Arkansas Best Corporation Announces Second Quarter Earnings of $0.76 Per Share; ABF®'s Operating Ratio is 91.6%
FORT SMITH, Ark., July 20 /PRNewswire-FirstCall/ -- Arkansas Best Corporation (Nasdaq: ABFS - News) today announced second quarter 2004 net income of $19.3 million, or $0.76 per diluted common share, compared to second quarter 2003 net income of $15.2 million, or $0.60 per diluted common share. Excluding an after-tax charge of $1.6 million ($0.06 per diluted common share) related to increased reserves associated with the previously announced insolvency of one of Arkansas Best's workers' compensation excess claims insurers, second quarter 2004 earnings were $0.82 per diluted common share. Excluding a gain of $0.33 per diluted common share associated with the sale of Arkansas Best's 19% interest in Wingfoot Commercial Tire Systems, LLC, second quarter 2003 earnings were $0.27 per diluted common share. Arkansas Best's second quarter 2004 revenue was $424.5 million compared to $384.8 million in the second quarter of 2003.
ABF Freight System, Inc.®
ABF Freight System, Inc., the company's largest subsidiary, had second quarter 2004 revenues of $391.0 million, a per-day increase of 13.6% compared to second quarter 2003 revenue of $344.1 million. Second quarter 2004 operating income at ABF was $32.8 million compared to $14.6 million during the second quarter of 2003, an increase of 125%. ABF's second quarter 2004 operating ratio was 91.6% versus an operating ratio of 95.8% during the second quarter of 2003. "ABF greatly benefited from an increase in business that began in February, surged in April and continued throughout the entire second quarter," said Robert A. Young III, Arkansas Best President and Chief Executive Officer. "During the poor economic environment of the last several years, I have talked about the significant operating leverage and improved margins ABF could generate with additional business. This year's second quarter results illustrate this point."
ABF's second quarter 2004 LTL tonnage per day increased by 7.8% versus the same period last year. Compared to this year's first quarter, ABF's second quarter 2004 LTL tonnage per day increased by 9.8%. "Following minimal increases in February and March, ABF's year-over-year LTL tonnage levels began to dramatically improve in April by percentages not seen in several years. In addition, the year-over-year increase in LTL tonnage grew during each successive month of the second quarter, indicating economic momentum throughout the quarter," said Mr. Young. "ABF is benefiting from overall general economic recovery, particularly in the domestic manufacturing sector. We believe that ABF was delayed in experiencing the business growth seen earlier by other carriers because of the manufacturing concentration of its core business."
Billed LTL revenue per hundredweight, excluding fuel surcharge, was $24.06, an increase of 3.8% over last year's second quarter figure of $23.19. "As business grows and capacity tightens, the general pricing environment is improving," said Mr. Young. "The retention of the June 14 general rate increase has been good. In addition, ABF is reviewing the portions of its business that are not generating adequate returns in order to address specific situations and improve overall profitability."
ABF's truckload tonnage per day improved by 10.9% during the second quarter when compared to last year. Billed truckload revenue per hundredweight, excluding fuel surcharge, increased by 5.6% over last year's second quarter figure. "There has been significant tightening of pricing in the truckload environment," said Mr. Young. "Beginning in mid-February and continuing throughout the second quarter, ABF raised prices in its truckload spot quotation market. In spite of these actions, business levels remained strong and profits on this business improved. ABF is clearly seeing additional freight that was formerly handled by truckload carriers. However, we believe this is related more to an overall tightening of general truckload capacity due to the improving economy rather than to the effects of the changes in the federal Hours of Service Regulations."
"On a bills-per-hour basis, second quarter productivity measures at ABF equaled those of the second quarter of 2003 and generally surpassed those of the prior three quarters," said Mr. Young. "The additional freight ABF handled in the second quarter was a positive factor contributing to ABF's productivity improvements."
"In order to take full advantage of its remaining operating leverage, ABF does not generally need to add fixed cost capacity. Since LTL tonnage per day in the second quarter of 2004 was still 6% below that in the same period of the highly profitable year of 2000, ABF's fixed cost network has some available capacity," said Mr. Young. "As a result, there is more potential for even greater utilization of these resources. Despite its focus on maintaining existing fixed cost levels, ABF will add the variable costs necessary to handle additional business while sustaining its high standard of customer service."
