ArcBest (ARCB) 10-Q 2005 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended September 30, 2005

o 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)

Delaware	6711	71-0673405
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code No.)	Identification No.)

3801 Old Greenwood Road
Fort Smith, Arkansas 72903
(479) 785-6000

(Address, including zip code, and telephone number, including

area code, of the registrant’s principal executive offices)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of The Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesþ Noo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at September 30, 2005
Common Stock, $.01 par value	25,238,889 shares

ARKANSAS BEST CORPORATION

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets – September 30, 2005 and December 31, 2004		3
Consolidated Statements of Income – For the Three and Nine Months Ended September 30, 2005 and 2004		5
Consolidated Statement of Stockholders’ Equity For the Nine Months Ended September 30, 2005		6
Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2005 and 2004		7
Notes to Consolidated Financial Statements – September 30, 2005		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3. Defaults Upon Senior Securities		32
Item 4. Submission of Matters to a Vote of Security Holders		33
Item 5. Other Information		33
Item 6. Exhibits		33
SIGNATURES		34
Certifications Pursuant to Section 302
Certifications Pursuant to Section 302
Certifications Pursuant to Section 906

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARKANSAS BEST CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30		December 31
	2005		2004
	(Unaudited)		Note
	($ thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	11,225	$	32,359
Short-term investment securities		94,079		38,514
Accounts receivable, less allowances (2005 – $4,634; 2004 – $4,425)		166,149		150,812
Prepaid expenses		8,882		15,803
Deferred income taxes		30,316		28,617
Prepaid income taxes		1,539		3,309
Other		8,273		4,268
TOTAL CURRENT ASSETS		320,463		273,682
PROPERTY, PLANT AND EQUIPMENT
Land and structures		223,539		229,253
Revenue equipment		433,399		395,574
Service, office and other equipment		121,626		115,407
Leasehold improvements		14,314		13,411
		792,878		753,645
Less allowances for depreciation and amortization		394,409		383,647
		398,469		369,998
PREPAID PENSION COSTS		28,359		24,575
OTHER ASSETS		77,635		73,234
ASSETS HELD FOR SALE		1,000		1,354
GOODWILL, less accumulated amortization (2005 and 2004 – $32,037)		63,915		63,902
	$	889,841	$	806,745

Note: The balance sheet at December 31, 2004 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.

See notes to consolidated financial statements.

3

ARKANSAS BEST CORPORATION
CONSOLIDATED BALANCE SHEETS — continued

	September 30			December 31
	2005			2004
	(Unaudited)			Note
	($ thousands, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable	$	24,383		$	15,862
Accounts payable		69,593			62,784
Income taxes payable		17,445			2,941
Accrued expenses		154,141			148,631
Current portion of long-term debt		279			388
TOTAL CURRENT LIABILITIES		265,841			230,606
LONG-TERM DEBT, less current portion		1,212			1,430
FAIR VALUE OF INTEREST RATE SWAP		—			873
OTHER LIABILITIES		68,310			67,571
DEFERRED INCOME TAXES		29,803			37,870
FUTURE MINIMUM RENTAL COMMITMENTS, NET
(2005 – $44,321; 2004 – $45,763)		—			—
OTHER COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, authorized 70,000,000 shares; issued 2005: 26,141,821 shares; 2004: 25,805,702 shares		261			258
Additional paid-in capital		239,427			229,661
Retained earnings		320,651			256,129
Treasury stock, at cost, 2005: 902,932 shares; 2004: 531,282 shares		(25,955	)		(13,334	)
Unearned compensation — restricted stock		(5,419	)		—
Accumulated other comprehensive loss		(4,290	)		(4,319	)
TOTAL STOCKHOLDERS’ EQUITY		524,675			468,395
	$	889,841		$	806,745

Note: The balance sheet at December 31, 2004 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.

See notes to consolidated financial statements.

4

ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2005			2004			2005			2004
				(Unaudited)
	($ thousands, except share and per share data)
OPERATING REVENUES	$	489,885		$	461,888		$	1,363,823		$	1,261,224
OPERATING EXPENSES AND COSTS		439,802			417,663			1,257,574			1,176,715
OPERATING INCOME		50,083			44,225			106,249			84,509
OTHER INCOME (EXPENSE)
Net gain on sales of property and other (see Note K)		15,350			248			15,398			433
Short-term investment income		629			104			1,520			149
Fair value changes and payments on interest rate swap		–			300			–			449
Interest expense and other related financing costs		(297	)		(388	)		(1,775	)		(1,118	)
Other, net		755			927			837			791
		16,437			1,191			15,980			704
INCOME BEFORE INCOME TAXES		66,520			45,416			122,229			85,213
FEDERAL AND STATE INCOME TAXES
Current		25,662			15,725			57,555			29,483
Deferred (credit)		291			2,322			(9,763	)		4,602
		25,953			18,047			47,792			34,085
NET INCOME	$	40,567		$	27,369		$	74,437		$	51,128
Basic:
NET INCOME PER SHARE	$	1.61		$	1.09		$	2.94		$	2.04
AVERAGE COMMON SHARES OUTSTANDING (BASIC)		25,174,584			25,067,784			25,343,768			25,077,859
Diluted:
NET INCOME PER SHARE	$	1.59		$	1.07		$	2.89		$	2.00
AVERAGE COMMON SHARES OUTSTANDING (DILUTED)		25,531,101			25,546,370			25,738,026			25,501,009
CASH DIVIDENDS PAID PER COMMON SHARE	$	0.15		$	0.12		$	0.39		$	0.36

See notes to consolidated financial statements.

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ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

															Unearned			Accumulated
					Additional										Compensation -			Other
	Common Stock				Paid-In		Retained			Treasury Stock					Restricted			Comprehensive			Total
	Shares		Amount		Capital		Earnings			Shares		Amount			Stock			Loss(b)			Equity
	(Unaudited)
	($ and shares, thousands)
Balances at January 1, 2005		25,806	$	258	$	229,661	$	256,129			531	$	(13,334	)	$	—		$	(4,319	)	$	468,395
Net income								74,437														74,437
Change in foreign currency
translation, net of tax benefits of $15(a)																			29			29
Comprehensive income(c)																						74,466
Issuance of common stock under stock option plans		154		1		2,884																2,885
Tax effect of stock options exercised						938																938
Issuance of restricted common stock		182		2		5,944										(5,946	)					—
Stock compensation expense																527						527
Purchase of treasury stock											372		(12,621	)								(12,621	)
Dividends paid on common stock								(9,915	)													(9,915	)
Balances at September 30, 2005		26,142	$	261	$	239,427	$	320,651			903	$	(25,955	)	$	(5,419	)	$	(4,290	)	$	524,675

See notes to consolidated financial statements.

(a)	The accumulated loss from foreign currency translation in accumulated other comprehensive loss is $0.3 million, net of tax benefits of $0.2 million at December 31, 2004 and $0.2 million, net of tax benefits of $0.1 million at September 30, 2005.
(b)	The minimum pension liability included in accumulated other comprehensive loss is $4.1 million, net of tax benefits of $2.6 million at December 31, 2004 and September 30, 2005.
(c)	Total comprehensive income for the three months ended September 30, 2005 was $40.6 million. Total comprehensive income for the three and nine months ended September 30, 2004 was $27.4 million and $51.2 million, respectively.

