assets were deducted from the fair value of ABF
determined in the first step of the analysis to determine the implied fair value of goodwill. The
carrying value of ABFs goodwill exceeded its implied fair value, and, as a result, the value of
ABFs entire goodwill balance was impaired. The measurement of fair value of ABFs goodwill
involves the use of significant unobservable inputs, and is considered a Level 3 fair value
measurement.
Management believes that the long-term economics of ABFs business operations remain intact and
that operating results will ultimately improve, although it cannot predict the timing of an
economic recovery. The noncash goodwill impairment charge does not directly impact the Companys
normal business operations, liquidity or credit availability under its existing facilities,
although the factors leading to the goodwill impairment have negatively impacted the Companys
operating results.
55
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE E FEDERAL AND STATE INCOME TAXES
Significant components of the provision or benefit for income taxes for the years ended December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(33,163 |
) |
|
$ |
6,002 |
|
|
$ |
21,845 |
|
State |
|
|
(402 |
) |
|
|
968 |
|
|
|
5,341 |
|
Foreign |
|
|
511 |
|
|
|
1,201 |
|
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,054 |
) |
|
|
8,171 |
|
|
|
27,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(1,333 |
) |
|
|
10,421 |
|
|
|
5,535 |
|
State |
|
|
(3,614 |
) |
|
|
2,153 |
|
|
|
644 |
|
Foreign |
|
|
5 |
|
|
|
(3 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,942 |
) |
|
|
12,571 |
|
|
|
6,160 |
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes |
|
$ |
(37,996 |
) |
|
$ |
20,742 |
|
|
$ |
33,966 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Significant components of the deferred tax provision or benefit for the years ended December 31 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
Amortization, depreciation and basis differences for property,
plant and equipment and other long-lived assets |
|
$ |
625 |
|
|
$ |
9,053 |
|
|
$ |
8,472 |
|
Changes in reserves for workers compensation and cargo claims |
|
|
797 |
|
|
|
2,338 |
|
|
|
(1,803 |
) |
Revenue recognition |
|
|
41 |
|
|
|
(3,174 |
) |
|
|
562 |
|
Foreign tax credit carryforward |
|
|
(1,084 |
) |
|
|
|
|
|
|
|
|
Nonunion pension and other retirement plans |
|
|
(2,109 |
) |
|
|
6,143 |
|
|
|
(2,860 |
) |
Deferred compensation plans |
|
|
1,004 |
|
|
|
1,493 |
|
|
|
384 |
|
State net operating loss carryforwards |
|
|
(2,923 |
) |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
(1,760 |
) |
|
|
(1,392 |
) |
|
|
(1,019 |
) |
Other |
|
|
(1,708 |
) |
|
|
(1,770 |
) |
|
|
2,386 |
|
Valuation allowance increase (decrease) |
|
|
2,175 |
|
|
|
(120 |
) |
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit) |
|
$ |
(4,942 |
) |
|
$ |
12,571 |
|
|
$ |
6,160 |
|
|
|
|
|
|
|
|
|
|
|
56
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Significant components of deferred tax assets and liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
48,336 |
|
|
$ |
49,775 |
|
Pension liabilities |
|
|
24,490 |
|
|
|
27,744 |
|
Postretirement liabilities other than pensions |
|
|
5,227 |
|
|
|
7,801 |
|
Share-based compensation |
|
|
5,236 |
|
|
|
3,487 |
|
State net operating loss carryovers |
|
|
3,829 |
|
|
|
838 |
|
Other |
|
|
358 |
|
|
|
205 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
87,476 |
|
|
|
89,850 |
|
Valuation allowance |
|
|
(3,013 |
) |
|
|
(838 |
) |
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance |
|
|
84,463 |
|
|
|
89,012 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Amortization, depreciation and basis differences
for property, plant and equipment and other long-lived assets |
|
|
69,985 |
|
|
|
69,805 |
|
Revenue recognition |
|
|
3,290 |
|
|
|
3,642 |
|
Prepaid expenses |
|
|
3,176 |
|
|
|
3,503 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
76,451 |
|
|
|
76,950 |
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
8,012 |
|
|
$ |
12,062 |
|
|
|
|
|
|
|
|
Reconciliation between the effective income tax rate, as computed on income or loss before income
taxes, and the statutory federal income tax rate for the years ended December 31 is presented in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax at the statutory federal rate of 35% |
|
$ |
(57,931 |
) |
|
$ |
17,468 |
|
|
$ |
31,777 |
|
Federal income tax effects of: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes |
|
|
1,406 |
|
|
|
(1,092 |
) |
|
|
(2,160 |
) |
Nondeductible expenses |
|
|
915 |
|
|
|
1,443 |
|
|
|
2,091 |
|
Nondeductible goodwill impairment |
|
|
22,386 |
|
|
|
|
|
|
|
|
|
Life insurance proceeds and changes in cash surrender value |
|
|
(913 |
) |
|
|
1,225 |
|
|
|
(586 |
) |
Dividends received deduction |
|
|
(18 |
) |
|
|
(44 |
) |
|
|
(317 |
) |
Tax-exempt investment income |
|
|
|
|
|
|
(22 |
) |
|
|
(1,451 |
) |
Alternative fuel credit |
|
|
(931 |
) |
|
|
(1,024 |
) |
|
|
(960 |
) |
Other |
|
|
590 |
|
|
|
(1,531 |
) |
|
|
(1,014 |
) |
|
|
|
|
|
|
|
|
|
|
Federal income taxes |
|
|
(34,496 |
) |
|
|
16,423 |
|
|
|
27,380 |
|
State income taxes |
|
|
(4,016 |
) |
|
|
3,121 |
|
|
|
5,985 |
|
Foreign income taxes |
|
|
516 |
|
|
|
1,198 |
|
|
|
601 |
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes |
|
$ |
(37,996 |
) |
|
$ |
20,742 |
|
|
$ |
33,966 |
|
|
|
|
|
|
|
|
|
|
|
Effective tax (benefit) rate |
|
|
(23.0 |
)% |
|
|
41.6 |
% |
|
|
37.4 |
% |
|
|
|
|
|
|
|
|
|
|
Income taxes paid totaled $3.8 million in 2009, $28.8 million in 2008, and $39.6 million in 2007
before income tax refunds of $30.1 million in 2009, $7.6 million in 2008, and $10.6 million in
2007.
The tax benefit for exercised options in 2009 was less than $0.1 million of which none was
reflected in paid-in capital. A paid-in capital benefit could be recognized as additional
information becomes available to the Company regarding stock sales by employees. The tax benefits
associated with stock options exercised totaled $1.0 million in 2008 and $0.9 million in 2007,
which were reflected in paid-in capital. In 2008, the Company began recognizing the income tax
benefits of dividends on share-based payment awards as an increase in paid-in capital. The tax
benefit of dividends on share-based payment awards reflected in paid-in capital totaled $0.2
million in 2009 and $0.1 million in 2008.
The Company had state net operating loss carryovers of approximately $27.5 million and state
contribution carryovers of $0.9 million at December 31, 2009. These state net operating loss and
contribution carryovers expire in twenty years or less. As of December 31, 2009, the Company had
valuation allowances of $0.9 million for state net operating loss and
57
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
contribution carryovers, $1.3
million for deferred tax assets related to future state income tax benefits, $0.7 million related
to foreign tax credit carryovers and $0.1 million related to foreign net operating loss carryovers,
due to the uncertainty of realization of these items. Foreign tax credit carryovers expire in ten
years. Valuation allowances were increased in 2009 for state net operating losses and state
deferred tax assets of companies which operate in a state with a limited carryforward period, low
levels of historical income and limited options for tax planning strategies.
During 2007, the U.S. Internal Revenue Service (the IRS) completed an examination of the
Companys federal income tax return for 2004, and no changes were made to the Companys return. The
Company is under examination by certain state taxing authorities. Although the outcome of tax
audits is always uncertain and could result in payment of additional taxes, the Company does not
believe the results of any of these audits will have a material effect on its financial position,
results of operations or cash flows.
Effective January 1, 2007, the Company adopted accounting and disclosure requirements for uncertain
tax positions, which requires a two-step approach to evaluate tax positions. This approach involves
recognizing any tax positions that are more likely than not to occur and then measuring those
positions to determine the amounts to be recognized in the financial statements. Federal income tax
returns filed for years through 2005 are closed by the applicable statute of limitations. The
Company has determined that no reserves for uncertain tax positions were required at December 31,
2009 and 2008 or during the years then ended. The Company is not aware of any matters that would
cause a significant change in this determination in 2010.
Interest expense related to amended federal and state income tax returns yet to be filed was less
than $0.1 million for the year ended December 31, 2009. At December 31, 2009 and 2008, the accrued
interest liability, which related to federal and state income taxes to be paid on amended returns,
totaled $0.8 million and $1.0 million, respectively. Interest of $0.4 million was paid related to
federal and state income taxes in 2009. Less than $0.1 million of interest was paid related to
state income taxes, and no interest was paid related to federal income taxes during 2008 and 2007.
NOTE F OPERATING LEASES AND COMMITMENTS
While the Company maintains ownership of most of its larger terminals and distribution centers,
certain facilities and equipment are leased. Rental expense totaled $18.3 million, $16.2 million
and $14.7 million in 2009, 2008 and 2007, respectively.
The future minimum rental commitments, net of minimum rentals to be received under noncancelable
subleases, as of December 31, 2009, for all noncancelable operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
Period |
|
Total |
|
|
Terminals |
|
|
and Other |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
11,410 |
|
|
$ |
11,235 |
|
|
$ |
175 |
|
2011 |
|
|
10,012 |
|
|
|
9,866 |
|
|
|
146 |
|
2012 |
|
|
7,440 |
|
|
|
7,440 |
|
|
|
|
|
2013 |
|
|
5,728 |
|
|
|
5,728 |
|
|
|
|
|
2014 |
|
|
4,540 |
|
|
|
4,540 |
|
|
|
|
|
Thereafter |
|
|
12,839 |
|
|
|
12,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,969 |
|
|
$ |
51,648 |
|
|
$ |
321 |
|
|
|
|
|
|
|
|
|
|
|
Certain of the leases are renewable for additional periods with similar rent payments. In addition
to the above, the Company has guaranteed rent payments through March 2012 totaling $0.6 million for
office space that continues to be leased by Clipper Exxpress Company, an intermodal transportation
subsidiary that was sold in June 2006. Future minimum rentals to be received under noncancelable
subleases totaled approximately $0.1 million at December 31, 2009.