Clipper
Clipper's second quarter 2004 revenue was $25.0 million. Excluding the revenue associated with Clipper's LTL freight business, whose sale was closed on December 31, 2003, Clipper's revenue in the second quarter of 2003 was $24.0 million. "Clipper's temperature-controlled division experienced revenue growth of 14.5%, reflecting strength in both the produce and non-produce portions of the business," said Mr. Young. "The positive effects of these significant revenue trends were somewhat reduced by flat year-over-year combined revenue in Clipper's intermodal and brokerage business segments."
Clipper's second quarter 2004 operating ratio was 97.1% compared to a second quarter 2003 operating ratio, excluding LTL, of 95.5%. "Second quarter 2004 operating costs were adversely affected by higher rail rates associated with tightened rail capacity, increased fuel costs and higher drayage expenses resulting from the California independent truckers strike which disrupted rail service throughout the West," said Mr. Young. "In addition, though improved second quarter shipment levels provided additional revenues to help better cover overhead expenses, Clipper's profitability continues to be adversely impacted by overhead costs."
Workers' Compensation Reserve Adjustments
Arkansas Best's second quarter 2004 net income and earnings per share were adversely affected by increased workers' compensation reserves associated with the liquidation of Reliance Insurance Company. Reliance was Arkansas Best's excess insurer for the years 1993 through 1999. For claims not accepted by state guaranty funds, Arkansas Best has continually maintained reserves for its exposure to the Reliance liquidation since 2001. However, during this year's second quarter, Arkansas Best began receiving notices of rejection from the California Insurance Guarantee Association (CAIGA) on certain claims previously accepted by this guaranty fund. If these claims are not covered by the CAIGA fund, they become part of Arkansas Best's exposure to the Reliance liquidation. An after-tax charge of $1.6 million ($0.06 per diluted common share) to increase the reserves for this additional exposure was recorded in the second quarter of 2004.
Common Stock Purchase
During the second quarter of 2004, Arkansas Best made open-market purchases, totaling 140,100 shares, of its common stock. The total purchase price for these transactions was $3.7 million. These common shares were added to the company's treasury stock. Since February 2003, as a part of a previously announced program to repurchase up to a maximum of $25 million of its common stock, Arkansas Best has purchased a total of 471,500 shares totaling $12.4 million. Arkansas Best plans to continue making open-market purchases of its stock on an opportunistic basis.
Conference Call
Arkansas Best Corporation will host a conference call with company executives to discuss the 2004 second quarter results. The call will be today, Tuesday, July 20, at 10:00 a.m. EDT. Interested parties are invited to listen by calling (877) 275-1257. Following the call, a recorded playback will be available through the end of July. To listen to the playback, dial (800) 642-1687. The conference call ID for the playback is 8339161. The conference call and playback can also be accessed, through Saturday, July 31, on Arkansas Best's Internet Web site at http://www.arkbest.com .
Company Description
Arkansas Best Corporation, headquartered in Fort Smith, Arkansas, is a diversified transportation holding company with two primary operating subsidiaries. ABF Freight System, Inc., in continuous service since 1923, provides national transportation of less-than-truckload ("LTL") general commodities throughout North America. Clipper is an intermodal marketing company that provides domestic freight services utilizing rail and over-the- road transportation.
Forward-Looking Statements
The following is a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995: Statements contained in this press release that are not based on historical facts are "forward-looking statements." Terms such as "estimate," "forecast," "expect," "predict," "plan," "anticipate," "believe," "intend," "should," "would," "scheduled," and similar expressions and the negatives of such terms are intended to identify forward- looking statements. Such statements are by their nature subject to uncertainties and risk, including, but not limited to, union relations; availability and cost of capital; shifts in market demand; weather conditions; the performance and needs of industries served by Arkansas Best's subsidiaries; actual future costs of operating expenses such as fuel and related taxes; self-insurance claims and employee wages and benefits; actual costs of continuing investments in technology; the timing and amount of capital expenditures; competitive initiatives and pricing pressures; general economic conditions; and other financial, operational and legal risks and uncertainties detailed from time to time in the company's Securities and Exchange Commission ("SEC") public filings.
The following tables show financial data and operating statistics on Arkansas Best Corporation and its subsidiary companies.
ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30 June 30 2004 2003 2004 2003 ($ thousands, except share and per share data) OPERATING REVENUES(B) $424,488 $384,795 $799,336 $750,934 OPERATING EXPENSES AND COSTS(B) 392,498 371,255 759,052 727,540 OPERATING INCOME 31,990 13,540 40,284 23,394 OTHER INCOME (EXPENSE) Net gain on sales of property and other 241 6 185 6 Gain on sale - Wingfoot --- 12,060 --- 12,060 Fair value changes and payments on interest rate swap(A) 587 (1,245) 149 (10,281) Interest expense (215) (566) (286) (2,506) Other, net (279) (192) (535) (304) 334 10,063 (487) (1,025) INCOME BEFORE INCOME TAXES 32,324 23,603 39,797 22,369 FEDERAL AND STATE INCOME TAXES Current 11,453 4,035 13,758 3,861 Deferred 1,573 4,378 2,280 4,052 13,026 8,413 16,038 7,913 NET INCOME $19,298 $15,190 $23,759 $14,456 Basic: NET INCOME PER SHARE $0.77 $0.61 $0.95 $0.58 AVERAGE COMMON SHARES OUTSTANDING (BASIC) 24,951,173 24,796,726 25,003,614 24,866,803 Diluted: NET INCOME PER SHARE $0.76 $0.60 $0.94 $0.57 AVERAGE COMMON SHARES OUTSTANDING (DILUTED) 25,321,028 25,262,013 25,391,306 25,332,358 CASH DIVIDENDS PAID PER COMMON SHARE $0.12 $0.08 $0.24 $0.16 (A) The six months ended June 30, 2003 includes a pre-tax noncash charge of $8.9 million due to no longer forecasting interest payments on $110.0 million of borrowings. (B) Beginning in the first quarter 2004, there has been a reclassification between revenue and expense associated with certain shipments where ABF utilizes a third-party carrier for pickup or delivery of freight but remains the primary obligor. The amounts reclassified for the three months ended June 30, 2004 and 2003 were $7.5 million and $6.9 million, respectively. The amounts reclassified for the six months ended June 30, 2004 and 2003 were $13.8 million and $13.5 million, respectively. ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS June 30 December 31 2004 2003 (Unaudited) Note ($ thousands, except share data) ASSETS CURRENT ASSETS Cash and cash equivalents $17,129 $5,251 Accounts receivable, less allowances (2004 - $3,546; 2003 - $3,558) 151,052 132,320 Prepaid expenses 12,557 8,600 Deferred income taxes 28,844 27,006 Other 3,158 3,400 TOTAL CURRENT ASSETS 212,740 176,577 PROPERTY, PLANT AND EQUIPMENT Land and structures 219,362 215,476 Revenue equipment 382,607 370,102 Service, office and other equipment 110,044 107,066 Leasehold improvements 13,369 13,048 725,382 705,692 Less allowances for depreciation and amortization 370,789 358,564 354,593 347,128 PREPAID PENSION COSTS 29,315 32,887 OTHER ASSETS 67,079 68,572 ASSETS HELD FOR SALE 8,625 8,183 GOODWILL, less accumulated amortization (2004 and 2003 - $32,037) 63,863 63,878 $736,215 $697,225 Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. ARKANSAS BEST CORPORATION CONSOLIDATED BALANCE SHEETS - continued June 30 December 31 2004 2003 (Unaudited) Note ($ thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft and drafts payable $5,980 $8,861 Accounts payable 70,818 55,764 Federal and state income taxes 1,600 2,816 Accrued expenses 140,625 125,148 Current portion of long-term debt 379 353 TOTAL CURRENT LIABILITIES 219,402 192,942 LONG-TERM DEBT, less current portion 1,551 1,826 FAIR VALUE OF INTEREST RATE SWAP 3,558 6,330 OTHER LIABILITIES 64,659 66,284 DEFERRED INCOME TAXES 33,245 29,106 FUTURE MINIMUM RENTAL COMMITMENTS, NET (2004 - $48,413; 2003 - $49,615) --- --- OTHER COMMITMENTS AND CONTINGENCIES --- --- STOCKHOLDERS' EQUITY Common stock, $.01 par value, authorized 70,000,000 shares; issued 2004: 25,452,911 shares; 2003: 25,295,984 shares 255 253 Additional paid-in capital 220,589 217,781 Retained earnings 210,385 192,610 Treasury stock, at cost, 2004: 531,282 shares; 2003: 259,782 shares (13,334) (5,807) Accumulated other comprehensive loss (4,095) (4,100) TOTAL STOCKHOLDERS' EQUITY 413,800 400,737 $736,215 $697,225 Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. ARKANSAS BEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 2004 2003 ($ thousands) OPERATING ACTIVITIES Net income $23,759 $14,456 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,628 24,453 Other amortization 146 173 Provision for losses on accounts receivable 615 760 Provision for deferred income taxes 2,280 4,052 Fair value of interest rate swap (2,772) 9,022 (Gain) loss on sales of assets and other (1,241) 190 Gain on sale of Wingfoot --- (12,060) Changes in operating assets and liabilities: Receivables (19,362) (4,835) Prepaid expenses (3,957) (5,028) Other assets 4,186 (18,105) Accounts payable, bank drafts payable, taxes payable, accrued expenses and other liabilities 28,764 12,438 NET CASH PROVIDED BY OPERATING ACTIVITIES 59,046 25,516 INVESTING ACTIVITIES Purchases of property, plant and equipment (35,906) (28,718) Proceeds from asset sales 4,992 1,320 Proceeds from sale of Wingfoot --- 71,309 Capitalization of internally developed software and other (2,197) (1,803) NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (33,111) 42,108 FINANCING ACTIVITIES Borrowings under revolving credit facilities 34,300 100,300 Payments under revolving credit facilities (34,300) (192,500) Payments on long-term debt (249) (229) Net decrease in bank overdraft (2,482) (3,539) Dividends paid on common stock (5,984) (3,977) Purchase of treasury stock (7,527) (4,852) Other, net 2,185 483 NET CASH USED BY FINANCING ACTIVITIES (14,057) (104,314) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,878 (36,690) Cash and cash equivalents at beginning of period 5,251 39,644 CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,129 $2,954 ARKANSAS BEST CORPORATION FINANCIAL STATEMENT OPERATING SEGMENT DATA AND OPERATING RATIOS (Unaudited) Three Months Ended June 30 2004 2003 ($ thousands) OPERATING REVENUES ABF Freight System, Inc.(A)(B) LTL $358,461 $316,929 TL 32,572 27,144 Total 391,033 344,073 Clipper 25,036 32,974 Other revenues and eliminations 8,419 7,748 Total consolidated operating revenues $424,488 $384,795 OPERATING EXPENSES AND COSTS ABF Freight System, Inc.(A) Salaries and wages $239,761 61.3% $224,287 65.2% Supplies and expenses 50,242 12.8 44,478 12.9 Operating taxes and licenses 10,459 2.7 10,045 2.9 Insurance 6,061 1.5 6,049 1.8 Communications and utilities 3,469 0.9 3,658 1.1 Depreciation and amortization 11,542 3.0 10,215 3.0 Rents and purchased transportation(B) 36,387 9.3 29,601 8.6 Other 415 0.1 1,085 0.3 (Gain) loss on sale of equipment (65) --- 74 --- 358,271 91.6% 329,492 95.8% Clipper Cost of services 22,205 88.7% 28,210 85.6% Selling, administrative and general 2,101 8.4 4,041 12.2 (Gain) loss on sale of equipment --- --- (3) --- 24,306 97.1% 32,248 97.8% Other expenses and eliminations 9,921 9,515 Total consolidated operating expenses and costs $392,498 $371,255 OPERATING INCOME (LOSS) ABF Freight System, Inc.(A) $32,762 $14,581 Clipper 730 726 Other loss and eliminations (1,502) (1,767) Total consolidated operating income $31,990 $13,540 Six Months Ended June 30 2004 2003 ($ thousands) OPERATING REVENUES ABF Freight System, Inc.(A)(B) LTL $676,415 $623,174 TL 60,730 51,678 Total 737,145 674,852 Clipper 45,941 61,466 Other revenues and eliminations 16,250 14,616 Total consolidated operating revenues $799,336 $750,934 OPERATING EXPENSES AND COSTS ABF Freight System, Inc.(A) Salaries and wages $469,066 63.6% $442,230 65.5% Supplies and expenses 96,910 13.2 88,226 13.1 Operating taxes and licenses 20,736 2.8 19,728 2.9 Insurance 11,279 1.5 11,642 1.7 Communications and utilities 7,301 1.0 7,469 1.1 Depreciation and amortization 23,102 3.1 20,672 3.1 Rents and purchased transportation(B) 65,912 8.9 57,311 8.5 Other 1,433 0.3 1,703 0.3 (Gain) loss on sale of equipment (100) --- 201 --- 695,639 94.4% 649,182 96.2% Clipper Cost of services 41,495 90.3% 53,188 86.5% Selling, administrative and general 4,289 9.4 8,043 13.1 (Gain) loss on sale of equipment 2 --- (4) --- 45,786 99.7% 61,227 99.6% Other expenses and eliminations 17,627 17,131 Total consolidated operating expenses and costs $759,052 $727,540 OPERATING INCOME (LOSS) ABF Freight System, Inc.