Arkansas Best Corporation Announces Third Quarter 2007 Results
FOR IMMEDIATE RELEASE
ARKANSAS BEST CORPORATION ANNOUNCES THIRD QUARTER 2007 RESULTS
(Fort Smith, Arkansas, October 26, 2007) -- Arkansas Best Corporation (Nasdaq: ABFS) today announced third quarter 2007 net income of $18.9 million, or $0.75 per diluted common share, compared to third quarter 2006 net income of $31.5 million, or $1.24 per diluted common share. Arkansas Best’s third quarter 2007 revenue was $479.8 million compared to third quarter 2006 revenue of $507.3 million.
ABF Freight System, Inc.®
ABF Freight System, Inc., the company’s largest subsidiary, had third quarter 2007 revenue of $462.2 million, a per-day decrease of 6.4% from third quarter 2006. Third quarter 2007 operating income at ABF was $28.5 million compared to $49.4 million during the third quarter of 2006. ABF’s third quarter 2007 operating ratio was 93.8% versus an operating ratio of 90.0% in the third quarter of 2006. “In the midst of a challenging freight environment, ABF maintained its focus on providing value to our customers while closely monitoring costs and displaying pricing discipline,” said Robert A. Davidson, Arkansas Best President and Chief Executive Officer.
“Our third quarter profitability was influenced by several factors,” said Mr. Davidson. “ABF’s operating margins continue to be impacted by the effects of lower tonnage levels. In addition, as in previous quarters, the costs associated with investment in ABF’s RPM initiative added about a percentage point to ABF’s third quarter operating ratio. Finally, higher costs associated with workers’ compensation claims, offset in part by some improvement in third-party casualty claims, added almost a point. However, it is important to note that because of lower workers’ compensation and third-party casualty expenses in the first half of the year, these year-to-date costs are in line with the same period last year and with historical averages.”
ABF’s third quarter 2007 total weight per day decreased by 5.8% versus last year’s third quarter. “Since October of last year, when we first experienced significant declines in business levels, through this August, ABF’s tonnage trends remained fairly consistent,” said Mr. Davidson. “Year-over-year tonnage comparisons for the month of September were slightly worse as we believe the economy began to weaken further compared to the first eight months of the year,” said Mr. Davidson. “ABF’s year-over-year tonnage trends in October are running below the same period last year by approximately 4 to 4.5%. As a result, we have taken further cost-cutting steps in order to bring our network in line with business levels.”
Total billed revenue per hundredweight was $25.87, essentially the same as last year’s third quarter figure of $25.91. “In the midst of a tight freight environment, industry pricing is very competitive though most carriers are maintaining rational pricing,” said Mr. Davidson. “ABF’s overall yield continues to be affected by changes in freight mix and shipment profile. During the third quarter, ABF supplemented tonnage in its LTL business with additional spot-priced truckload shipments, improving the utilization of system capacity and increasing ABF’s total average shipment size. Progress in ABF’s regional freight initiative caused length of haul to decrease during the third quarter. When excluding these factors that reduce revenue per hundredweight, pure pricing on ABF’s traditional LTL business increased by approximately two percent, consistent with increases on our contracts and deferred-pricing agreements.”
“In spite of the current freight environment, we continue to be optimistic about the potential for long-term success from ABF’s Regional Performance Model (RPM). During the third quarter, tonnage trends for these shipments were better than those in ABF’s traditional long-haul markets,” said Mr. Davidson. “Beginning in the fourth quarter, the year-over-year impact on operating results of the RPM investment should be reduced as we start to compare back to prior-year periods that included those same costs. ABF remains fully committed to this initiative, and we anticipate that RPM will positively impact future revenue growth and profitability as we gain additional market share.”
ABF’s current labor contract with its unionized employees will expire on March 31, 2008. ABF expects to begin labor negotiations next month and anticipates a timely agreement.