Commitments to purchase revenue equipment, property and other equipment, which are cancelable by
the Company if certain conditions are met, were approximately $26.9 million at December 31, 2009.
58
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
In 2009, the Company entered into agreements with four financial institutions to provide
collateralized facilities for the issuance of letters of credit (LC Agreements). The Company
issues letters of credit primarily in support of workers compensation and third-party casualty
claims liabilities in various states in which the Company is self-insured. The Company has up to
$90.0 million of availability for the issuance of letters of credit under the LC Agreements of
which $75.0 million is committed subject to the Companys compliance with the requirements of
issuance. The LC Agreements require cash or short-term investments to be pledged as collateral for
outstanding letters of credit. As of December 31, 2009, the Company had $48.9 million outstanding
in letters of credit under the LC Agreements of which $48.5 million were collateralized by
restricted cash equivalents and short-term investments (see Note C).
NOTE G LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of capital lease obligations as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
Capitalized lease obligations |
|
$ |
16,976 |
|
|
$ |
1,616 |
|
Less current portion |
|
|
3,603 |
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
$ |
13,373 |
|
|
$ |
1,457 |
|
|
|
|
|
|
|
|
In December 2009, ABF entered into capital lease agreements to finance $15.0 million of revenue
equipment. These capital lease agreements specify the monthly base rent and interest rates over the
36-month terms. The arrangements contain a rental adjustment clause for which the maximum amount
has been included in the final payment of the future minimum payments under the capital leases in
the table below.
The Company also has other capitalized lease obligations related to real estate and certain
computer equipment. The future minimum payments under capitalized leases at December 31, 2009,
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
Equipment |
|
|
|
Total |
|
|
Equipment |
|
|
Terminals |
|
|
and Other |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
4,205 |
|
|
$ |
3,878 |
|
|
$ |
168 |
|
|
$ |
159 |
|
2011 |
|
|
4,202 |
|
|
|
3,878 |
|
|
|
182 |
|
|
|
142 |
|
2012 |
|
|
4,207 |
|
|
|
3,879 |
|
|
|
186 |
|
|
|
142 |
|
2013 |
|
|
4,761 |
|
|
|
4,487 |
|
|
|
193 |
|
|
|
81 |
|
2014 |
|
|
250 |
|
|
|
|
|
|
|
199 |
|
|
|
51 |
|
Thereafter |
|
|
1,105 |
|
|
|
|
|
|
|
1,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
18,730 |
|
|
|
16,122 |
|
|
|
2,033 |
|
|
|
575 |
|
Less amounts representing interest |
|
|
1,754 |
|
|
|
1,164 |
|
|
|
520 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum
leases included in long-term debt |
|
$ |
16,976 |
|
|
$ |
14,958 |
|
|
$ |
1,513 |
|
|
$ |
505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held under capitalized leases at December 31 are included in property, plant and equipment as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
Land and structures (terminals) |
|
$ |
1,780 |
|
|
$ |
1,529 |
|
Revenue equipment |
|
|
14,958 |
|
|
|
|
|
Service, office and other equipment |
|
|
622 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
17,360 |
|
|
|
1,680 |
|
Less accumulated amortization |
|
|
538 |
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
$ |
16,822 |
|
|
$ |
1,390 |
|
|
|
|
|
|
|
|
59
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The Companys capital lease obligations have a weighted-average interest rate of 4.25% at December
31, 2009. The Company paid interest of $0.5 million in 2009, $0.5 million in 2008, and $0.6
million in 2007, net of capitalized interest which totaled $0.1 million, $0.1 million and $0.2
million for the years ended December 31, 2009, 2008 and 2007, respectively. Amortization of assets
under capital leases is included in depreciation expense.
On December 30, 2009, the Company entered into a two-year, asset-backed securitization program with
SunTrust Bank, which provides for cash proceeds of an amount up to $75.0 million. Under this
agreement, ABF continuously sells a designated pool of trade accounts receivables to a wholly owned
subsidiary, which in turn may borrow funds on a revolving basis. This wholly-owned consolidated
subsidiary is a separate bankruptcy-remote entity and its assets would be available only to satisfy
the claims related to the interest in the trade accounts receivables. The Company also pays annual
fees equal to 0.75% of the unused portion of the accounts receivable facility. This agreement
contains representations and warranties, affirmative and negative covenants and events of default
that are customary for financings of this type, including maintaining consolidated tangible net
worth, as defined, of $375.0 million. As of December 31, 2009, the Company was in compliance with
the covenants. As of December 31, 2009, there were no borrowings under this facility, and the
borrowing capacity was $74.0 million.
In December 2009, the Company terminated its $325.0 million Second Amended and Restated Credit
Agreement (the Credit Agreement) dated May 4, 2007. There were no borrowings outstanding under
the Credit Agreement on the date of termination. Deferred financing costs of $1.0 million were
expensed in the fourth quarter of 2009 in conjunction with the termination of the Credit Agreement.
As of December 31, 2008, there were no outstanding revolver advances and $50.9 million of
outstanding letters of credit issued under the facility.
NOTE H ACCRUED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
Accrued compensation |
|
$ |
11,911 |
|
|
$ |
11,630 |
|
Accrued vacation pay |
|
|
39,168 |
|
|
|
40,115 |
|
Taxes other than income |
|
|
7,388 |
|
|
|
6,960 |
|
Loss, injury, damage and workers compensation claims reserves |
|
|
78,224 |
|
|
|
80,539 |
|
Current portion of supplemental pension benefits |
|
|
7,753 |
|
|
|
|
|
Other |
|
|
6,355 |
|
|
|
8,296 |
|
|
|
|
|
|
|
|
|
|
$ |
150,799 |
|
|
$ |
147,540 |
|
|
|
|
|
|
|
|
NOTE I EMPLOYEE BENEFIT PLANS
Nonunion Defined Benefit Pension, Supplemental Pension and Postretirement Health Plans
The Company has a noncontributory defined benefit pension plan covering substantially all
noncontractual employees hired before January 1, 2006. Noncontractual employees hired after 2005
participate in a defined contribution plan (see Defined Contribution Plans within this note).
Benefits under the defined benefit pension plan are generally based on years of service and
employee compensation. The Companys contributions to the defined benefit pension plan are based
upon the minimum funding levels required under provisions of the Employee Retirement Income
Security Act of 1974 and the Pension Protection Act of 2006 (the PPA), with the maximum
contributions not to exceed deductible limits under the U.S. Internal Revenue Code (IRC).
The Company also has an unfunded supplemental benefit plan (SBP) for the purpose of supplementing
benefits under the Companys defined benefit pension plan. Under the SBP, the Company will pay sums
in addition to amounts payable under the defined benefit plan to eligible participants.
Participation in the SBP is limited to employees of the Company who are participants in the
Companys defined benefit plan and who are designated as participants in the SBP by the Companys
Board of Directors. The SBP provides for a lump-sum payment following termination made in
accordance with the six month delay provision for key employees as required by section 409A of the
IRC. The Compensation Committee of the Companys
Board of Directors (Compensation Committee) elected to close the SBP to new entrants and to place
a cap on
60
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
the maximum payment per participant to existing participants in the SBP effective January
1, 2006. In place of the SBP, eligible officers of the Company appointed after 2005 participate in
a long-term cash incentive plan (see Long-Term Cash Incentive Plan within this note).
Effective December 31, 2009, the Compensation Committee elected to freeze the accrual of benefits
for remaining participants under the SBP, resulting in a plan curtailment. The Compensation
Committee provided the SBP participants an option to freeze their SBP benefits without early
retirement penalties and continue participation in the deferred salary agreement program (see
Deferred Compensation Plans within this note) or to freeze their benefits in both the SBP and
deferred salary agreement program and begin participation in the Companys long-term cash incentive
plan. With the exception of early retirement penalties that may apply in certain cases, the
valuation inputs for calculating the frozen SBP benefits to be paid to participants, including
final average salary and the interest rate, were established at December 31, 2009. The curtailment
decreased the projected benefit obligation resulting in a curtailment gain of $0.1 million, which
was netted with the unrecognized actuarial loss at December 31, 2009, to be amortized over the
remaining service period of the SBP participants.
The Company also sponsors an insured postretirement health benefit plan that provides supplemental
medical benefits, dental benefits, accident insurance and vision care primarily to certain officers
of the Company and certain subsidiaries. The plan is generally noncontributory with the Company
paying the premiums.