(A) $41,506 $25,670 Clipper 155 239 Other loss and eliminations (1,377) (2,515) Total consolidated operating income $40,284 $23,394 (A) Includes U.S., Canadian, and Puerto Rican operations of ABF affiliates. (B) Beginning in the first quarter 2004, there has been a reclassification between revenue and expense associated with certain shipments where ABF utilizes a third-party carrier for pickup or delivery of freight but remains the primary obligor. The amounts reclassified for the three months ended June 30, 2004 and 2003 were $7.5 million and $6.9 million, respectively. The amounts reclassified for the six months ended June 30, 2004 and 2003 were $13.8 million and $13.5 million, respectively. ARKANSAS BEST CORPORATION FINANCIAL STATISTICS AND GAAP EARNINGS RECONCILIATIONS (Unaudited) Rolling Twelve Months Ended June 30, 2004 FINANCIAL STATISTICS After-Tax Return on Stockholders' Equity (net income / average equity) 14.18% Debt to Equity Ratio 0.00:1 After-Tax Return on Capital Employed (A) 14.05% (A) (Net income + interest after tax) / (average total debt + average equity) RECONCILIATIONS OF GAAP EARNINGS AND EARNINGS PER SHARE Three Months Ended Three Months Ended June 30, 2004 June 30, 2003 Diluted Diluted Net Earnings Net Earnings Income Per Share Income Per Share Arkansas Best Corporation ($ thousands, except per share data) Amounts on a GAAP basis $19,298 $0.76 $15,190 $0.60 Plus increase in workers' compensation reserves for Reliance 1,617 0.06 --- --- Less gain on sale of 19% interest in Wingfoot --- --- (8,429) (0.33) Non-GAAP amounts disclosed $20,915 $0.82 $6,761 $0.27 Three Months Ended Six Months Ended June 30, 2003 June 30, 2003 Operating Operating Income Income Revenue (Loss) O.R.% Revenue (Loss) O.R.% Clipper - Pre-tax ($ thousands) Clipper GAAP $32,974 $726 97.8% $61,466 $239 99.6% Less Clipper LTL 8,960 (346) 103.9 17,633 (722) 104.1 Clipper, excluding LTL $24,014 $1,072 95.5% $43,833 $961 97.8% ABF FREIGHT SYSTEM, INC. OPERATING STATISTICS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 Three Months Ended Six Months Ended June 30 June 30 2004 2003 % Change 2004 2003 % Change Billed Revenue* / CWT LTL $25.37 $23.97 5.8% $24.97 $24.02 4.0% TL $9.37 $8.59 9.1% $9.09 $8.56 6.2% Total $22.21 $21.00 5.8% $21.83 $21.10 3.4% Billed Revenue* / CWT LTL $24.06 $23.19 3.8% $23.78 $23.11 2.9% (without fuel surcharge) TL $8.90 $8.43 5.6% $8.66 $8.38 3.3% Total $21.07 $20.34 3.6% $20.79 $20.33 2.3% Billed Revenue* / Shipment LTL $248.68 $233.91 6.3% $245.43 $233.42 5.1% TL $1,553.27 $1,399.48 11.0% $1,496.93 $1,388.27 7.8% Total $267.38 $250.37 6.8% $263.59 $249.30 5.7% Billed Revenue* / Shipment LTL $235.84 $226.30 4.2% $233.77 $224.54 4.1% (without fuel surcharge) TL $1,474.62 $1,373.97 7.3% $1,426.25 $1,357.99 5.0% Total $253.61 $242.50 4.6% $251.07 $240.12 4.6% Tonnage LTL 715,078 663,275 7.8% 1,366,524 1,302,472 4.9% (tons) TL 175,872 158,608 10.9% 337,176 303,026 11.3% Total 890,950 821,883 8.4% 1,703,700 1,605,498 6.1% Shipments LTL 1,459,189 1,359,585 7.3% 2,780,431 2,680,678 3.7% TL 21,228 19,463 9.1% 40,929 37,377 9.5% Total 1,480,417 1,379,048 7.4% 2,821,360 2,718,055 3.8% Billed revenue does not include revenue deferral required for financial statement purposes under the company's revenue recognition policy. There were 64 workdays in the three months ended June 30, 2004 and in the three months ended June 30, 2003. There were 128 workdays in the six months ended June 30, 2004 and 127 workdays in the six months ended June 30, 2003. Includes U.S., Canadian and Puerto Rican operations of ABF affiliates.
Contact: Mr. David E. Loeffler, Senior Vice President, Chief Financial Officer and Treasurer
Telephone: (479) 785-6157
Mr. David Humphrey, Director of Investor Relations
Telephone (479) 785-6200