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ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30
	2005			2004
	(Unaudited)
	($ thousands)
OPERATING ACTIVITIES
Net income	$	74,437		$	51,128
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44,689			40,533
Other amortization		191			219
Stock compensation expense		527			—
Provision for losses on accounts receivable		1,414			974
Provision (credit) for deferred income taxes		(9,763	)		4,602
Fair value of interest rate swap		(873	)		(4,294	)
Gain on sales of assets and other		(16,724	)		(2,046	)
Changes in operating assets and liabilities:
Receivables		(16,726	)		(30,712	)
Prepaid expenses		6,920			(1,524	)
Other assets		(12,836	)		1,363
Accounts payable(1), taxes payable, accrued expenses and other liabilities		33,510			40,431
NET CASH PROVIDED BY OPERATING ACTIVITIES		104,766			100,674
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(77,047	)		(63,779	)
Proceeds from asset sales		26,977			12,333
Purchases of short-term investment securities(2)		(258,598	)		—
Proceeds from sales of short-term investment securities(2)		203,030			—
Capitalization of internally developed software and other		(3,176	)		(3,020	)
NET CASH USED BY INVESTING ACTIVITIES		(108,814	)		(54,466	)
FINANCING ACTIVITIES
Borrowings under revolving credit facilities		—			34,300
Payments under revolving credit facilities		—			(34,300	)
Payments on long-term debt		(327	)		(305	)
Net increase in bank overdraft		3,344			4,256
Dividends paid on common stock		(9,915	)		(8,991	)
Purchase of treasury stock		(12,621	)		(7,527	)
Proceeds from the exercise of stock options and other		2,433			6,390
NET CASH USED BY FINANCING ACTIVITIES		(17,086	)		(6,177	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(21,134	)		40,031
Cash and cash equivalents at beginning of period		32,359			5,251
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	11,225		$	45,282

(1)	Does not include amounts related to $4.3 million in revenue equipment purchased but not yet paid for at September 30, 2005.
(2)	See Note E.

See notes to consolidated financial statements.

7

ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2005

NOTE A — ORGANIZATION AND DESCRIPTION OF BUSINESS

Arkansas Best Corporation (the “Company”) is a holding company engaged through its subsidiaries primarily in motor carrier and intermodal transportation operations. Principal subsidiaries are ABF Freight System, Inc. (“ABF”), Clipper Exxpress Company (“Clipper”) and FleetNet America, Inc. (“FleetNet”).

On March 28, 2003, the International Brotherhood of Teamsters (“IBT”) announced the ratification of its National Master Freight Agreement with the Motor Freight Carriers Association (“MFCA”) by its membership. Carrier members of MFCA, including ABF, ratified the agreement on the same date. Effective October 1, 2005, the MFCA was dissolved and replaced by Trucking Management, Inc. (“TMI”). ABF is a member of TMI. The agreement has a five-year term and was effective April 1, 2003. The agreement provides for annual contractual wage and benefit increases of approximately 3.2% – 3.4%. Approximately 78% of ABF’s employees are covered by the agreement.

NOTE B — FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the Company’s financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

The difference between the effective tax rate for the three and nine months ended September 30, 2005 and 2004 and the federal statutory rate resulted from state income taxes, tax-exempt income and nondeductible expenses.

The Company has a program to repurchase its own Common Stock in the open market or in privately negotiated transactions. The Company’s Board of Directors authorized stock repurchases of up to $25.0 million in 2003 and an additional $50.0 million in July of 2005. The repurchases may be made either from the Company’s cash reserves or from other available sources. The program has no expiration date but may be terminated at any time at the Board of Directors’ discretion. During the third quarter, the Company made open-market purchases of 209,000 shares of its Common Stock for a purchase price of $7.1 million. Since January 23, 2003, the Company has purchased a total of 843,150 shares, totaling $25.0 million. The Company plans to continue making open-market purchases of its stock on an opportunistic basis.

8

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

The following table is a summary of dividends declared and/or paid during the applicable quarter being reported upon or subsequent thereto.

	2005				2004
	Per Share		$ Amount		Per Share		$ Amount
	($ thousands, except per share data)
First quarter dividend	$	0.12	$	3,038	$	0.12	$	2,990
Second quarter dividend	$	0.12	$	3,064	$	0.12	$	2,994
Third quarter dividend	$	0.15	$	3,813	$	0.12	$	3,008
Fourth quarter dividend	$	0.15	$	3,800	$	0.12	$	3,019

Accounting Policies

Short-Term Investments:The Company’s policy is that short-term investment securities are classified as available-for-sale and are stated at fair value with related unrealized gains and losses, if any, reported net of tax in accumulated other comprehensive income. These investments consist of auction rate securities with auction reset periods of less than 90 days. Interest and dividends related to these investments are included in short-term investment income on the Company’s consolidated statement of income.

Reclassifications:Certain prior year amounts have been reclassified to conform to the current year presentation, including the reclassification of auction rate securities in the amount of $38.5 million to short-term investments. Auction rate securities, because of the short duration of their reset periods, were included in cash and cash equivalents at December 31, 2004. As a result of this reclassification, the Company’s cash flow from investing activities includes the investments and sales of auction rate securities. This reclassification had no impact on previously reported total current assets, total assets, or statements of income and does not affect previously reported cash flows from operating activities.

9

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

NOTE C — STOCK-BASED COMPENSATION

On April 20, 2005, the stockholders of the Company approved the Company’s 2005 Ownership Incentive Plan (“the Plan”). The Plan supersedes the Company’s 2002 Stock Option Plan and 2000 Non-Qualified Stock Option Plan with respect to future awards and provides for the granting of 1.5 million shares of incentive and nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units, which may be paid in cash or stock or a combination thereof, as determined by the Company’s Compensation Committee of the Board of Directors (“Compensation Committee”). On that same day, the Compensation Committee also approved the Form of Restricted Stock Award Agreement (Non-Employee Director) and the Form of Restricted Stock Award Agreement (Employee). During the second quarter of 2005, the Compensation Committee granted 182,250 shares of restricted stock under these agreements, at a weighted-average fair value of $32.62, per share. The restricted stock grants vest at the end of a five-year period beginning on the date of the grant, subject to accelerated vesting due to death, disability, retirement and change-in-control provisions. The Company amortizes the fair value of the restricted stock awards to compensation expense over the five-year vesting period and accelerates unrecognized compensation upon a grantee’s death, disability or retirement. Compensation expense from restricted stock awards totaled $0.3 million and $0.5 million, after tax, for the three and nine months ended September 30, 2005.