The following table discloses the changes in benefit obligations and plan assets of the Companys
nonunion benefit plans for years ended December 31, the measurement date of the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year |
|
$ |
201,985 |
|
|
$ |
196,253 |
|
|
$ |
19,084 |
|
|
$ |
24,181 |
|
|
$ |
19,889 |
|
|
$ |
19,467 |
|
Service cost |
|
|
9,082 |
|
|
|
9,178 |
|
|
|
572 |
|
|
|
581 |
|
|
|
170 |
|
|
|
173 |
|
Interest cost |
|
|
12,361 |
|
|
|
11,733 |
|
|
|
982 |
|
|
|
1,070 |
|
|
|
1,110 |
|
|
|
1,168 |
|
Actuarial loss (gain) and other |
|
|
16,717 |
|
|
|
2,652 |
|
|
|
3,677 |
|
|
|
(530 |
) |
|
|
(6,899 |
) |
|
|
(106 |
) |
Benefits paid |
|
|
(21,716 |
) |
|
|
(17,831 |
) |
|
|
(7,772 |
) |
|
|
(6,218 |
) |
|
|
(810 |
) |
|
|
(813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at end of year |
|
|
218,429 |
|
|
|
201,985 |
|
|
|
16,543 |
|
|
|
19,084 |
|
|
|
13,460 |
|
|
|
19,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
150,576 |
|
|
|
184,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return (loss) on plan assets and other |
|
|
28,274 |
|
|
|
(41,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
15,500 |
|
|
|
25,000 |
|
|
|
7,772 |
|
|
|
6,218 |
|
|
|
810 |
|
|
|
813 |
|
Benefits paid |
|
|
(21,716 |
) |
|
|
(17,831 |
) |
|
|
(7,772 |
) |
|
|
(6,218 |
) |
|
|
(810 |
) |
|
|
(813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
172,634 |
|
|
|
150,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(45,795 |
) |
|
$ |
(51,409 |
) |
|
$ |
(16,543 |
) |
|
$ |
(19,084 |
) |
|
$ |
(13,460 |
) |
|
$ |
(19,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation |
|
$ |
193,700 |
|
|
$ |
181,199 |
|
|
$ |
16,543 |
|
|
$ |
16,341 |
|
|
$ |
13,460 |
|
|
$ |
19,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets at December 31 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
Current liabilities (included in accrued expenses) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(7,753 |
) |
|
$ |
|
|
|
$ |
(600 |
) |
|
$ |
(910 |
) |
Noncurrent liabilities (included in pension and
postretirement liabilities) |
|
|
(45,795 |
) |
|
|
(51,409 |
) |
|
|
(8,790 |
) |
|
|
(19,084 |
) |
|
|
(12,860 |
) |
|
|
(18,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities recognized |
|
$ |
(45,795 |
) |
|
$ |
(51,409 |
) |
|
$ |
(16,543 |
) |
|
$ |
(19,084 |
) |
|
$ |
(13,460 |
) |
|
$ |
(19,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following is a summary of the components of net periodic benefit cost for the Companys
nonunion benefit plans for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net
periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
9,082 |
|
|
$ |
9,178 |
|
|
$ |
9,995 |
|
|
$ |
572 |
|
|
$ |
581 |
|
|
$ |
796 |
|
|
$ |
170 |
|
|
$ |
173 |
|
|
$ |
185 |
|
Interest cost |
|
|
12,361 |
|
|
|
11,733 |
|
|
|
11,030 |
|
|
|
982 |
|
|
|
1,070 |
|
|
|
1,256 |
|
|
|
1,110 |
|
|
|
1,168 |
|
|
|
1,140 |
|
Expected return
on plan assets |
|
|
(9,434 |
) |
|
|
(13,718 |
) |
|
|
(14,044 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition (asset)
obligation
recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
(116 |
) |
|
|
135 |
|
|
|
135 |
|
|
|
135 |
|
Amortization of
prior service
(credit) cost |
|
|
(897 |
) |
|
|
(897 |
) |
|
|
(897 |
) |
|
|
1,396 |
|
|
|
1,560 |
|
|
|
1,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension settlement
expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,588 |
|
|
|
1,540 |
|
|
|
1,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net
actuarial loss(1) |
|
|
9,440 |
|
|
|
3,274 |
|
|
|
4,153 |
|
|
|
607 |
|
|
|
723 |
|
|
|
1,408 |
|
|
|
568 |
|
|
|
657 |
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic
benefit cost |
|
$ |
20,552 |
|
|
$ |
9,570 |
|
|
$ |
10,237 |
|
|
$ |
8,145 |
|
|
$ |
5,417 |
|
|
$ |
6,569 |
|
|
$ |
1,983 |
|
|
$ |
2,133 |
|
|
$ |
2,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company amortizes actuarial losses over the average remaining active service period of
the plan participants and does not use a corridor approach. |
The following is a summary of the cash distributions and pension settlement expense related to the
SBP for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
$ |
7,772 |
|
|
$ |
6,218 |
|
|
$ |
5,255 |
|
Pension settlement expense, pre-tax |
|
$ |
4,588 |
|
|
$ |
1,540 |
|
|
$ |
1,665 |
|
Pension settlement expense per diluted share, net of taxes |
|
$ |
0.11 |
|
|
$ |
0.04 |
|
|
$ |
0.04 |
|
Based on available information, the Company anticipates making distributions of $7.8 million from
the SBP in 2010 related to officer retirements that occurred in 2009. These distribution amounts
were fixed at the retirement date, but IRC Section 409A requires that distributions to certain key
employees be delayed for six months after retirement. The pension settlement expense related to
these distributions was recognized in 2009 and is included in the table above.
Included in accumulated other comprehensive loss at December 31 are the following pre-tax amounts
that have not yet been recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial (gain) loss |
|
$ |
70,236 |
|
|
$ |
81,798 |
|
|
$ |
2,810 |
|
|
$ |
4,329 |
|
|
$ |
(1,522 |
) |
|
$ |
5,945 |
|
Unrecognized prior service (credit) cost |
|
|
(7 |
) |
|
|
(903 |
) |
|
|
|
|
|
|
1,396 |
|
|
|
|
|
|
|
|
|
Unrecognized net transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397 |
|
|
|
532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
70,229 |
|
|
$ |
80,895 |
|
|
$ |
2,810 |
|
|
$ |
5,725 |
|
|
$ |
(1,125 |
) |
|
$ |
6,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following amounts, which are included in accumulated other comprehensive loss, are expected to
be recognized as components of net periodic benefit cost in 2010 on a pre-tax basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial (gain) loss |
|
$ |
7,721 |
|
|
$ |
235 |
|
|
$ |
(148 |
) |
Unrecognized prior service credit |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
Unrecognized net transition obligation |
|
|
|
|
|
|
|
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,714 |
|
|
$ |
235 |
|
|
$ |
(13 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine nonunion benefit obligations at December 31 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate(1) |
|
|
5.3 |
% |
|
|
6.3 |
% |
|
|
4.8 |
% |
|
|
6.1 |
% |
|
|
5.9 |
% |
|
|
6.1 |
% |
Rate of compensation increase(2) |
|
|
3.2 |
% |
|
|
3.3 |
% |
|
|
N/A |
|
|
|
4.0 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
(1) |
|
The discount rate was determined at December 31, 2009 and 2008, respectively. |
|
(2) |
|
The compensation assumption is not applicable to the SBP as of December 31, 2009 due to
benefits being frozen. |
Weighted-average assumptions used to determine net periodic benefit cost for the Companys nonunion
benefit plans for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate(1) |
|
|
6.3 |
% |
|
|
6.1 |
% |
|
|
5.8 |
% |
|
|
6.1 |
% |
|
|
5.8 |
% |
|
|
5.5 |
% |
|
|
6.1 |
% |
|
|
6.5 |
% |
|
|
5.8 |
% |
Expected return on plan assets |
|
|
6.0 |
% |
|
|
7.6 |
% |
|
|
7.9 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Rate of compensation increase |
|
|
3.3 |
% |
|
|
3.3 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
(1) |
|
The discount rate was determined at December 31, 2008, 2007 and 2006, respectively, for the years 2009, 2008 and 2007. |
The assumed health care cost trend rates for the Companys postretirement health benefit plan at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009(1) |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Health care cost trend rate assumed for next year |
|
|
7.2 |
% |
|
|
9.0 |
% |
Rate to which the cost trend rate is assumed to decline |
|
|
5.6 |
% |
|
|
5.5 |
% |
Year that the rate reaches the cost trend assumed rate |
|
|
2018 |
|
|
|
2017 |
|
|
|
|
(1) |
|
For December 31, 2009, the number of years to the ultimate trend rate was extended beyond the
actuarial assumptions used in prior years. The table above provides comparable information
with December 31, 2008. At December 31, 2009, the health care cost trend rate is assumed to
decline to an ultimate trend rate of 4.0% in 2085. |
63
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The health care cost trend rates have a significant effect on the amounts reported for health care
plans. A one-percentage-point change in assumed health care cost trend rates would have the
following effects on the Companys postretirement health benefit plan for the year ended December
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point |
|
|
|
Increase |
|
|
Decrease |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
Effect on total of service and interest cost components |
|
$ |
200 |
|
|
$ |
(163 |
) |
Effect on postretirement benefit obligation |
|
$ |
2,033 |
|
|
$ |
(1,554 |
) |
The Company establishes the expected long-term rate of return on defined benefit pension plan
assets by considering the historical returns for the current mix of investments. In addition,
consideration is given to the range of expected returns for the pension plan investment mix
provided by the plans investment advisors. This approach is intended to establish a long-term,
nonvolatile rate. The Companys long-term expected rate of return utilized in determining its 2010
defined benefit pension plan expense is expected to be 7.5%.
The weighted-average asset allocation of the Companys defined benefit pension plan at December 31
is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Equity Securities |
|
|
|
|
|
|
|
|
Large Cap U.S. Equity |
|
|
36.5 |
% |
|
|
28.4 |
% |
Small Cap U.S. Equity |
|
|
16.0 |
|
|
|
12.1 |
|
International Equity |
|
|
10.3 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities |
|
|
|
|
|
|
|
|
Fixed Income |
|
|
36.0 |
|
|
|
39.0 |
|
Cash Equivalents |
|
|
1.2 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
The investment strategy for the Companys defined benefit pension plan is to maximize the long-term
return on plan assets subject to an acceptable level of investment risk, liquidity risk and
long-term funding risk utilizing target asset allocations for investments. The plans long-term
asset allocation policy is intended to achieve a reasonable return, protect or improve the
purchasing power of plan assets and provide adequate diversification to limit the possibility of
experiencing a substantial loss over a one-year period.
At December 31, 2009, the target allocations and acceptable ranges were as follows:
|
|
|
|
|
|
|
|
|
|
|
Target |
|
|
Acceptable |
|
|
|
Allocation |
|
|
Range |
|
Equity Securities |
|
|
|
|
|
|
|
|
Large Cap U.S. Equity |
|
|
35.0 |
% |
|
|
30.0% 40.0% |
|
Small Cap U.S. Equity |
|
|
15.0 |
% |
|
|
11.0% 19.0% |
|
International Equity |
|
|
10.0 |
% |
|
|
8.0% 12.0% |
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities |
|
|
|
|
|
|
|
|
Fixed Income |
|
|
40.0 |
% |
|
|
35.0% 45.0% |
|
Cash Equivalents |
|
|
0.0 |
% |
|
|
0.0% 5.0% |
|
Investment balances and results are reviewed quarterly. Although investment allocations which fall
outside the acceptable range at the end of any quarter are usually rebalanced based on the target
allocation, the Company has the discretion to maintain cash or other short-term investments during
periods of market volatility. Investment performance is generally compared to the three-to-five
year performance of recognized market indices.