Based on December 31, 2006 multiemployer pension plan information which recently became available, the current estimate of ABF’s contingent withdrawal liabilities for all multiemployer plans is in the range of approximately $800 to $850 million, on a pre-tax basis. The range has increased primarily based upon plan assumptions used by the Central States pension fund that have not been verified by ABF or its independent pension counsel. The estimate of ABF’s contingent withdrawal liabilities could change if further changes in plan assumptions are made.
Conference Call
Arkansas Best Corporation will host a conference call with company executives to discuss the 2007 third quarter results. The call will be today, Friday, October 26, at 11:00 a.m. EDT (10:00 a.m. CDT). Interested parties are invited to listen by calling (877) 275-1257 or (706) 634-6529 (for international callers). Following the call, a recorded playback will be available through the end of the day on Thursday, November 15, 2007. To listen to the playback, dial (800) 642-1687 or (706) 645-9291 (for international callers). The conference call ID for the playback is 18779102. The conference call and playback can also be accessed, through Thursday, November 15, on Arkansas Best’s Web site at arkbest.com.
Company Description
Arkansas Best Corporation, headquartered in Fort Smith, Arkansas, is a transportation holding company. ABF Freight System, Inc., Arkansas Best’s largest subsidiary, has been in continuous service since 1923. ABF provides transportation of less-than-truckload (“LTL”) general commodities throughout North America. More information is available at arkbest.com and abf.com.
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 “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “predict,” “prospects,” “scheduled,” “should,” “would,” 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; union and non-union 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 Arkansas Best’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
Three Months Ended Nine Months Ended
September 30 September 30
2007 2006 2007 2006
(Unaudited)
($ thousands, except share and per share data)
OPERATING REVENUES.................................................................. $ 479,815 $ 507,307 $ 1,360,643 $ 1,411,523
OPERATING EXPENSES AND COSTS........................................... 451,629 457,519 1,295,363 1,307,429
OPERATING INCOME ...................................................................... 28,186 49,788 65,280 104,094
OTHER INCOME (EXPENSE)
... Short-term investment income.............................................................. 1,477 1,333 4,023 3,547
... Interest expense and other related financing costs ................................ (290) (292) (885) (833)
... Other, net ............................................................................................. 601 831 1,575 1,782
1,788 1,872 4,713 4,496
INCOME FROM CONTINUING OPERATIONS,
BEFORE INCOME TAXES ............................................................. 29,974 51,660 69,993 108,590
FEDERAL AND STATE INCOME TAXES
... Current.................................................................................................. 12,318 20,966 26,491 46,809
... Deferred................................................................................................ (1,260) (852) 166 (4,553)
11,058 20,114 26,657 42,256
INCOME FROM CONTINUING OPERATIONS............................ 18,916 31,546 43,336 66,334
DISCONTINUED OPERATIONS, NET OF TAX
... Income from operations........................................................................ – – – 530
... Gain from disposal............................................................................... – – – 3,063
– – – 3,593
NET INCOME....................................................................................... $ 18,916 $ 31,546 $ 43,336 $ 69,927
BASIC EARNINGS PER SHARE:
Income from continuing operations..................................................... $ 0.76 $ 1.26 $ 1.75 $ 2.64
Income from discontinued operations.................................................. – – – 0.14
NET INCOME....................................................................................... $ 0.76 $ 1.26 $ 1.75 $ 2.78
AVERAGE COMMON SHARES OUTSTANDING (BASIC)........ 24,820,079 25,128,232 24,806,290 25,197,419
DILUTED EARNINGS PER SHARE:
Income from continuing operations..................................................... $ 0.75 $ 1.24 $ 1.72 $ 2.59
Income from discontinued operations.................................................. – – – 0.14
NET INCOME....................................................................................... $ 0.75 $ 1.24 $ 1.72 $ 2.73
AVERAGE COMMON SHARES OUTSTANDING (DILUTED).. 25,137,398 25,523,367 25,137,140 25,577,947
CASH DIVIDENDS DECLARED AND PAID
PER COMMON SHARE ................................................................. $ 0.15 $ 0.15 $ 0.45 $ 0.45
ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30 December 31
2007 2006
(Unaudited) Note
($ thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................................................... $ 6,066 $ 5,009
Short-term investment securities................................................................................. 141,362 135,317