Until April 20, 2005, the Company maintained three stock option plans which provided for the granting of options to directors and key employees of the Company. The 1992 Stock Option Plan expired on December 31, 2001 and, therefore, no new options can be granted under this plan. The 2000 Non-Qualified Stock Option Plan was a broad-based plan that allowed for the granting of 1.0 million options. The 2002 Stock Option Plan allowed for the granting of 1.0 million options, as well as two types of stock appreciation rights (“SARs”), which are payable in shares or cash. Employer SARs allow the Company to decide, when an option is exercised, whether or not to treat the exercise as a SAR. Employee SARs allow the optionee to decide, when exercising an option, whether or not to treat it as a SAR. As of September 30, 2005, the Company had not elected to treat any exercised options as Employer SARs and no employee SARs had been granted. All options or SARs granted are exercisable starting on the first anniversary of the grant date, with 20.0% of the shares or rights covered thereby becoming exercisable at that time, with an additional 20.0% of the option shares or SARs becoming exercisable on each successive anniversary date, and full vesting occurring on the fifth anniversary date. The options or SARs were granted for a term of 10 years. There were no options granted during the first nine months of 2005. The options or SARs granted during the first nine months of 2004, under each plan, are as follows:

	2004
2000 Non-Qualified Stock Option Plan — Options		49,000
2002 Stock Option Plan — Options/Employer SARs		277,000

The Company accounts for stock-based compensation under the “intrinsic value method” and the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (“APB 25”),Accounting for Stock Issued to Employees,and related interpretations, including Financial Accounting Standards Board Interpretation No. 44 (“FIN 44”),Accounting for Certain Transactions Involving Stock Compensation. No stock-based employee compensation expense from options granted is reflected in net income for the three and nine months ended September 30, 2005 or 2004, as all options granted under the Company’s plans have an exercise price equal to the market value of the underlying Common Stock on the date of grant.

For companies accounting for their stock-based compensation under the APB 25 intrinsic value method, pro forma information regarding net income and earnings per share is required and is determined as if the Company had

10

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

accounted for its employee stock options under the fair value method of Statement of Financial Accounting Standards No. 123 (“FAS 123”),Accounting for Stock-Based Compensation. The fair value for these options was estimated at the date of grant, using a Black-Scholes option pricing model. The Company’s pro forma assumptions for the 2004 grants are as follows:

	2004
Risk-free rate		2.9	%
Volatility		53.6	%
Weighted-average life	4 years
Dividend yield		1.7	%

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.

The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provided for under FAS 123 to all stock-based employee compensation:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2005			2004			2005			2004
	($ thousands, except per share data)
Net income – as reported	$	40,567		$	27,369		$	74,437		$	51,128
Add back stock compensation expense from restricted stock awards, included in net income, net of tax		181			—			321			—
Less total stock compensation expense determined under fair value-based methods for all awards, net of tax benefits		(690	)		(789	)		(1,922	)		(2,482	)
Net income – pro forma	$	40,058		$	26,580		$	72,836		$	48,646
Net income per share – as reported (basic)	$	1.61		$	1.09		$	2.94		$	2.04
Net income per share – as reported (diluted)	$	1.59		$	1.07		$	2.89		$	2.00
Net income per share – pro forma (basic)	$	1.59		$	1.06		$	2.87		$	1.94
Net income per share – pro forma (diluted)	$	1.58		$	1.05		$	2.84		$	1.93

See Note D for recent accounting pronouncements regarding the Financial Accounting Standards Board’s Statement No. 123(R) (“FAS 123(R)”),Share-Based Payment,issued in December 2004 and effective for the Company on January 1, 2006.

11

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

NOTE D — RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123(R) (“FAS 123(R)”),Share-Based Payment. FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. On April 14, 2005, the Securities and Exchange Commission (“SEC”) announced the adoption of an amendment to the required compliance dates for FAS 123(R). As a result, this statement will be effective for the Company on January 1, 2006. The negative impact, in each quarter of 2006, of prior unvested stock option grants is estimated to be approximately $0.01 per diluted common share, net of estimated tax benefits.

In December 2004, the FASB issued Statement No. 153 (“FAS 153”),Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29. FAS 153 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. This statement is effective for the Company’s nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. FAS 153 is not expected to have a material impact upon the Company’s financial statements or related disclosures.

NOTE E — SHORT-TERM INVESTMENTS

The Company’s short-term, available-for-sale investments consist of auction rate securities. The following is a summary of the Company’s auction rate security investments, on a specific identification basis, at September 30, 2005 and December 31, 2004:

	September 30, 2005		December 31, 2004
U.S. corporate securities	$	—	$	4,904
U.S. state and local municipal securities		75,579		23,610
Total debt securities		75,579		28,514
Preferred equity securities		18,500		10,000
	$	94,079	$	38,514

The carrying value of the Company’s auction rate securities approximates fair value. There were no unrealized gains or losses for the three and nine months ended September 30, 2005.

The Company sold $203.0 million in auction rate securities during the nine months ended September 30, 2005, with no realized gains or losses. Interest and dividends related to these investments are included in short-term investment income on the Company’s consolidated statement of income.

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ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

The carrying values of the Company’s short-term investments at September 30, 2005, by ultimate contractual maturity of the underlying security, are shown below. Actual maturities may differ from the ultimate contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. The Company’s auction reset periods with respect to its auction rate securities are generally 7, 28, 35 or 49 days, thus limiting the Company’s exposure to interest rate risk. For the three and nine months ended September 30, 2005, the weighted-average tax equivalent yield on the Company’s auction rate securities was 3.8% and 3.7%, respectively.

	September 30, 2005
Due within 1 year	$	—
Due after 1 year through 5 years		—
Due after 5 years through 10 years		—
Due after 10 years		75,579
		75,579
Preferred equity securities		18,500
	$	94,079

NOTE F — LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS

Various legal actions, the majority of which arise in the normal course of business, are pending. The Company maintains liability insurance against certain risks arising out of the normal course of its business, subject to certain self-insured retention limits. The Company has accruals for certain legal and environmental exposures. None of these legal actions are expected to have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

The Company’s subsidiaries store fuel for use in tractors and trucks in approximately 72 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 Company’s underground storage tanks are required to have leak detection systems. The Company is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company.

The Company has received notices from the Environmental Protection Agency (“EPA”) and others that it has been identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response Compensation and Liability Act, or other federal or state environmental statutes, at several hazardous waste sites. After investigating the Company’s or its subsidiaries’ involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements (aggregating approximately $122,000 over the last 10 years primarily at eight sites) or believes its obligations, other than those specifically accrued for with respect to such sites, would involve immaterial monetary liability, although there can be no assurances in this regard.

As of September 30, 2005 and December 31, 2004, the Company had accrued approximately $1.9 million and $3.3 million, respectively, to provide for environmental-related liabilities. See Note K regarding the sale of properties that were being leased to G.I. Trucking Company (“G.I. Trucking”) and G.I. Trucking’s assumption of environmental liabilities as a result of the sale. The Company’s environmental accrual is based on management’s best estimate of the liability. The Company’s estimate is founded on management’s experience in dealing with similar environmental matters and on actual testing performed at some sites. Management believes that the accrual is adequate to cover environmental liabilities based on the present environmental regulations. Accruals for environmental liability are included in the balance sheet as accrued expenses.

13

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

NOTE G — DERIVATIVE FINANCIAL INSTRUMENTS

The Company was a party to an interest rate swap on a notional amount of $110.0 million, which matured on April 1, 2005. For the nine months ended September 30, 2005, payments on the swap and changes in the fair value of the swap were approximately equal in amount.