Certain types of investments and transactions are prohibited or restricted by the Companys written
investment policy, including, but not limited to, borrowing of money; purchase of securities on
margin; short sales; purchase or sale of futures; options or derivatives for speculation or
leverage; private placements; purchase or sale of commodities; or illiquid interests in real estate
or mortgages. Index funds are primarily used for investments in equity and, historically, for fixed
income securities. During 2009, the Company invested a portion of the fixed income assets into an
actively managed short-term fixed income portfolio. The objectives of this portfolio are to
preserve principal and maintain an investment maturity
64
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
structure that matches scheduled cash flows
of benefit payments. In addition to the requirements of the investment policy, certain investment
restrictions apply to the actively managed portfolio, including: minimum acceptable credit quality
of securities; maximum average maturity of investments of 2.5 years; maximum maturity of
investments of 5 years; and, at the time of purchase, no single issue or issuer other than U.S.
government securities representing more than 5% of portfolio investments and no more than 20% of
the portfolio invested in BBB rated debt or collectively in mortgage-backed securities and
asset-backed securities.
The fair value of the Companys defined benefit pension plan assets at December 31, 2009, by major
asset category and fair value hierarchy level (see Note C), were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
|
In Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents(1) |
|
$ |
2,123 |
|
|
$ |
2,123 |
|
|
$ |
|
|
|
$ |
|
|
Fixed income securities(2) |
|
|
62,118 |
|
|
|
28,295 |
|
|
|
33,823 |
|
|
|
|
|
Large cap U.S. equity |
|
|
63,013 |
|
|
|
63,013 |
|
|
|
|
|
|
|
|
|
Small cap U.S. equity |
|
|
27,579 |
|
|
|
27,579 |
|
|
|
|
|
|
|
|
|
International equity |
|
|
17,801 |
|
|
|
17,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
172,634 |
|
|
$ |
138,811 |
|
|
$ |
33,823 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of cash deposit and money market mutual funds. |
|
(2) |
|
Level 1 investments consist of a bond mutual fund. Level 2 investments include corporate debt
securities (82%), mortgage- or asset-backed securities (9%) and other fixed income securities
(9%), primarily commercial paper. The fair value measurements of Level 2 investments are
provided by a pricing service which uses the market approach with inputs derived from
observable market data. |
Based upon current information, the Company does not expect to have cash outlays for required
minimum contributions, but could make tax-deductible contributions, to its defined benefit pension
plan in 2010.
Estimated future benefit payments from the Companys defined benefit pension, SBP and
postretirement health benefit plans, which reflect expected future service, as appropriate, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonunion Defined |
|
|
Supplemental |
|
|
Postretirement |
|
|
|
Benefit Pension Plan |
|
|
Benefit Pension Plan |
|
|
Health Benefit Plan |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
20,666 |
|
|
$ |
7,753 |
|
|
$ |
597 |
|
2011 |
|
|
20,826 |
|
|
|
|
|
|
|
651 |
|
2012 |
|
|
19,738 |
|
|
|
3,651 |
|
|
|
701 |
|
2013 |
|
|
18,440 |
|
|
|
|
|
|
|
737 |
|
2014 |
|
|
17,341 |
|
|
|
|
|
|
|
734 |
|
2015-2019 |
|
|
79,263 |
|
|
|
7,135 |
|
|
|
4,293 |
|
Deferred Compensation Plans
The Company has deferred salary agreements with certain executives for which liabilities of $7.2
million and $6.4 million as of December 31, 2009 and 2008, respectively, have been recorded. The
deferred salary agreements include a provision that
immediately vests all benefits and provides for a lump-sum payment upon a change in control of the
Company. The Compensation Committee elected to close the deferred salary agreement program to new
entrants effective January 1, 2006. In place of the deferred salary agreement program, officers
appointed after 2005 participate in the Long-Term Cash Incentive Plan (see Long-Term Cash Incentive
Plan within this note). In conjunction with the SBP curtailment effective December 31, 2009 (see
Nonunion Defined Benefit Pension, Supplemental Pension and Postretirement Health Plans within this
note), two participants elected to freeze their benefits in the deferred salary agreement program
and begin participation in the Companys long-term cash incentive plan.
65
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
An additional benefit plan provides certain death and retirement benefits for certain officers and
directors of an acquired company and its former subsidiaries. The Company has recorded liabilities
of $1.3 million and $1.4 million at December 31, 2009 and 2008, respectively, for future costs
under this plan.
The Company maintains a Voluntary Savings Plan, a nonqualified deferred compensation program for
the benefit of certain executives of the Company and certain subsidiaries. Eligible employees may
defer receipt of a portion of their regular compensation, incentive compensation and other bonuses
into the Voluntary Savings Plan by making an election before the compensation is payable. The
Company credits participants accounts with applicable matching contributions and rates of return
based on a portfolio selected by the participants from the investments available in the plan. All
deferrals, Company match and investment earnings are considered part of the general assets of the
Company until paid. Accordingly, the consolidated balance sheets reflect the aggregate participant
balances as both an asset and a liability of the Company. As of December 31, 2009 and 2008, $6.3
million and $7.4 million, respectively, are included in other assets with a corresponding amount
recorded in other liabilities. The Company match related to the Voluntary Savings Plan was
suspended beginning January 1, 2010.
Defined Contribution Plans
The Company and its subsidiaries have various defined contribution 401(k) plans that cover
substantially all of its employees. The plans permit participants to defer a portion of their
salary up to a maximum of 75% as provided in Section 401(k) of the IRC. The Company has
historically matched 50% of nonunion participant contributions up to the first 6% of annual
compensation for certain participating subsidiaries. The plans also allow for discretionary Company
contributions determined annually. The Companys matching expense for the 401(k) plans totaled $3.7
million for 2009, $4.2 million for 2008, and $4.4 million for 2007. The Company match was suspended
beginning January 1, 2010.
In place of the Companys defined benefit pension plan, all nonunion employees hired subsequent to
December 31, 2005, participate in a defined contribution plan into which the Company may make
discretionary contributions. Participants will be fully vested in the contributions made to their
account after three years of service. All employees who were participants in the defined benefit
pension plan on December 31, 2005, will continue in that plan. The Company suspended the
discretionary match on the defined contribution plan for 2009. In 2008 and 2007, the Company
recognized expense of $1.1 million and $0.8 million, respectively, related to its contributions to
this plan.
Long-Term Cash Incentive Plan
Pursuant to stockholder approval of the 2005 Ownership Incentive Plan, the Compensation Committee
created a performance-based Long-Term Cash Incentive Plan (the C-LTIP) effective in
January 2006. Participants in the C-LTIP are officers of the Company or its subsidiaries who are
not participants in the Companys SBP or deferred salary agreement program. The C-LTIP incentive,
which is generally earned over three years, is based 60% on return on capital employed and 40% on
the Company achieving specified levels of profitability or earnings per share growth, as defined
in the C-LTIP. Incentive targets of $0.3 million, earned for the three-year plan that ended
December 31, 2008, were paid in early 2009. Minimum levels of return on capital employed and
growth were not achieved in 2009 and, as a result, no expense for estimated future distributions
under the C-LTIP was accrued as of December 31, 2009.
Other Plans
Other long-term assets include $36.7 million and $36.4 million at December 31, 2009 and 2008,
respectively, in cash surrender value of life insurance policies. These policies are intended to
provide funding for long-term nonunion benefit arrangements such as the Companys SBP and certain
deferred compensation plans. A portion of the Companys cash surrender value of
variable life insurance policies have investments, through separate accounts, in equity and fixed
income securities and are, therefore, subject to market volatility. In 2009, the Company took a
loan of $2.0 million against the variable life policies which is netted against the related cash
surrender value and for which repayment is not required. The Company recognized a gain of $2.6
million, a loss of $3.6 million and a gain of $1.7 million in other expense during 2009, 2008 and
2007, respectively, associated with changes in the cash surrender value and proceeds from life
insurance policies.
66
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Multiemployer Plans
Under the provisions of the Taft-Hartley Act, retirement and health care benefits for ABFs
contractual employees are provided by a number of multiemployer plans. The trust funds for these
plans are administered by trustees, an equal number of whom generally are appointed by the IBT and
certain management carrier organizations or other appointing authorities for employer trustees, as
set forth in the funds trust agreements. ABF contributes to these plans monthly based generally
on the time worked by its contractual employees, as specified in the collective bargaining
agreement and other supporting supplemental agreements. ABF recognizes as expense the
contractually required contribution for the period and recognizes as a liability any contributions
due and unpaid. The Company intends to meet its obligations to the multiemployer plans under its
collective bargaining agreement with the IBT.
In 2006, the PPA became law and together with related regulations established new minimum funding
requirements for multiemployer pension plans. The PPA mandates that multiemployer pension plans
that are below certain funding levels or that have projected funding deficiencies adopt a funding
improvement plan or a rehabilitation program to improve the funding levels over a defined period of
time. The PPA also accelerates the timing of annual funding notices and requires additional
disclosures from multiemployer pension plans, if such plans fall below the required funding levels.
In December 2008, the Worker, Retiree, and Employer Recovery Act of 2008 (the Recovery Act)
became law. For plan years beginning October 1, 2008 through September 30, 2009, the Recovery Act
allows multiemployer plans the option to freeze their funding certification based on the funding
status of the previous plan year. In addition, the Recovery Act provides multiemployer plans in
endangered or critical status in plan years beginning in 2008 or 2009 a three-year extension of the
plans funding improvement or rehabilitation period.
ABF currently contributes to 26 multiemployer pension plans, which vary in size and in funding
status. In the event of the termination of a multiemployer pension plan or if ABF were to withdraw
from a multiemployer pension plan, under current law, ABF would have material liabilities for its
share of the unfunded vested liabilities of each such plan. ABF has not received notification of
any plan termination, and ABF does not currently intend to withdraw from these plans. Therefore,
the Company believes the occurrence of events that would require recognition of liabilities for
its share of unfunded vested benefits is remote.