Accounts receivable, less allowances (2007 – $4,402; 2006 – $4,476)............... 161,023 143,216
Other accounts receivable, less allowances (2007 – $880; 2006 – $1,272)........ 9,130 8,912
Prepaid expenses............................................................................................................ 9,008 11,735
Deferred income taxes.................................................................................................. 37,307 36,532
Prepaid income taxes.................................................................................................... 3,236 3,024
Other................................................................................................................................. 6,610 7,212
TOTAL CURRENT ASSETS 373,742 350,957
PROPERTY, PLANT AND EQUIPMENT
Land and structures....................................................................................................... 229,533 228,375
Revenue equipment....................................................................................................... 518,944 498,844
Service, office and other equipment........................................................................... 128,944 140,516
Leasehold improvements............................................................................................. 19,095 17,735
896,516 885,470
Less allowances for depreciation and amortization................................................ 430,007 423,587
466,509 461,883
OTHER ASSETS.............................................................................................................. 74,429 61,959
GOODWILL...................................................................................................................... 63,984 63,917
$ 978,664 $ 938,716
Note: The balance sheet at December 31, 2006 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
September 30 December 31
2007 2006
(Unaudited) Note
($ thousands, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable............................................................................ $ 18,869 $ 17,423
Accounts payable.......................................................................................................... 64,738 63,477
Income taxes payable................................................................................................... 3,118 5,833
Accrued expenses........................................................................................................... 170,183 171,432 Current portion of long-term debt............................................................................... 78 249
TOTAL CURRENT LIABILITIES................................................................... 256,986 258,414
LONG-TERM DEBT, less current portion................................................................... 82 1,184
PENSION AND POSTRETIREMENT LIABILITIES............................................ 55,252 54,616
OTHER LIABILITIES................................................................................................... 24,847 25,655
DEFERRED INCOME TAXES..................................................................................... 23,451 19,452
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, authorized 70,000,000 shares;
issued 2007: 26,548,606 shares; 2006: 26,407,472 shares.............................. 265 264
Additional paid-in capital............................................................................................. 257,297 250,469
Retained earnings........................................................................................................... 447,852 415,876
Treasury stock, at cost, 2007: 1,677,932 shares; 2006: 1,552,932 shares........ (57,770) (52,825)
Accumulated other comprehensive loss.................................................................... (29,598) (34,389)
TOTAL STOCKHOLDERS’ EQUITY............................................................. 618,046 579,395
$ 978,664 $ 938,716
Note: The balance sheet at December 31, 2006 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
Nine Months Ended
September 30
2007 2006
(Unaudited)
($ thousands)
OPERATING ACTIVITIES
Net income .................................................................................................................... $ 43,336 $ 69,927
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................................................ 57,769 49,947
Other amortization ................................................................................................. 188 159
Pension settlement expense .................................................................................. 1,336 10,104
Share-based compensation expense ................................................................... 3,526 3,494
Provision for losses on accounts receivable ....................................................... 1,064 463
Deferred income tax provision (benefit) ............................................................ 166 (4,553) Gain on disposal of discontinued operations, net of taxes .................................. – (3,063)
Gain on sales of assets and other ........................................................................ (2,745) (3,006)