NOTE H — CREDIT AGREEMENT

On June 3, 2005, the Company amended and restated its existing $225.0 million Credit Agreement dated as of May 15, 2002 with Wells Fargo Bank, National Association as Administrative Agent and Lead Arranger; Bank of America, N.A. and SunTrust Bank as Co-Syndication Agents; and Wachovia Bank, National Association and The Bank of Tokyo-Mitsubishi, LTD as Co-Documentation Agents. The amended and restated Credit Agreement has a maturity date of May 15, 2010. The Credit Agreement provides for up to $225.0 million of revolving credit loans (including a $150.0 million sublimit for letters of credit) and allows the Company to request extensions of the maturity date for a period not to exceed two years, subject to participating bank approval. The Credit Agreement also allows the Company to request an increase in the amount of revolving credit loans as long as the total revolving credit loans do not exceed $275.0 million, subject to the commitments of the participating banks.

At September 30, 2005, there were no outstanding Revolver Advances and approximately $50.8 million of outstanding letters of credit. At December 31, 2004, there were no outstanding Revolver Advances and approximately $54.1 million of outstanding letters of credit. The amount available for borrowing under the Credit Agreement at September 30, 2005 was $174.2 million.

The Credit Agreement contains various covenants, which limit, among other things, indebtedness and dispositions of assets and which require the Company to meet certain quarterly financial ratio tests. As of September 30, 2005, the Company was in compliance with the covenants.

Interest rates under the agreement are at variable rates as defined by the Credit Agreement. The Credit Agreement contains a pricing grid that determines its LIBOR margin, facility fees, utilization fees and letter of credit fees. The Company will pay a utilization fee if the borrowings under the Credit Agreement exceed 50% of the $225.0 million Credit Agreement facility amount. The pricing grid is based on the Company’s senior debt rating agency ratings. A change in the Company’s senior debt ratings could potentially impact its Credit Agreement pricing. The Company is currently rated BBB+ by Standard & Poor’s Rating Service (“S&P”) and Baa3 by Moody’s Investors Service, Inc. (“Moody’s”). The Company has no downward rating triggers that would accelerate the maturity of its debt. On October 15, 2004, S&P revised its outlook on the Company to positive from stable. At the same time, S&P affirmed the Company’s BBB+ corporate credit rating. On February 22, 2005, Moody’s confirmed the Company’s Baa3 senior debt rating and changed the outlook to positive from stable.

14

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

NOTE I — PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The following is a summary of the components of Net Periodic Benefit Cost:

	Three Months Ended September 30
							Supplemental						Postretirement
	Pension Benefits						Pension Plan						Health Benefits
	2005			2004			2005			2004			2005		2004
									($ thousands)
Service cost	$	2,329		$	2,123		$	192		$	185		$	42	$	26
Interest cost		2,421			2,420			321			305			201		159
Expected return on plan assets		(3,254	)		(3,138	)		—			—			—		—
Transition (asset) obligation recognition		(2	)		(2	)		(64	)		(64	)		34		34
Amortization of prior service cost (credit)		(231	)		(231	)		390			390			7		33
Recognized net actuarial loss and other		1,242			1,198			341			340			214		92
Net periodic benefit cost	$	2,505		$	2,370		$	1,180		$	1,156		$	498	$	344

	Nine Months Ended September 30
							Supplemental						Postretirement
	Pension Benefits						Pension Plan						Health Benefits
	2005			2004			2005			2004			2005		2004
							($ thousands)
Service cost	$	6,986		$	6,368		$	576		$	556		$	125	$	101
Interest cost		7,263			7,261			962			915			603		635
Expected return on plan assets		(9,763	)		(9,414	)		—			—			—		—
Transition (asset) obligation recognition		(6	)		(6	)		(192	)		(192	)		101		101
Amortization of prior service cost (credit)		(692	)		(692	)		1,170			1,170			22		99
Recognized net actuarial loss and other		3,726			3,594			1,024			1,018			642		602
Net periodic benefit cost	$	7,514		$	7,111		$	3,540		$	3,467		$	1,493	$	1,538

The Company’s full-year 2005 pension expense is estimated to be $10.0 million compared to $9.5 million for the year ended December 31, 2004. In 2005, the Company does not have a required minimum contribution to its nonunion pension plan. The Company made a tax-deductible contribution of $5.3 million in the third quarter of 2005. For the nine months ended September 30, 2005, tax-deductible, nonunion pension contributions totaled $11.3 million, which was the maximum allowed contribution under the Internal Revenue Code.

15

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

NOTE J — EARNINGS PER SHARE

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

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2005		2004		2005		2004
	($ thousands, except share and per share data)
Numerator:
Numerator for basic and diluted earnings per share – Net income for common stockholders	$	40,567	$	27,369	$	74,437	$	51,128
Denominator:
Denominator for basic earnings per share – weighted-average shares		25,174,584		25,067,784		25,343,768		25,077,859
Effect of dilutive securities:
Restricted stock awards		20,424		—		10,477		—
Employee stock options		336,093		478,586		383,781		423,150
Denominator for diluted earnings per share – adjusted weighted-average shares and assumed conversions		25,531,101		25,546,370		25,738,026		25,501,009
NET INCOME PER SHARE
Basic	$	1.61	$	1.09	$	2.94	$	2.04
Diluted	$	1.59	$	1.07	$	2.89	$	2.00

For the three and nine months ended September 30, 2005 and 2004, the Company had no outstanding stock options granted that were antidilutive.

NOTE K — SALE OF PROPERTIES TO G.I. TRUCKING COMPANY

On August 1, 2001, the Company sold the stock of G.I. Trucking for $40.5 million in cash to a company formed by the senior executives of G.I. Trucking and Estes Express Lines (“Estes”). The Company retained ownership of three California terminal facilities and agreed to lease them to G.I. Trucking for a period of up to four years. The lease agreements contained purchase options for G.I. Trucking to purchase the three terminals.

During the second quarter of 2005, G.I. Trucking gave notice that it was exercising its rights to purchase these terminals. As a result, the Company reclassified $5.3 million from land and structures to assets held for sale.

On July 27, 2005, the Company closed the transaction for the sale of three terminals that were being leased to G.I. Trucking. As a result, the Company recognized an after-tax gain of approximately $9.8 million, or $0.38 per diluted common share, in the third quarter of 2005. The gain included the elimination of a $1.3 million reserve for an environmental obligation that was assumed by G.I. Trucking.

16

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

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 Company’s management uses to make decisions about operating matters. Management uses operating revenues, operating expense categories, operating ratios, operating income and key operating statistics to evaluate performance and allocate resources to the Company’s operating segments. During the periods being reported on, the Company operated in two defined reportable operating segments:
(1) ABF and (2) Clipper.

The Company eliminates intercompany transactions in consolidation. However, the information used by the Company’s management with respect to its reportable segments is before intercompany eliminations of revenues and expenses. Intercompany revenues and expenses are not significant.

Further classifications of operations or revenues by geographic location beyond the descriptions provided above are impractical and are, therefore, not provided. The Company’s foreign operations are not significant.

During 2005, land and structures formerly leased by ABF from an affiliate (included in the “Other” segment) were combined with the ABF segment and, as a result, are included in the ABF segment assets.