Approximately 50% of ABFs contributions are made to the Central States Southeast and Southwest
Area Pension Fund (the Central States Pension Fund). The Central States Pension Fund adopted a
rehabilitation plan as a result of its actuarial certification for the plan year beginning January
1, 2008 which placed the Central States Pension Fund in critical status in accordance with the
PPA. ABFs current collective bargaining agreement complies with the rehabilitation plan which was
adopted by the Central States Pension Fund prior to the April 1, 2008 effective date of the
collective bargaining agreement. The actuarial certification for the plan year beginning January 1,
2009 certified that the Central States Pension Fund remains in critical status with a funded
percentage of 58%.
In 2005, the IRS extended the period over which the Central States Pension Fund amortizes unfunded
liabilities by ten years subject to the condition that a targeted funding ratio will be maintained
by the fund. Due, in part, to the decline in asset values associated with the returns in the
financial markets during 2008, the funding level of the Central States Pension Fund as of the
January 1, 2009 actuarial valuation dropped below the targeted funding ratio set forth as a
condition of the ten-year amortization extension. However, the amortization extension approved by
the IRS in 2005 expressly indicated that modifications of conditions would be considered in the
event of unforeseen market fluctuations which cause the plan to fail the funded ratio condition for
a certain plan year. Based on information currently available to the Company, the Central States
Pension Fund has not received notice of revocation of the ten-year amortization extension by the
IRS. In the unlikely event the IRS were to revoke the extension, revocation would apply
retroactively to the 2004 plan year, which would result in a material liability for ABFs share of
the resulting funding deficiency, the extent of which is currently unknown to the Company. The
Company believes that the occurrence of events that would require recognition of liabilities for
ABFs share of a funding deficiency is remote.
Other multiemployer pension plans in which ABF participates have adopted or will have to adopt
either a funding improvement plan or a rehabilitation program, depending on their current funding
status as required by the PPA. The Company believes that the contribution rates under ABFs
collective bargaining agreement will comply with any rehabilitation plan that has been or may be
adopted by the majority of the multiemployer pension plans in which ABF participates. If the
contribution rates in the collective bargaining agreement fail to meet the requirements established
by the rehabilitation or
funding improvement plan required by the PPA for underfunded plans, the PPA would impose additional
67
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
contribution requirements on ABF in the form of a surcharge of an additional 5% to 10%. However,
under the current collective bargaining agreement, which extends through March 31, 2013, any
surcharges that may be required by the PPA are covered by the contractual contribution rate and
should not increase ABFs overall contribution obligation.
Health, welfare and pension benefit costs under the Companys collective bargaining agreement
increased 7.5% and 8.1% effective August 1, 2009 and August 1, 2008, respectively. ABFs aggregate
contributions to the multiemployer health, welfare and pension plans for the years ended December
31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare |
|
$ |
99,282 |
|
|
$ |
108,792 |
|
|
$ |
108,132 |
|
Pension |
|
|
107,585 |
|
|
|
111,064 |
|
|
|
109,959 |
|
|
|
|
|
|
|
|
|
|
|
Total contributions to multiemployer plans |
|
$ |
206,867 |
|
|
$ |
219,856 |
|
|
$ |
218,091 |
|
|
|
|
|
|
|
|
|
|
|
NOTE J STOCKHOLDERS EQUITY
Common Stock: The following table is a summary of dividends declared during the applicable quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
|
|
($ thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
0.15 |
|
|
$ |
3,847 |
|
|
$ |
0.15 |
|
|
$ |
3,803 |
|
|
$ |
0.15 |
|
|
$ |
3,780 |
|
Second quarter |
|
$ |
0.15 |
|
|
$ |
3,893 |
|
|
$ |
0.15 |
|
|
$ |
3,846 |
|
|
$ |
0.15 |
|
|
$ |
3,790 |
|
Third quarter |
|
$ |
0.15 |
|
|
$ |
3,892 |
|
|
$ |
0.15 |
|
|
$ |
3,848 |
|
|
$ |
0.15 |
|
|
$ |
3,790 |
|
Fourth quarter |
|
$ |
0.15 |
|
|
$ |
3,891 |
|
|
$ |
0.15 |
|
|
$ |
3,847 |
|
|
$ |
0.15 |
|
|
$ |
3,805 |
|
Stockholders Rights Plan: Under the Companys stockholders rights plan, each issued and
outstanding share of Common Stock has associated with it one Common Stock right to purchase a share
of Common Stock from the Company at an exercise price of $80 per right. The rights are not
currently exercisable, but could become exercisable if certain events occur, including the
acquisition of 15% or more of the outstanding Common Stock of the Company. Under certain
conditions, the rights will entitle holders, other than an acquirer in a nonpermitted transaction,
to purchase shares of Common Stock with a market value of two times the exercise price of the
right. The rights will expire in 2011 unless extended. On May 18, 2007, the Company amended its
stockholders rights plan to permit a named stockholder to beneficially own up to 17.999% of the
Companys Common Stock without causing the rights to become exercisable.
Treasury Stock: The Company has a program to repurchase its Common Stock in the open market or in
privately negotiated transactions. In 2003, the Companys Board of Directors authorized stock
repurchases of up to $25.0 million and in 2005, an additional $50.0 million was authorized for a
total of $75.0 million. As of December 31, 2009, the Company has purchased 1,618,150 shares for an
aggregate cost of $56.8 million, leaving $18.2 million available for repurchase under the current
buyback program. The program has no expiration date but may be terminated at any time at the Board
of Directors discretion. Repurchases may be made using the Companys cash reserves or other
available sources.
Stock Awards: As of December 31, 2009, the Company had outstanding stock options granted under the
1992 Stock Option Plan, the 2000 Non-Qualified Stock Option Plan and the 2002 Stock Option Plan and
outstanding restricted stock and restricted stock units granted under the 2005 Ownership Incentive
Plan (the 2005 Plan). The 1992 Stock Option Plan expired on December 31, 2001. The 2005 Plan
superseded the Companys 2000 Non-Qualified Stock Option Plan and 2002 Stock Option Plan with
respect to future awards and provides for the granting of 1.5 million shares, which may be awarded
as incentive and nonqualified stock options, Stock Appreciation Rights (SARs), restricted stock
or restricted stock units. Any outstanding stock options under the 1992, 2000 or 2002 stock option
plans which are forfeited or otherwise unexercised will be included in the shares available for
grant under the 2005 Plan. As of December 31, 2009, the Company had not elected to treat any
exercised options as employer SARs and no employee SARs had been granted. No stock options have
been granted since 2004.
68
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Restricted Stock
A summary of the Companys restricted stock program, which consists of restricted stock and
restricted stock units awarded under the 2005 Plan, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares/Units |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2009 |
|
|
627,522 |
|
|
$ |
38.03 |
|
Granted |
|
|
306,730 |
|
|
|
22.55 |
|
Vested |
|
|
(38,503 |
) |
|
|
36.09 |
|
Forfeited |
|
|
(57,445 |
) |
|
|
32.61 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2009 |
|
|
838,304 |
|
|
$ |
32.80 |
|
|
|
|
|
|
|
|
The Compensation Committee granted restricted stock and restricted stock units under the 2005 Plan
during the years ended December 31, 2009, 2008 and 2007 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares/Units |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
306,730 |
|
|
$ |
22.55 |
|
2008 |
|
|
183,380 |
|
|
$ |
39.48 |
|
2007 |
|
|
191,520 |
|
|
$ |
38.98 |
|
The fair value of restricted stock that vested was $1.1 million in 2009, $1.0 million in 2008 and
$0.7 million in 2007.
Unrecognized compensation cost related to restricted stock awards outstanding as of December 31,
2009 was approximately $12.0 million, which is expected to be recognized over a weighted-average
period of three years.
Stock Options
A summary of the Companys stock option program is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Average |
|
|
Contractual |
|
|
Value |
|
|
|
Under Option |
|
|
Exercise Price |
|
|
Term |
|
|
($000)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2009 |
|
|
576,364 |
|
|
$ |
26.02 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(23,182 |
) |
|
|
21.65 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(13,325 |
) |
|
|
28.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2009(2) |
|
|
539,857 |
|
|
$ |
26.16 |
|
|
|
2.5 |
|
|
$ |
1,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The intrinsic value for each option represents the excess, if any, of the market value of the
Companys Common Stock on December 31, 2009 over the exercise price of the option. |
|
(2) |
|
Options outstanding at December 31, 2009 are vested and available to be exercised. |
The following table summarizes additional activity related to the Companys stock option program
for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of options exercised |
|
$ |
143 |
|
|
$ |
2,596 |
|
|
$ |
2,217 |
|
Cash proceeds of options exercised |
|
|
469 |
|
|
|
2,976 |
|
|
|
2,683 |
|
Tax benefit of options exercised |
|
|
|
|
|
|
853 |
|
|
|
862 |
|
Compensation expense related to stock option awards was fully recognized as of December 31, 2008.
69
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Accumulated Other Comprehensive Loss: Components of accumulated other comprehensive loss are as
follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
$ |
(639 |
) |
|
$ |
(1,022 |
) |
|
$ |
(422 |
) |
Unrecognized net periodic benefit costs (see Note I) |
|
|
(71,916 |
) |
|
|
(93,097 |
) |
|
|
(42,988 |
) |
Increase in fair value of available for sale security (see Note C) |
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(72,373 |
) |
|
$ |
(94,119 |
) |
|
$ |
(43,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
$ |
(391 |
) |
|
$ |
(625 |
) |
|
$ |
(257 |
) |
Unrecognized net periodic benefit costs (see Note I) |
|
|
(43,940 |
) |
|
|
(56,882 |
) |
|
|
(26,266 |
) |
Increase in fair value of available for sale security (see Note C) |
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(44,212 |
) |
|
$ |
(57,507 |
) |
|
$ |
(26,523 |
) |
|
|
|
|
|
|
|
|
|
|
NOTE K EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arkansas Best Corporation |
|
$ |
(127,889 |
) |
|
$ |
29,168 |
|
|
$ |
56,825 |
|
Effect of unvested restricted stock awards |
|
|
(443 |
) |
|
|
(661 |
) |
|
|
(996 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss) |
|
$ |
(128,332 |
) |
|
$ |
28,507 |
|
|
$ |
55,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares |
|
|
25,052,303 |
|
|
|
24,976,412 |
|
|
|
24,822,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
(5.12 |
) |
|
$ |
1.14 |
|
|
$ |
2.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arkansas Best Corporation |
|
$ |
(127,889 |
) |
|
$ |
29,168 |
|
|
$ |
56,825 |
|
Effect of unvested restricted stock awards |
|
|
(443 |
) |
|
|
(661 |
) |
|
|
(996 |
) |
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss) |
|
$ |
(128,332 |
) |
|
$ |
28,507 |
|
|
$ |
55,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares |
|
|
25,052,303 |
|
|
|
24,976,412 |
|
|
|
24,822,673 |
|
Effect of dilutive securities |
|
|
|
|
|
|
134,127 |
|
|
|
196,069 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares and assumed conversations |
|
|
25,052,303 |
|
|
|
25,110,539 |
|
|
|
25,018,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share |
|
$ |
(5.12 |
) |
|
$ |
1.14 |
|
|
$ |
2.23 |
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2009, the Company adopted new accounting guidance that requires an allocation
of dividends paid and a portion of undistributed net income, but not losses, to unvested restricted
stock and restricted stock units, which are considered participating securities for purposes of
calculating earnings per share. The application of this new guidance also required retrospective
adjustment of earnings per share for prior periods. Under the new guidelines, basic earnings per
share
decreased by $0.03 and $0.04 for the years ended December 31, 2008 and 2007, respectively, and
diluted earnings per share decreased by $0.01 and $0.03 for the years ended December 31, 2008 and
2007, respectively, compared to amounts presented in prior periods.
