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