Excess tax benefits from share-based compensation ..................................... (683) (1,106)
Changes in operating assets and liabilities:
Receivables ........................................................................................................ (18,984) (19,381)
Prepaid expenses ............................................................................................... 2,727 4,721
Other assets ........................................................................................................ (1,420) 17,711
Accounts payable, taxes payable,
accrued expenses and other liabilities(1,2) .................................................... 6,691 (7,355)
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................... 92,971 118,062
INVESTING ACTIVITIES
Purchases of property, plant and equipment(2)......................................................... (76,327) (109,241)
Proceeds from asset sales ............................................................................................ 7,404 10,546
Proceeds from disposal of discontinued operations ............................................... – 21,450
Purchases of short-term investment securities ......................................................... (230,695) (310,349)
Proceeds from sales of short-term investment securities ....................................... 224,650 299,255
Capitalization of internally developed software and other.................................... (3,382) (3,299)
NET CASH USED BY INVESTING ACTIVITIES .................................................. (78,350) (91,638)
FINANCING ACTIVITIES
Payments on long-term debt ....................................................................................... (1,273) (303)
Net change in bank overdraft...................................................................................... 1,446 2,877
Payment of common stock dividends ...................................................................... (11,360) (11,473)
Purchases of treasury stock ......................................................................................... (4,945) (16,742) Excess tax benefits from share-based compensation............................................. 683 1,106
Deferred financing costs............................................................................................... (800) –
Proceeds from the exercise of stock options and other .......................................... 2,685 5,617
NET CASH USED BY FINANCING ACTIVITIES.................................................. (13,564) (18,918)
NET INCREASE IN CASH AND CASH EQUIVALENTS...................................... 1,057 7,506
Cash and cash equivalents at beginning of period ................................................. 5,009 5,767
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 6,066 $ 13,273
(1) Includes payments to retiring officers under the Company’s unfunded Supplemental Benefit Plan of $4.0 million in 2007 and $26.2 million in 2006.
(2) Does not include $3.7 million and $4.7 million of revenue equipment which was received but not yet paid for at September 30, 2007 and 2006, respectively.
ARKANSAS BEST CORPORATION
FINANCIAL STATEMENT OPERATING SEGMENT DATA,
OPERATING RATIOS AND FINANCIAL STATISTICS
Three Months Ended Nine Months Ended
September 30 September 30
2007 2006 2007 2006
(Unaudited)
($ thousands)
OPERATING REVENUES
ABF Freight System, Inc.(1) $ 462,192 $ 493,722 $ 1,312,512 $ 1,374,256
Other revenues and
eliminations...................... 17,623 13,585 48,131 37,267
Total consolidated
operating revenues........... $ 479,815 $ 507,307 $ 1,360,643 $ 1,411,523
OPERATING EXPENSES AND COSTS
ABF Freight System, Inc.(1)
Salaries, wages and
benefits............................. $ 277,452 60.0% $ 278,581 56.4% $ 807,867 61.6% $ 803,958 58.5%
Supplies and expenses....... 75,444 16.3 78,732 15.9 215,955 16.5 220,731 16.1
Operating taxes and
licenses............................. 12,328 2.7 12,257 2.5 36,048 2.7 35,470 2.6
Insurance............................ 6,746 1.5 7,718 1.6 16,412 1.3 21,791 1.6
Communications and
utilities.............................. 3,936 0.9 3,677 0.7 11,574 0.9 11,541 0.8
Depreciation and
amortization...................... 18,744 4.1 16,569 3.4 55,430 4.2 46,602 3.4
Rents and purchased
transportation................... 37,821 8.2 45,707 9.3 101,655 7.7 119,920 8.7
Other.................................. 2,118 0.3 1,406 0.3 4,232 0.3 2,730 0.2
Pension settlement expense 87 – 1,021 0.2 1,336 0.1 10,104 0.7
Gain on sale of property
and equipment.................. (941) (0.2) (1,388) (0.3) (2,741) (0.2) (2,875) (0.2)
433,735 93.8% 444,280 90.0% 1,247,768 95.1% 1,269,972 92.4%
Other expenses and
eliminations.......................... 17,894 13,239 47,595 37,457
Total consolidated operating
expenses and costs............... $ 451,629 $ 457,519 $ 1,295,363 $ 1,307,429
OPERATING INCOME (LOSS)
ABF Freight System, Inc.(1)... $ 28,457 $ 49,442 $ 64,744 $ 104,284
Other income and
eliminations......................... (271) 346 536 (190)
Total consolidated
operating income.................. $ 28,186 $ 49,788 $ 65,280 $ 104,094
- Includes U.S., Canadian, and Puerto Rican operations of ABF affiliates.