70
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended December 31, 2009, the outstanding stock awards disclosed in Note J are not
included in the diluted earnings per share calculations because their inclusion would have the
effect of reducing the loss per share. For the year ended December 31, 2008, outstanding stock
awards of 176,425 were not included in the diluted earnings per share calculations because their
inclusion would have the effect of increasing the earnings per share. For the year ended
December 31, 2007, all outstanding stock awards were included in the diluted earnings per share
calculation.
NOTE L 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 Companys 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 Companys operations.
ABF, which provides transportation of general commodities, represents the Companys only reportable
operating segment. ABF is headquartered in Fort Smith, Arkansas, and provides direct service to
over 98% of the cities in the United States having a population of 30,000 or more. The operations
of ABF include, in the aggregate, national, inter-regional and regional transportation of general
commodities through standard, expedited and guaranteed LTL services.
The Companys other business activities and operating segments that are not reportable include
FleetNet America, Inc., a third-party vehicle maintenance company; Arkansas Best Corporation, the
parent holding company; and other subsidiaries.
The Company eliminates intercompany transactions in consolidation. However, the information used by
the Companys 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 are impractical and are,
therefore, not provided. The Companys foreign operations are not significant.
71
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following table reflects reportable operating segment information for the Company for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
ABF |
|
$ |
1,384,419 |
|
|
$ |
1,758,780 |
|
|
$ |
1,770,749 |
|
Other revenues and eliminations |
|
|
88,482 |
|
|
|
74,272 |
|
|
|
66,129 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
1,472,901 |
|
|
$ |
1,833,052 |
|
|
$ |
1,836,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES AND COSTS |
|
|
|
|
|
|
|
|
|
|
|
|
ABF |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
$ |
970,523 |
|
|
$ |
1,048,779 |
|
|
$ |
1,070,708 |
|
Fuel, supplies and expenses |
|
|
221,732 |
|
|
|
341,826 |
|
|
|
293,056 |
|
Operating taxes and licenses |
|
|
42,314 |
|
|
|
47,088 |
|
|
|
47,682 |
|
Insurance |
|
|
20,356 |
|
|
|
21,370 |
|
|
|
22,230 |
|
Communications and utilities |
|
|
14,393 |
|
|
|
15,102 |
|
|
|
15,334 |
|
Depreciation and amortization |
|
|
72,180 |
|
|
|
74,000 |
|
|
|
74,231 |
|
Rents and purchased transportation |
|
|
136,826 |
|
|
|
158,943 |
|
|
|
160,062 |
|
Gain on sale of property and equipment |
|
|
(1,412 |
) |
|
|
(3,723 |
) |
|
|
(4,347 |
) |
Pension settlement expense |
|
|
4,588 |
|
|
|
691 |
|
|
|
1,665 |
|
Other |
|
|
7,426 |
|
|
|
6,269 |
|
|
|
5,607 |
|
Goodwill impairment charge |
|
|
63,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,552,884 |
|
|
|
1,710,345 |
|
|
|
1,686,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other and eliminations |
|
|
88,723 |
|
|
|
74,183 |
|
|
|
65,806 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses and costs |
|
$ |
1,641,607 |
|
|
$ |
1,784,528 |
|
|
$ |
1,752,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
ABF |
|
$ |
(168,465 |
) |
|
$ |
48,435 |
|
|
$ |
84,521 |
|
Other and eliminations |
|
|
(241 |
) |
|
|
89 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168,706 |
) |
|
|
48,524 |
|
|
|
84,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income |
|
|
2,853 |
|
|
|
5,937 |
|
|
|
5,671 |
|
Interest expense and other related financing costs |
|
|
(2,389 |
) |
|
|
(1,181 |
) |
|
|
(1,189 |
) |
Other, net(1) |
|
|
2,724 |
|
|
|
(3,370 |
) |
|
|
1,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,188 |
|
|
|
1,386 |
|
|
|
5,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
$ |
(165,518 |
) |
|
$ |
49,910 |
|
|
$ |
90,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other, net includes gains (losses) on cash surrender value of life insurance policies. |
72
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The following table provides asset, capital expenditure and depreciation and amortization
information by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
($ thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
ABF(1) |
|
$ |
583,448 |
|
|
$ |
732,826 |
|
|
$ |
720,496 |
|
Other and eliminations |
|
|
286,098 |
|
|
|
239,472 |
|
|
|
262,853 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
869,546 |
|
|
$ |
972,298 |
|
|
$ |
983,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURES, GROSS(2) |
|
|
|
|
|
|
|
|
|
|
|
|
ABF |
|
$ |
47,048 |
|
|
$ |
57,674 |
|
|
$ |
96,702 |
|
Other equipment and information technology purchases |
|
|
1,541 |
|
|
|
1,395 |
|
|
|
1,467 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated capital expenditures, gross |
|
$ |
48,589 |
|
|
$ |
59,069 |
|
|
$ |
98,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
ABF |
|
$ |
72,180 |
|
|
$ |
74,000 |
|
|
$ |
74,231 |
|
Other |
|
|
3,046 |
|
|
|
2,872 |
|
|
|
3,087 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization expense |
|
$ |
75,226 |
|
|
$ |
76,872 |
|
|
$ |
77,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Decrease from 2008 to 2009 reflects impairment of goodwill in the amount of $64.0 million.
|
|
(2) |
|
Includes assets acquired through capital leases. |
NOTE M QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present unaudited quarterly financial information for 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter(1) |
|
|
|
($ thousands, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
339,677 |
|
|
$ |
362,635 |
|
|
$ |
398,957 |
|
|
$ |
371,631 |
|
Operating expenses and costs |
|
|
368,278 |
|
|
|
389,932 |
|
|
|
411,194 |
|
|
|
472,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(28,601 |
) |
|
|
(27,297 |
) |
|
|
(12,237 |
) |
|
|
(100,570 |
) |
Other income (expense) net |
|
|
(493 |
) |
|
|
1,851 |
|
|
|
2,344 |
|
|
|
(515 |
) |
Income tax provision (benefit) |
|
|
(10,937 |
) |
|
|
(10,082 |
) |
|
|
(4,565 |
) |
|
|
(12,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(18,157 |
) |
|
|
(15,364 |
) |
|
|
(5,328 |
) |
|
|
(88,672 |
) |
Less: noncontrolling interest in net income of subsidiary |
|
|
|
|
|
|
79 |
|
|
|
245 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arkansas Best Corporation |
|
$ |
(18,157 |
) |
|
$ |
(15,443 |
) |
|
$ |
(5,573 |
) |
|
$ |
(88,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.73 |
) |
|
$ |
(0.62 |
) |
|
$ |
(0.23 |
) |
|
$ |
(3.54 |
) |
Diluted |
|
|
(0.73 |
) |
|
|
(0.62 |
) |
|
|
(0.23 |
) |
|
|
(3.54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
25,038,626 |
|
|
|
25,043,815 |
|
|
|
25,047,975 |
|
|
|
25,054,389 |
|
Diluted |
|
|
25,038,626 |
|
|
|
25,043,815 |
|
|
|
25,047,975 |
|
|
|
25,054,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The fourth quarter of 2009 includes a $64.0 million, or $2.55 per share, goodwill impairment
charge (nondeductible for tax purposes). |
73
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
($ thousands, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
447,511 |
|
|
$ |
498,514 |
|
|
$ |
495,815 |
|
|
$ |
391,211 |
|
Operating expenses and costs |
|
|
434,359 |
|
|
|
472,832 |
|
|
|
470,323 |
|
|
|
407,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
13,152 |
|
|
|
25,682 |
|
|
|
25,492 |
|
|
|
(15,802 |
) |
Other income (expense) net |
|
|
969 |
|
|
|
1,130 |
|
|
|
605 |
|
|
|
(1,318 |
) |
Income tax provision (benefit) |
|
|
5,577 |
|
|
|
10,657 |
|
|
|
10,655 |
|
|
|
(6,147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
8,544 |
|
|
$ |
16,155 |
|
|
$ |
15,442 |
|
|
$ |
(10,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
$ |
0.63 |
|
|
$ |
0.60 |
|
|
$ |
(0.44 |
) |
Diluted |
|
|
0.34 |
|
|
|
0.63 |
|
|
|
0.60 |
|
|
|
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
24,873,651 |
|
|
|
24,968,217 |
|
|
|
25,013,314 |
|
|
|
25,023,794 |
|
Diluted |
|
|
24,967,412 |
|
|
|
25,146,822 |
|
|
|
25,174,345 |
|
|
|
25,023,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Effective January 1, 2009, the Company adopted new accounting guidance that requires an
allocation of dividends paid and a portion of undistributed net income to unvested restricted
stock for calculating per share amounts. As a result, per share amounts for periods prior to
2009 have been retrospectively adjusted to be consistent with the 2009 presentation (see Note K). |
NOTE N LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS AND OTHER EVENTS
The Company is involved in various legal actions arising in the ordinary course of business. 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 routinely establishes and
reviews the adequacy of reserves for estimated legal, environmental and self-insurance exposures.