The following table reflects asset information by reportable operating segment for the Company, as well as a reconciliation of reportable segment information to the Company’s consolidated assets at September 30, 2005, subsequent to previously described reclassification, and at December 31, 2004:

	September 30		December 31
	2005		2004
	($ thousands)
ABF Freight System, Inc.	$	631,675	$	559,252
Clipper		26,945		25,153
Other assets and eliminations		231,221		222,340
Total consolidated assets	$	889,841	$	806,745

The following tables reflect reportable operating segment information for the Company, as well as a reconciliation of reportable segment information to the Company’s consolidated operating revenues, operating expenses, operating income and consolidated income before income taxes:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2005		2004		2005		2004
			($ thousands)
OPERATING REVENUES
ABF
LTL	$	405,363	$	390,929	$	1,133,497	$	1,067,350
TL		46,443		36,982		119,917		97,706
Total		451,806		427,911		1,253,414		1,165,056
Clipper		26,738		24,610		78,998		70,551
Other revenues and eliminations		11,341		9,367		31,411		25,617
Total consolidated operating revenues	$	489,885	$	461,888	$	1,363,823	$	1,261,224

17

ARKANSAS BEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — continued

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2005			2004			2005			2004
				($ thousands)
OPERATING EXPENSES AND COSTS
ABF
Salaries, wages and benefits	$	256,691		$	250,820		$	751,747		$	719,886
Supplies and expenses		65,885			53,495			183,578			150,405
Operating taxes and licenses		11,275			10,909			32,710			31,645
Insurance		7,960			6,911			20,828			18,190
Communications and utilities		3,481			3,427			10,633			10,728
Depreciation and amortization		13,733			12,138			39,559			35,240
Rents and purchased transportation		40,653			43,657			105,533			109,568
Other		877			912			2,934			2,346
Gain on sale of equipment		(722	)		(573	)		(1,336	)		(673	)
		399,833			381,696			1,146,186			1,077,335
Clipper
Cost of services		23,984			22,419			70,803			63,914
Selling, administrative and general		2,161			1,985			6,304			6,274
Loss on sale of equipment		9			15			9			17
		26,154			24,419			77,116			70,205
Other expenses and eliminations		13,815			11,548			34,272			29,175
Total consolidated operating expenses and costs	$	439,802		$	417,663		$	1,257,574		$	1,176,715
OPERATING INCOME (LOSS)
ABF	$	51,973		$	46,215		$	107,228		$	87,721
Clipper		584			191			1,882			346
Other loss and eliminations		(2,474	)		(2,181	)		(2,861	)		(3,558	)
Total consolidated operating income	$	50,083		$	44,225		$	106,249		$	84,509
TOTAL CONSOLIDATED OTHER
INCOME (EXPENSE)
Net gain on sales of property and other (see Note K)	$	15,350		$	248		$	15,398		$	433
Short-term investment income		629			104			1,520			149
Fair value changes and payments on interest rate swap		—			300			—			449
Interest expense and other related financing costs		(297	)		(388	)		(1,775	)		(1,118	)
Other, net		755			927			837			791
Total consolidated other income	$	16,437		$	1,191		$	15,980		$	704
TOTAL CONSOLIDATED INCOME
BEFORE INCOME TAXES	$	66,520		$	45,416		$	122,229		$	85,213

18

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

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The Company’s accounting estimates that are “critical,” or the most important, to understand the Company’s financial condition and results of operations and that require management of the Company to make the most difficult judgments are described in the Company’s 2004 Form 10-K. No changes to the Company’s methodologies for its critical accounting estimates have occurred since the Company filed its 2004 Form10-K.

Except as disclosed in Note D, the Company has no current plans to change the methodologies utilized in determining its critical accounting estimates.

Recent Accounting Pronouncements

See Note D for recent accounting pronouncements regarding the FASB’s Statement No. 123(R) (“FAS 123(R)”),Share-Based Payment,issued in December 2004.

Liquidity and Capital Resources

Cash and cash equivalents and short-term investments totaled $105.3 million at September 30, 2005 and $70.9 million at December 31, 2004, respectively. During the nine months ended September 30, 2005, cash provided from operations of $104.8 million and proceeds from asset sales of $27.0 million were used to purchase revenue equipment (tractors and trailers used primarily in the Company’s motor carrier transportation operations) and other property and equipment totaling $77.0 million, pay dividends on Common Stock of $9.9 million and purchase 371,650 shares of the Company’s Common Stock for $12.6 million. During the nine months ended September 30, 2004, cash provided from operations of $100.7 million and proceeds from asset sales of $12.3 million were used to purchase revenue equipment and other property and equipment totaling $63.8 million, pay dividends on Common Stock of $9.0 million and purchase 271,500 shares of the Company’s Common Stock for $7.5 million.

The Company has revised its 2005 estimated net capital expenditures to be approximately $78.0 million, which relates primarily to ABF. This consists of $60.0 million for revenue equipment and approximately $18.0 million for real estate and other.

The Company does not have a required minimum contribution to its nonunion pension plan for 2005. During the nine months ended September 30, 2005, the Company made maximum allowable tax-deductible contributions of $11.3 million.

19

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

The Company has an unfunded supplemental pension benefit plan for the purpose of providing supplemental retirement benefits to executive officers of the Company. Based upon currently available information, distributions of benefits to retiring officers and distributions to retiring officers as a result of deferral elections are expected to be $0.7 million in 2005 and between an estimated $23.0 million and $25.0 million in 2006. Distributions will be funded from the Company’s general corporate assets.

The Company was a party to an interest rate swap on a notional amount of $110.0 million, which matured on April 1, 2005.

The Company has three primary sources of available liquidity, which are its operating cash, short-term investments and the $174.2 million it has available under its revolving Credit Agreement at September 30, 2005. The Company has generated between approximately $74.0 million and $137.0 million of operating cash annually for the years 2002 through 2004. Management of the Company is not aware of any known trends or uncertainties that would cause a significant change in its sources of liquidity. The Company expects cash from operations, short-term investments and its available revolver to continue to be primary sources to finance its annual debt maturities, lease commitments, letter of credit commitments, quarterly dividends, stock repurchases, nonunion pension contributions and capital expenditures. Please refer to the Company’s 2004 Form 10-K for information about the Company’s debt maturities and lease commitments. No material changes to the Company’s debt maturities or lease commitments have occurred since December 31, 2004.

On June 3, 2005, the Company amended and restated its existing $225.0 million Credit Agreement dated as of May 15, 2002 with Wells Fargo Bank, National Association as Administrative Agent and Lead Arranger; Bank of America, N.A. and SunTrust Bank as Co-Syndication Agents; and Wachovia Bank, National Association and The Bank of Tokyo-Mitsubishi, LTD as Co-Documentation Agents. The amended and restated Credit Agreement has a maturity date of May 15, 2010. The Credit Agreement provides for up to $225.0 million of revolving credit loans (including a $150.0 million sublimit for letters of credit) and allows the Company to request extensions of the maturity date for a period not to exceed two years, subject to participating bank approval. The Credit Agreement also allows the Company to request an increase in the amount of revolving credit loans as long as the total revolving credit loans do not exceed $275.0 million, subject to the commitments of the participating banks.

At September 30, 2005, there were no outstanding Revolver Advances and approximately $50.8 million of outstanding letters of credit. At December 31, 2004, there were no outstanding Revolver Advances and approximately $54.1 million of outstanding letters of credit. The Credit Agreement contains various covenants, which limit, among other things, indebtedness and dispositions of assets and which require the Company to meet certain quarterly financial ratio tests. As of September 30, 2005, the Company was in compliance with the covenants.