Rolling Twelve Months
Ended
September 30, 2007
FINANCIAL STATISTICS
After-Tax Return on Capital Employed (2)......................................................................................... 9.5%
- (Net income, including pension settlement expense + interest after tax) / (average total debt + average equity)
ARKANSAS BEST CORPORATION
RECONCILIATIONS OF GAAP EARNINGS AND EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30 September 30
2007 2006 2007 2006
(Unaudited)
($ thousands, except per share data)
ABF Freight System, Inc.
Operating Income
Amounts from continuing operations,
on a GAAP basis .................................................... $ 28,457 $ 49,442 $ 64,744 $ 104,284
Pension settlement expense, pre-tax ...................... 87 1,021 1,336 10,104
Non-GAAP amounts.................................................. $ 28,544 $ 50,463 $ 66,080 $ 114,388
Operating Ratio
Amounts from continuing operations,
on a GAAP basis .................................................... 93.8% 90.0% 95.1% 92.4%
Pension settlement expense, pre-tax....................... – (0.2) (0.1) (0.7)
Non-GAAP amounts.................................................. 93.8% 89.8% 95.0% 91.7%
Arkansas Best Corporation - Consolidated
Operating Income
Amounts from continuing operations,
on a GAAP basis..................................................... $ 28,186 $ 49,788 $ 65,280 $ 104,094
Pension settlement expense, pre-tax....................... 87 1,021 1,336 10,104
Non-GAAP amounts.................................................. $ 28,273 $ 50,809 $ 66,616 $ 114,198
Income from Continuing Operations
Amounts from continuing operations,
on a GAAP basis..................................................... $ 18,916 $ 31,546 $ 43,336 $ 66,334
Pension settlement expense, after-tax.................... 53 621 812 6,141
Non-GAAP amounts.................................................. $ 18,969 $ 32,167 $ 44,148 $ 72,475
Diluted Earnings Per Share
Amounts from continuing operations,
on a GAAP basis..................................................... $ 0.75 $ 1.24 $ 1.72 $ 2.59
Pension settlement expense, after-tax.................... – 0.02 0.03 0.24
Non-GAAP amounts.................................................. $ 0.75 $ 1.26 $ 1.75 $ 2.83
Non-GAAP Financial Measures. The company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures and ratios utilized for internal analysis provide financial statement users meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Certain information discussed in the scheduled conference call could be considered non-GAAP measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company’s reported results.
ABF FREIGHT SYSTEM, INC.
OPERATING STATISTICS
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Three Months Ended September 30 |
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Nine Months Ended September 30 |
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2007 |
2006 |
% Change |
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2007 |
2006 |
% Change |
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Workdays |
63 |
63 |
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|
191 |
191 |
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Billed Revenue* / CWT |
$ 25.87 |
$ 25.91 |
(0.2)% |
|
$ 25.41 |
$ 25.01 |
1.6% |
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Billed Revenue* / Shipment |
$ 332.17 |
$ 328.85 |
1.0% |
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$ 323.16 |
$ 318.95 |
1.3% |
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Shipments |
1,379,191 |
1,482,049 |
(6.9)% |
|
4,067,421 |
4,323,433 |
(5.9)% |
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Tonnage (tons) |
885,590 |
940,357 |
(5.8)% |
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2,586,551 |
2,756,654 |
(6.2)% |
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*Billed revenue does not include revenue deferral required for financial statement purposes under the company’s revenue recognition policy.
Includes U.S., Canadian and Puerto Rican operations of ABF affiliates.
Contact: Ms. Judy R. McReynolds, Senior Vice President, Chief Financial Officer and Treasurer
Telephone: (479) 785-6281
Mr. David Humphrey, Director of Investor Relations
Telephone: (479) 785-6200
END OF RELEASE