While management believes that amounts accrued in the consolidated financial statements are
adequate, estimates of these liabilities may change as circumstances develop. Considering amounts
recorded, these matters are not expected to have a material adverse effect on the Companys
financial condition, cash flows or results of operations.
The Companys subsidiaries store fuel for use in tractors and trucks in 69 underground tanks
located in 23 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 Companys 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 and others that it has
been identified as a potentially responsible party under the Comprehensive Environmental Response
Compensation and Liability Act, or other federal or state environmental statutes, at several
hazardous waste sites. After investigating the Companys or its subsidiaries involvement in waste
disposal or waste generation at such sites, the Company has either agreed to de minimis settlements
(aggregating approximately $0.1 million over the last ten years, primarily at six 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.
At December 31, 2009 and 2008, the Companys reserve for estimated environmental clean-up costs of
properties currently or previously operated by the Company totaled $1.2 million and $1.1 million,
respectively, which is included in accrued expenses. Amounts accrued reflect managements best
estimate of the future undiscounted exposure related to identified properties based on current
environmental regulations. The Companys estimate is based on managements experience with similar
environmental matters and on testing performed at certain sites.
74
ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE O EXCESS INSURANCE CARRIERS
Reliance Insurance Company (Reliance), which was determined to be insolvent in 2001, was the
Companys excess insurer for workers compensation claims above the self-insured retention level of
$0.3 million for the 1993 through 1999 policy years. 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 certain excess claims. For claims not accepted by state guaranty funds, the Company has
continually maintained liabilities since 2001 for its estimated exposure to the Reliance
liquidation. The Company anticipates receiving either full reimbursement from state guaranty funds
or partial reimbursement through orderly liquidation; however, this process could take several
years.
Kemper Insurance Companies (Kemper) insured the Companys workers compensation excess claims
above $0.3 million for the 2000 through 2001 policy years. In March 2003, Kemper announced that it
was discontinuing its business of providing insurance coverage. Lumbermens Mutual Casualty
Company, the Kemper company which insures the Companys excess claims, received audit opinions
with a going-concern explanatory paragraph on its statutory financial statements issued from 2004
to 2008. Although Kemper continues to pay amounts owed, the Company is uncertain as to the future
impact that Kempers financial condition will have on excess insurance coverage during the 2000
and 2001 policy years. Based upon Kempers available financial information, the Company has
recorded an allowance for uncollectible receivables and additional liabilities for excess claims.
The Company has recorded receivables, net of related allowances, totaling $0.7 million and $0.5
million at December 31, 2009 and 2008, respectively, for workers compensation excess claims paid
by the Company but insured by Reliance and Kemper. The Company has accrued liabilities for workers
compensation excess claims insured by but not expected to be covered by Reliance and Kemper in the
amount of $1.6 million and $1.5 million at December 31, 2009 and 2008, respectively.
NOTE P SUBSEQUENT EVENTS
In January 2010, ABF entered into capital lease agreements to finance $11.4 million of revenue
equipment. The capital lease agreements specify the monthly base rent and interest rates for the
36-month lease terms. The present values of net minimum lease payments will be recorded in
long-term debt.
Management performed an evaluation of events through February 24, 2010, the date of filing this
Annual Report on Form 10-K. Other than the events disclosed in this note, management believes there are no material
events subsequent to the balance sheet date requiring additional disclosure or recognition in this
Form 10-K.
75
|
|
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE |
None.
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was performed by the Companys management, under the supervision and with the
participation of the Companys Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) as of December 31, 2009. The Companys disclosure controls and
procedures are designed to provide reasonable assurance that the information required to be
disclosed by the Company in reports that the Company files under the Exchange Act is accumulated
and communicated to the Companys management, including the Companys Principal Executive Officer
and Principal Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported within the time periods specified in
the rules and forms of the SEC. Based on such evaluation, the Companys Principal Executive Officer
and Principal Financial Officer have concluded that the Companys disclosure controls and
procedures were effective as of December 31, 2009 at the reasonable assurance level.
There have been no changes in the Companys internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended
December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
Managements assessment of internal control over financial reporting and the report of the
independent registered public accounting firm appear on the following pages.
76
MANAGEMENTS ASSESSMENT OF INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934. The Companys internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. The Companys internal control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and the Board of Directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions or that
the degree of compliance with the policies or procedures may deteriorate.
Management conducted its evaluation of the effectiveness of internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the
documentation of controls, evaluation of the design effectiveness of controls, testing of the
operating effectiveness of controls and a conclusion on this evaluation. Although there are
inherent limitations in the effectiveness of any system of internal control over financial
reporting, based on our evaluation, we have concluded that the Companys internal control over
financial reporting was effective as of December 31, 2009.
The Companys independent registered public accounting firm Ernst & Young LLP, who has also audited
the Companys consolidated financial statements, has issued a report on the Companys internal
control over financial reporting. This report appears on the following page.
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Arkansas Best Corporation
We have audited Arkansas Best Corporations internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Arkansas Best Corporations management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Managements Assessment of Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Arkansas Best Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the 2009 consolidated financial statements of Arkansas Best Corporation and
our report dated February 24, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Rogers, Arkansas
February 24, 2010
78
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections entitled Proposal I. Election of Directors, Directors of the Company, Governance
of the Company, Executive Officers of the Company and Section 16(a) Beneficial Ownership
Reporting Compliance contained in the Companys Definitive Proxy Statement to be filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the Companys Annual
Stockholders Meeting to be held April 22, 2010, are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled Compensation Discussion & Analysis, Summary Compensation Table, 2009
Grants of Plan-Based Awards, Outstanding Equity Awards at 2009 Fiscal Year-End, 2009 Option
Exercises and Stock Vested, 2009 Pension Benefits, 2009 Non-Qualified Deferred Compensation,
Compensation Committee Interlocks and Insider Participation, Potential Payments Upon Termination
or Change in Control, 2009 Director Compensation Table, and Compensation Committee Report
contained in the Companys Definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 in connection with the Companys Annual Stockholders Meeting to be
held April 22, 2010, are incorporated herein by reference.
|
|
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The sections entitled Principal Stockholders and Management Ownership and 2009 Equity
Compensation Plan Information contained in the Companys Definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with the Companys
Annual Stockholders Meeting to be held April 22, 2010, are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The sections entitled Certain Transactions and Relationships and Governance of the Company
contained in the Companys Definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 in connection with the Companys Annual Stockholders Meeting to be
held April 22, 2010, are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The sections entitled Principal Accountant Fees and Services and Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
contained in the Companys Definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 in connection with the Companys Annual Stockholders Meeting to be
held April 22, 2010, are incorporated herein by reference.
79
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
A list of the financial statements filed as a part of this Annual Report on Form 10-K is set forth
in Part II, Item 8 on page 42 of this Form 10-K and is incorporated by reference.
(a)(2) Financial Statement Schedules
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ARKANSAS BEST CORPORATION
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Column A |
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Column B |
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Column C |
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Column D |
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Column E |
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Column F |
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Additions |
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Balance at |
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Charged to |
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Charged to |
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Beginning |
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Costs and |
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Other Accounts |
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Deductions |
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Balance at |
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Description |
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of Period |
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Expenses |
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Describe |
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|
Describe |
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End of Period |
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($ thousands) |
|
Year Ended December 31, 2009: |
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|
|
|
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|
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Deducted from asset accounts: |
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|
|
|
|
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|
|
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|
|
|
|
|
|
Allowance for doubtful
accounts receivable
and revenue adjustments |
|
$ |
3,513 |
|
|
$ |
2,587 |
|
|
$ |
464 |
(a) |
|
$ |
3,094 |
(b) |
|
$ |
3,470 |
|
Allowance for other accounts
receivable |
|
|
1,001 |
|
|
|
148 |
(c) |
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|
|
|
|
|
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|
1,149 |
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|
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|
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|
|
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|
|
Year Ended December 31, 2008: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Deducted from asset accounts: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
accounts receivable
and revenue adjustments |
|
$ |
3,942 |
|
|
$ |
1,623 |
|
|
$ |
224 |
(a) |
|
$ |
2,276 |
(b) |
|
$ |
3,513 |
|
Allowance for other accounts
receivable |
|
|
774 |
|
|
|
227 |
(c) |
|
|
|
|
|
|
|
|
|
|
1,001 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Year Ended December 31, 2007: |
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|
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|
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|
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|
|
|
|
|
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|
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Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
accounts receivable
and revenue adjustments |
|
$ |
4,476 |
|
|
$ |
1,056 |
|
|
$ |
755 |
(a) |
|
$ |
2,345 |
(b) |
|
$ |
3,942 |
|
Allowance for other accounts
receivable |
|
|
1,272 |
|
|
|
(498 |
)(c) |
|
|
|
|
|
|
|
|
|
|
774 |
|
|
|
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|
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|
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|
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|
|
|
|
|
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|
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Note a |
|
Recoveries of amounts previously written off. |
|
Note b |
|
Uncollectible accounts written off. |
|
Note c |
|
Debited / (credited) to workers compensation expense. |
80
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES continued
(a)(3) Exhibits
The exhibits filed with this Annual Report on Form 10-K are listed in the Exhibit Index, which is
submitted as a separate section of this report.