Interest rates under the agreement are at variable rates as defined by the Credit Agreement. The Credit Agreement contains a pricing grid that determines its LIBOR margin, facility fees, utilization fees and letter of credit fees. The Company will pay a utilization fee if the borrowings under the Credit Agreement exceed 50% of the $225.0 million Credit Agreement facility amount. The pricing grid is based on the Company’s senior debt rating agency ratings. A change in the Company’s senior debt ratings could potentially impact its Credit Agreement pricing. The Company is currently rated BBB+ by Standard & Poor’s Rating Service (“S&P”) and Baa3 by Moody’s Investors Service, Inc. (“Moody’s”). The Company has no downward rating triggers that would accelerate the maturity of its debt. On October 15, 2004, S&P revised its outlook on the Company to positive from stable. At the same time, S&P affirmed the Company’s BBB+ corporate credit rating. On

20

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

February 22, 2005, Moody’s confirmed the Company’s Baa3 senior debt rating and changed the outlook to positive from stable.

The Company has not historically entered into financial instruments for trading purposes nor has the Company historically engaged in hedging fuel prices. No such instruments were outstanding during 2005 or 2004.

Off-Balance-Sheet Arrangements

The Company’s off-balance-sheet arrangements are fully described in the Company’s 2004 Form 10-K. No material changes to the Company’s off-balance-sheet arrangements have occurred since the Company filed its 2004 Form 10-K. The Company has no investments, loans or any other known contractual arrangements with special-purpose entities, variable interest entities or financial partnerships and has no outstanding loans with executive officers or directors of the Company.

Operating Segment Data

The following table sets forth, for the periods indicated, a summary of the Company’s operating expenses by segment as a percentage of revenue for the applicable segment:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2005			2004			2005			2004
OPERATING EXPENSES AND COSTS
ABF
Salaries, wages and benefits		56.8	%		58.6	%		60.0	%		61.8	%
Supplies and expenses		14.6			12.5			14.6			12.9
Operating taxes and licenses		2.5			2.6			2.6			2.7
Insurance		1.8			1.6			1.7			1.6
Communications and utilities		0.8			0.8			0.8			0.9
Depreciation and amortization		3.0			2.8			3.2			3.0
Rents and purchased transportation		9.0			10.2			8.4			9.4
Other		0.2			0.2			0.2			0.3
Gain on sale of equipment		(0.2	)		(0.1	)		(0.1	)		(0.1	)
		88.5	%		89.2	%		91.4	%		92.5	%
CLIPPER
Cost of services		89.7	%		91.1	%		89.6	%		90.6	%
Selling, administrative and general		8.1			8.1			8.0			8.9
		97.8	%		99.2	%		97.6	%		99.5	%
OPERATING INCOME
ABF		11.5	%		10.8	%		8.6	%		7.5	%
Clipper		2.2			0.8			2.4			0.5

21

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

Results of Operations

Executive Overview

Arkansas Best Corporation’s operations include two primary operating subsidiaries, ABF and Clipper. For the nine months ended September 30, 2005, ABF represented 91.9% and Clipper represented 5.8% of total revenues. The Company’s results of operations are primarily driven by ABF. On an ongoing basis, ABF’s ability to operate profitably and generate cash is impacted by tonnage, which creates operating leverage at higher levels, the pricing environment, customer account mix and the ability to manage costs effectively, primarily in the area of salaries, wages and benefits (“labor”).

ABF’s ability to maintain or grow existing tonnage levels is impacted by the state of the U.S. economy as well as a number of other competitive factors, which are more fully described in the General Development of Business section of the Company’s 2004 Form 10-K. ABF experienced minimal year-over-year LTL tonnage increases in the first quarter of 2004. ABF’s 2004 year-over-year LTL tonnage levels began to dramatically improve in April by percentages not experienced in several years and increased 10.0% for the third quarter of 2004, as compared to the same period in 2003. ABF’s full-year 2004 total tonnage per day increased 8.0% over 2003, with LTL tonnage per day increasing 6.8% over 2003 and TL tonnage per day increasing 13.0% over 2003.

During the three and nine months ended September 30, 2005, ABF’s total tonnage per day decreased 0.4% and increased 0.6%, respectively. LTL tonnage per day decreased 3.0% and 1.3%, respectively, and truckload tonnage per day improved by 10.1% and 8.3%, respectively, when the three and nine months ended September 30, 2005 are compared to the same periods in 2004. LTL year-over-year tonnage comparisons for the third quarter 2005 were difficult because of the improved LTL tonnage levels experienced by ABF in the same period in 2004. However, LTL tonnage comparisons improved during the third quarter of 2005 with LTL tonnage per day decreasing 6.3% in June 2005; 5.6% in July 2005; 2.9% in August 2005; and 0.7% in September 2005. For the month of October 2005, average daily total tonnage for ABF is comparable to the same period in 2004. For the remainder of 2005, total and LTL tonnage comparisons will continue to be difficult because of the increased tonnage levels ABF experienced in 2004. Management is encouraged by the significantly improving trends in the LTL tonnage comparisons over the last few months, although there can be no assurances these trends will continue.

Even though LTL tonnage levels have decreased, ABF improved its revenue and operating ratio for both the three and nine months ended September 30, 2005 through revenue yield improvements, fuel surcharges and an improved account mix. In addition, cost reductions in certain operating expense categories have also improved ABF’s operating ratio. These changes are more fully discussed in the ABF section of the Company’s Management Discussion and Analysis.

The pricing environment is a key to ABF’s operating performance. The pricing environment determines ABF’s ability to obtain compensatory margins and price increases on customer accounts. The impact of changes in the pricing environment is typically measured by billed revenue per hundredweight. This measure is affected by profile factors such as average shipment size, average length of haul, density and customer and geographic mix. For many years, consistent profile characteristics made billed revenue per hundredweight changes a reasonable, although approximate, measure of price change. In the last few years, it has become more difficult to quantify with sufficient accuracy the impact of larger changes in profile characteristics in order to estimate true price changes. ABF focuses on individual account profitability and rarely considers revenue per hundredweight in its customer account or market evaluations. For ABF, total company profitability must be considered, together with

22

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

measures of billed revenue per hundredweight changes. During the full year of 2004, the pricing environment remained firm as industry capacity continued to tighten. The pricing environment for the first nine months of 2005 has been stable but competitive. For the three and nine months ended September 30, 2005, total billed revenue per hundredweight, including the fuel surcharge, increased 7.0% and 7.2% compared to the same periods in 2004. For the three and nine months ended September 30, 2005, total billed revenue per hundredweight, excluding the fuel surcharge, increased 1.2% and 1.8% compared to the same periods in 2004, despite a significant shift in the freight profile, as further discussed in the ABF section. ABF’s yield and profitability were enhanced by improved yields on larger shipments and increased handling of time-definite freight. Management of the Company expects the pricing environment to remain consistent, although there can be no assurances in this regard.