(b) Exhibits
See Item 15(a)(3) above.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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ARKANSAS BEST CORPORATION
|
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Date: February 24, 2010 |
By: |
/s/ Judy R. McReynolds
|
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|
Judy R. McReynolds |
|
|
|
President Chief Executive Officer,
and Principal Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
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Signature |
|
Title |
|
Date |
|
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|
|
/s/ Robert
A. Young III
|
|
Chairman of the Board and Director
|
|
February 24, 2010 |
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/s/ Judy R. McReynolds
|
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Director, President Chief Executive Officer
|
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February 24, 2010 |
|
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and Principal Executive Officer |
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/s/ Donald W. Pearson
|
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Vice President Treasurer
|
|
February 24, 2010 |
|
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and Principal Financial Officer |
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/s/ David R. Cobb
|
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Vice President Controller
|
|
February 24, 2010 |
|
|
and Principal Accounting Officer |
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/s/ Frank Edelstein
|
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Director
|
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February 24, 2010 |
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/s/ John H. Morris
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Director
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February 24, 2010 |
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/s/ Alan J. Zakon
|
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Director
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February 24, 2010 |
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/s/ William M. Legg
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Director
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February 24, 2010 |
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/s/ Fred A. Allardyce
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Director
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February 24, 2010 |
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/s/ John W. Alden
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Director
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February 24, 2010 |
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82
FORM 10-K ITEM 15(a)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
The following exhibits are filed or furnished with this report or are incorporated by reference to
previously filed material:
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Exhibit |
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No. |
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|
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|
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3.1 |
|
|
Restated Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to
the Companys Registration Statement on Form S-1 under the Securities Act of 1933 filed with
the Securities and Exchange Commission (the Commission) on March 17, 1992, Commission File
No. 33-46483, and incorporated herein by reference). |
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3.2 |
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Certificate of Designations of $2.875 Series A Cumulative Convertible Exchangeable
Preferred Stock of the Company (previously filed as Exhibit 3.2 to the Companys Quarterly
Report on Form 10-Q, filed with the Commission on May 5, 2009, Commission File No.
000-19969, and incorporated herein by reference). |
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3.3 |
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Certificate of Amendment to the Restated Certificate of Incorporation of the Company
(previously filed as Exhibit 3.1 to the Companys Current Report on Form 8-K, filed with the
Commission on April 24, 2009, Commission File No. 000-19969, and incorporated herein by
reference). |
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3.4 |
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Second Amended and Restated Bylaws of the Company dated as of April 21, 2009 (previously
filed as Exhibit 3.2 to the Companys Current Report on Form 8-K, filed with the Commission
on April 24, 2009, Commission File No. 000-19969, and incorporated herein by reference). |
|
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4.1 |
|
|
First Amended and Restated Rights Agreement, dated as of May 1, 2001 between Arkansas
Best Corporation and Computershare Investor Services, LLC, as Rights Agent (including
exhibits thereto) (previously filed as Exhibit 4.1 to the Form 8-A/A Amendment No. 2 filed
with the Commission on May 16, 2001, Commission File No. 000-19969, and incorporated herein
by reference). |
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4.2 |
|
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Amendment to First Amended and Restated Rights Agreement, dated as of April 4, 2003,
between Arkansas Best Corporation and LaSalle Bank, National Association, as Rights Agent
(previously filed as Exhibit 4.2 to the Form 8-A/A Amendment No. 3 filed with the Commission
on April 4, 2003, Commission File No. 000-19969, and incorporated herein by reference). |
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4.3 |
|
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Second Amendment to First Amended and Restated Rights Agreement, dated as of May 18,
2007, between Arkansas Best Corporation and LaSalle Bank, National Association, as Rights
Agent (previously filed as Exhibit 4.3 to the Form 8-K filed with the Commission on May 18,
2007, Commission File No. 000-19969, and incorporated herein by reference). |
|
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|
|
|
|
10.1 |
# |
|
Stock Option Plan (previously filed as Exhibit 10.3 to the Companys Registration
Statement on Form S-1 under the Securities Act of 1933 filed with the Commission on March 17,
1992, Commission File No. 33-46483, and incorporated herein by reference). |
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10.2 |
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Collective Bargaining Agreement, effective April 1, 2008 through March 31, 2013, among the
International Brotherhood of Teamsters and ABF Freight System, Inc. (Previously filed as
Exhibit 10.1 to the Form 8-K, filed with the Commission on February 15, 2008, Commission File
No. 0-19969, and incorporated herein by reference). |
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10.3 |
* |
|
Form of Indemnification Agreement by and between Arkansas Best Corporation and the
Companys Board of Directors. |
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|
|
10.4 |
# |
|
The Companys Executive Officer Annual Incentive Compensation Plan (previously filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the Commission on April
22, 2005, Commission File No. 0-19969, and incorporated herein by reference). |
83
FORM 10-K ITEM 15(a)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(Continued)
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Exhibit |
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|
No. |
|
|
|
|
|
|
10.5
|
# |
|
The 2005 Ownership Incentive Plan (previously filed as Exhibit 10.2 to the Companys
Current Report on Form 8-K, filed with the Commission on April 22, 2005, Commission File No.
0-19969, and incorporated herein by reference). |
|
|
|
10.6
|
# |
|
The Form of Restricted Stock Award Agreement (Non-Employee Directors) (previously filed as
Exhibit 10.3 to the Companys Current Report on Form 8-K, filed with the Commission on April
22, 2005, Commission File No. 0-19969, and incorporated herein by reference). |
|
|
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10.7
|
# |
|
The Form of Restricted Stock Award Agreement (Employee) (previously filed as Exhibit 10.4
to the Companys Current Report on Form 8-K, filed with the Commission on April 22, 2005,
Commission File No. 0-19969, and incorporated herein by reference). |
|
|
|
10.8
|
# |
|
Amended and Restated Voluntary Savings Plan dated as of January 1, 2005 (previously filed
as Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the Commission on
April 21, 2006, Commission File No. 0-19969, and incorporated herein by reference). |
|
|
|
10.9
|
# |
|
The ABC/DTC/ABF Long-Term (3-Year) Incentive Compensation Plan Total, ROCE Portion and
Growth Portion and form of award (previously filed as Exhibit 10.17 to the Companys 2006
Form 10-K, filed with the Commission on February 23, 2007, Commission File No. 0-19969, and
incorporated herein by reference). |
|
|
|
10.10
|
# |
|
The [_] Schedule ABF Annual Incentive Compensation Plan and form of award (previously
filed as Exhibit 10.13 to the Companys 2008 Form 10-K filed with the Commission on February
20, 2009, Commission File No. 000-19969, and incorporated herein by reference). |
|
|
|
10.11
|
# |
|
The [_] Schedule ABC Annual Incentive Compensation Plan and form of award (previously
filed as Exhibit 10.14 to the Companys 2008 Form 10-K filed with the Commission on February
20, 2009, Commission File No. 000-19969, and incorporated herein by reference). |
|
|
|
10.12
|
# |
|
The ABC/DTC/ABF Long-Term (3-Year) Incentive Compensation Plan Total, ROCE Portion and
Growth Portion and form of award (previously filed as Exhibit 10.15 to the Companys 2008
Form 10-K filed with the Commission on February 20, 2009, Commission File No. 000-19969, and
incorporated herein by reference). |
|
|
|
10.13
|
# |
|
The Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) (previously
filed as Exhibit 10.1 to the Form 8-K, filed with the Commission on April 25, 2008,
Commission File No. 0-19969, and incorporated herein by reference). |
|
|
|
10.14
|
# |
|
The Form of Restricted Stock Unit Award Agreement (Employees) (previously filed as Exhibit
10.2 to the Form 8-K, filed with the Commission on April 25, 2008, Commission File No.
0-19969, and incorporated herein by reference). |
|
|
|
|
10.15
|
# |
|
The Form of Restricted Stock Unit Award Agreement (Non-Employee Directors with deferral
feature) (previously filed as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on May 5, 2009, Commission File No. 000-19969, and incorporated
herein by reference). |
|
|
|
|
10.16
|
# |
|
The Form of Restricted Stock Unit Award Agreement (Employees) (previously filed as Exhibit
10.2 to the Companys Quarterly Report on Form 10-Q, filed with the Commission on May 5,
2009, Commission File No. 000-19969, and incorporated herein by reference). |
84
FORM 10-K ITEM 15(a)
EXHIBIT INDEX
ARKANSAS BEST CORPORATION
(Continued)
|
|
|
|
Exhibit |
|
|
No. |
|
|
|
|
|
|
10.17
|
#* |
|
The Arkansas Best Corporation Supplemental Benefit Plan, amended and restated effective August 1, 2009. |
|
|
|
|
10.18
|
#* |
|
Amendment One to the Arkansas Best Corporation Supplemental Benefit Plan, effective December 31, 2009. |
|
|
|
|
10.19
|
#* |
|
Form of Amended and Restated Deferred Salary Agreement. |
|
|
|
|
10.20
|
*+ |
|
Master Continuing Letter of Credit Reimbursement and Security Agreement, dated November
24, 2009, among The Bank of Tokyo-Mitsubishi UFJ, Ltd., Arkansas Best Corporation, ABF
Freight System, Inc., ABF Cartage, Inc., FleetNet America, Inc., Data-Tronics Corp., ABF
Farms, Inc., Transport Realty, Inc., Tread-Ark Corporation, ABF Aviation LLC, Global Supply
Chain Services, Inc., FreightValue, Inc., and Moving Solutions, Inc. |
|
|
|
|
10.21
|
*+ |
|
Letter of Credit Agreement, dated December 8, 2009, between PNC Bank, National Association
and Arkansas Best Corporation. |
|
|
|
|
10.22
|
*+ |
|
Letter of Credit Agreement, dated December 9, 2009, between Arkansas Best Corporation and
SunTrust Bank. |
|
|
|
|
10.23
|
* |
|
Continuing Reimbursement Agreement for Letters of Credit, dated November 12, 2009, between
U.S. Bank National Association and Arkansas Best Corporation. |
|
|
|
|
10.24
|
*+ |
|
Receivables Loan Agreement, dated December 30, 2009, among ABF Freight Funding LLC, as
Borrower, ABF Freight System, Inc., as initial Servicer, SunTrust Bank and SunTrust Robinson
Humphrey, Inc., as Agent. |
|
|
|
|
10.25
|
* |
|
Master Lease Agreement, dated December 30, 2009, between BB&T Equipment Finance Corporation
and ABF Freight System, Inc. |
|
|
|
|
10.26
|
* |
|
Master Lease Guaranty, dated December 30, 2009, by Arkansas Best Corporation in favor of
BB&T Equipment Finance Corporation. |
|
|
|
|
21
|
* |
|
List of Subsidiary Corporations. |
|
|
|
|
23
|
* |
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. |
|
|
|
|
31.1
|
* |
|
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
31.2
|
* |
|
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
32
|
** |
|
Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
# |
|
Designates a compensation plan or arrangement for directors or executive officers. |
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
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+ |
|
Certain portions of this exhibit have been omitted and filed separately with the Securities
and Exchange Commission under a confidential treatment request pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended. |
85