For first nine months of 2005, salaries, wages and benefit costs accounted for 60.0% of ABF’s revenue. Labor costs are impacted by ABF’s contractual obligations under its agreement with the International Brotherhood of Teamsters (“IBT”). In addition, ABF’s ability to effectively manage labor costs has a direct impact on its operating performance. Shipments per dock, street and yard hour (“DSY”), and total pounds per mile are measures ABF uses to assess this effectiveness. DSY is used to measure effectiveness in ABF’s local operations, although total weight per hour may also be 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 and the degree to which rail service is used. ABF is generally very effective in managing its labor costs to business levels.

ABF has experienced higher fuel prices in recent years. However, 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. Although fuel costs have increased significantly during 2005, higher revenues from diesel fuel surcharges more than offset these higher diesel fuel costs. If diesel fuel prices decline, the amount by which higher revenues from fuel surcharges exceed higher diesel fuel costs will decline. However, ABF’s other costs have been, and may continue to be, impacted by fluctuating fuel prices. From September 7, 2005 through October 4, 2005, ABF limited its standard fuel surcharge due to the extremely volatile fuel prices resulting from Hurricane Katrina. During this period, ABF’s fuel surcharge was capped at the pre-Katrina level that was established on August 29, 2005. Had ABF charged its standard fuel surcharge percentage, approximately $2.2 million of additional revenue would have been earned. This reduced the Company’s third quarter earnings by $0.05 per diluted common share.

Other than the previously discussed cap on fuel surcharges, Hurricanes Katrina and Rita had minimal impact on ABF’s operations.

In May 2005, ABF reached agreement with the International Brotherhood of Teamsters union on specific language outlining ABF’s use of the Premium Service Employee provisions of its labor agreement in 13 Northeastern facilities. ABF’s implementation of this service began in June 2005. As a result of this agreement, ABF will be able to offer more second-day service lanes and can now provide overnight and even same-day service in selective lanes in the dense Northeastern market. The rollout of this service will be deliberate, and ABF will build on initial successes in additional locations. In addition to helping attract short-haul business, the Premium Service Employee and other internal initiatives are helpful in attracting premium-priced, time-definite freight (“time-definite freight”). Although it is growing rapidly, management of the Company believes its time-definite freight represents a smaller portion of ABF’s total revenues than other similarly situated LTL companies. Management of the Company is continuing to pursue increases in ABF’s percentage of time-definite freight.

23

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

On August 19, 2005, the U.S. Department of Transportation issued new rules regulating work and sleep schedules for commercial truck drivers. The new rules replaced Hours-of-Service Regulations that were last updated in 2003. The new rules, which were effective October 1, 2005, are anticipated to have a minimal impact upon ABF’s operations.

The Company ended the third quarter of 2005 with no borrowings under its revolving Credit Agreement, $105.3 million in cash and short-term investments and $524.7 million in stockholders’ equity. Because of the Company’s financial position at September 30, 2005, the Company should continue to be in a position to pursue profitable growth opportunities.

During both the first and third quarters of 2006, the Company expects to settle certain amounts owed under its supplemental pension plan as a result of officer retirements and as a result of deferral elections made by officers who retired prior to 2006. For the first quarter of 2006, the Company anticipates settling obligations of between $21.0 million to $22.0 million. For the third quarter of 2006, the Company anticipates settling obligations between $2.0 million and $3.0 million. Under FASB Statement No. 88,Employers’ Accounting for Settlements and Curtailments of Benefit Pension Plans and for Termination Benefits, the Company is required to record a “pension accounting settlement” when cash payouts exceed annual service and interest costs of the related plan. As a result, the Company will record charges to earnings in both the first and third quarters of 2006. The first quarter 2006 pre-tax charge is estimated to be between $7.5 million and $9.5 million or between $0.18 and $0.23 per diluted common share, net of taxes. The third quarter 2006 pre-tax charge is estimated to be between $1.0 million to $1.5 million or $0.02 to $0.04 per diluted common share, net of taxes. The estimated ranges are being provided because the charges to the Company in both the first and third quarters of 2006 are dependent upon pension actuarial valuations performed as of the settlement dates in 2006 and the actual settlement amounts. The actuarial valuations will utilize actual incentive compensation earned in 2005 and paid in January of 2006 and current discount rates at the settlement dates.

Three and Nine Months Ended September 30, 2005 Compared to the Three and Nine Months Ended September 30, 2004

Consolidated revenues for the three and nine months ended September 30, 2005 increased 6.1% and 8.1%, respectively, and operating income increased 13.2% and 25.7%, respectively, compared to the same periods in 2004, primarily due to revenue growth and improved operating results at ABF, as discussed below in the ABF section of Management’s Discussion and Analysis.

24

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

The following tables provide a reconciliation of GAAP net income and diluted earnings per share to non-GAAP financial measures of earnings and diluted earnings per share for the three and nine months ended September 30, 2005 and 2004. Management believes the non-GAAP financial measures presented are useful to investors in understanding the Company’s results of operations, because they provide more comparable measures:

	Three Months Ended										Nine Months Ended
	September 30										September 30
	2005				2004				2005					2004
			Diluted				Diluted					Diluted				Diluted
	Net		Earnings		Net		Earnings		Net			Earnings		Net		Earnings
	Income		Per Share		Income		Per Share		Income			Per Share		Income		Per Share
							($ thousands, except per share data)
Amounts on a GAAP basis	$	40,567	$	1.59	$	27,369	$	1.07	$	74,437		$	2.89	$	51,128	$	2.00
Less gain on sale of properties to G.I. Trucking, after tax (see Note K)		9,757		0.38		—		—		9,757			0.38		—		—
Non-GAAP amounts	$	30,810	$	1.21	$	27,369	$	1.07	$	64,680		$	2.51	$	51,128	$	2.00

The increases of 13.1% and 25.5% in diluted earnings per share, excluding the gain from the sale of properties to G.I. Trucking, for the three and nine months ended September 30, 2005 over the same periods in 2004 reflect primarily improved operating results at ABF, as discussed below in the ABF section of Management’s Discussion and Analysis.

ABF Freight System, Inc.

Effective May 23, 2005 and June 14, 2004, ABF implemented general rate increases to cover known and expected cost increases. Typically, the increases were 5.8% and 5.9%, respectively, although the amounts vary by lane and shipment characteristic. ABF’s increases in reported revenue per hundredweight for the three and nine months ended September 30, 2005 versus the same periods in 2004 have been impacted not only by the general rate increase and fuel surcharge increases, but also by changes in profile such as length of haul, weight per shipment, density and customer and geographic mix. 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 atabf.com. The fuel surcharge in effect averaged 11.2% and 10.0% of revenue for the three and nine months ended September 30, 2005, compared to 6.0% and 5.2% for the same periods in 2004. As previously discussed, ABF capped its fuel surcharge during the period from September 7, 2005 through October 4, 2005.

Revenues for the three and nine months ended September 30, 2005 were $451.8 million and $1,253.4 million respectively, compared to $427.9 million and $1,165.1 million during the same periods in 2004.

25

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

The following tables provide a comparison of key operating statistics for ABF:

	Three Months Ended September 30
	2005		2004		% Change
Billed revenue per hundredweight, excluding fuel surcharges
Less than truckload (“LTL”) (shipments less than 10,000 pounds)	$	24.98	$	24.50		2.0	%
Truckload (“TL”)	$	10.17	$	9.22		10.3	%
Total	$	21.72	$	21.47		1.2	%
Tonnage (tons)
LTL		727,063		749,781		(3.0	)%
TL		204,907		186,170		10.1	%
Total		931,970		935,951		(0.4	)%
Shipments per DSY hour		0.508		0.525		(3.2	)%
Total pounds per DSY hour		631.15		631.66		(0.1	)%
Total pounds per shipment		1,271.34		1,226.77		3.6	%
Total pounds per mile		19.41		19.27		0.7	%

	Nine Months Ended September 30
	2005		2004		% Change
Billed revenue per hundredweight, excluding fuel surcharges
LTL	$	24.61	$	24.04		2.4	%
TL	$	9.55	$	8.86		7.8	%
Total	$	21.40	$	21.03		1.8	%
Tonnage (tons)
LTL		2,088,399		2,116,305		(1.3	)%
TL		566,657		523,345		8.3	%
Total		2,655,056		2,639,650		0.6	%
Shipments per DSY hour		0.511		0.526		(2.8	)%
Total pounds per DSY hour		621.70		626.75		(0.8	)%
Total pounds per shipment		1,243.38		1,214.40		2.4	%
Total pounds per mile		19.40		19.39		0.1	%

26

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

ABF’s revenue-per-day increases of 5.6% and 7.6% for three and nine months ended September 30, 2005 over the same periods in 2004 are due primarily to increases in revenue per hundredweight, including fuel surcharges. ABF’s yield and profitability were enhanced by improved rates, including fuel surcharges, by changes in freight profile and by an increased amount of time-definite freight. For the three and nine months ended September 30, 2005, total weight per shipment increased 3.6% and 2.4% and length of haul decreased 0.8% and 0.9%, respectively. The increased weight per shipment and decreased length of haul caused revenue per hundredweight to decline. For the three and nine months of 2005, figures for billed revenue per hundredweight, excluding fuel surcharges, compared to the same periods in 2004 reflect a pricing environment that is stable but competitive.

ABF’s operating ratio improved to 88.5% and 91.4% for the three and nine months ended September 30, 2005, respectively, from 89.2% and 92.5% for the same periods in 2004. The operating ratio improvement resulted from a combination of the yield improvements previously discussed, an improved account mix and changes in certain other operating expense categories as follows:

Salaries, wages and benefits expense decreased 1.8%, as a percent of revenue, for both the three and nine months ended September 30, 2005, when compared to the same periods in 2004, due primarily to the fact that a portion of salaries, wages and benefits are fixed in nature and decrease, as a percent of revenue, with increases in revenue levels. ABF has a greater number of employees at the lower tier of the wage scale negotiated under its union contract, which contributes to lower salaries, wages and benefits as a percentage of revenue for three and nine months ended September 30, 2005, compared to the same periods in 2004. The overall decreases in salaries, wages and benefits as a percent of revenue were offset, in part, by contractual increases under the IBT National Master Freight Agreement. The five-year agreement provides for annual contractual total wage and benefit increases of approximately 3.2% – 3.4% and was effective April 1, 2003. An annual wage increase occurred on April 1, 2005 and was 1.9%. An annual health, welfare and pension cost increase occurred on August 1, 2005 and was 5.7%. Although ABF experienced a decrease in its shipments per DSY hour for the three and nine months ended September 30, 2005, compared to the same periods in 2004, pounds per shipment increased and pounds per DSY hour stayed fairly constant. Workers’ compensation costs were lower as a percent of revenue for the three and nine months ended September 30, 2005 compared to the same periods in 2004 due primarily to fewer new claims and favorable severity trends on existing claims. In addition, during the nine months ended September 30, 2004, ABF incurred additional workers’ compensation costs of approximately $1.2 million due to an increase in the reserves associated with the insolvency of Reliance Insurance Company (“Reliance”). Reliance was the Company’s workers’ compensation excess insurance carrier for the years 1993 through 1999.

Supplies and expenses increased 2.1% and 1.7%, respectively, as a percent of revenue, when the three and nine months ended September 30, 2005 are compared to the same periods in 2004. Fuel costs, on an average price-per-gallon basis, excluding taxes, increased to an average of $1.96 and $1.71, respectively, for the three and nine months ended September 30, 2005, compared to $1.28 and $1.17 for the same periods in 2004.

Insurance expense increased 0.2% and 0.1%, respectively, as a percent of revenue, when the three and nine months ended September 30, 2005 are compared to the same periods in 2004. ABF’s casualty claims costs have increased as a result of adverse severity trends on existing claims.

Rents and purchased transportation decreased 1.2% and 1.0%, respectively, as a percent of revenue, when the three and nine months ended September 30, 2005 are compared to the same periods in 2004. This decrease is due primarily to a decrease in rail utilization to 17.8% and 15.9% of total miles for the three and nine months ended September 30, 2005, compared to 20.6% and 18.0% during the same periods in 2004. ABF reduced its

27

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

use of rail by moving a higher percentage of freight with ABF drivers and equipment. In many of the lanes where ABF discontinued using rail, transit-time reliability improved and costs were reduced.

As previously mentioned, ABF’s general rate increase on May 23, 2005 was put in place to cover known and expected cost increases for the next twelve months. ABF’s ability to retain this rate increase is dependent on the competitive pricing environment. ABF could continue to be impacted by fluctuating fuel prices in the future. ABF’s fuel surcharge is based on changes in diesel fuel prices compared to a national index. ABF’s total insurance costs are dependent on the insurance markets and claims experience. ABF’s results of operations have been impacted by the wage and benefit increases associated with the labor agreement with the IBT and will continue to be impacted by this agreement during the remainder of the contract term.

Clipper

Clipper’s revenue for the three and nine months ended September 30, 2005 increased 8.6% and 12.0%, respectively, when compared to the same periods in 2004. Clipper’s revenues for the first nine months of 2005 consisted of 49% intermodal revenues, 36% temperature-controlled revenues and 15% brokerage revenues. Clipper’s temperature-controlled division experienced increases of 10.6% and 16.9%, respectively, in revenue for the three and nine months ended September 30, 2005, compared to the same periods in 2004, due primarily to strong customer demand for its spot market rail capacity. Clipper’s brokerage division experienced revenue increases of 19.3% and 40.0%, respectively, for the three and nine months ended September 30, 2005, compared to the same periods in 2004, due to continued good service from its trucking partners and an increase in shipments from new customers. Revenues for Clipper’s intermodal division increased 9.2% and 4.1%, respectively, for the three and nine months ended September 30, 2005, compared to the same periods in 2004, due to a tight supply of equipment and trucking resources, which had a positive impact on margins.

Clipper’s operating ratio improved to 97.8% and 97.6% for the three and nine months ended September 30, 2005, respectively, from 99.2% and 99.5% in the same periods of 2004. These improvements are due primarily to improved revenue levels and a continued emphasis on improving account profitability.

Prepaid Expenses

Prepaid expenses decreased $6.9 million from December 31, 2004 to September 30, 2005, due primarily to amortization of annual insurance premiums.

Bank Overdraft and Drafts Payable

Bank overdraft and drafts payable increased $8.5 million from December 31, 2004 to September 30, 2005, due in part to an increase of $3.1 million in outstanding checks for the purchase of revenue equipment.

Income Taxes

The difference between the effective tax rate for the three and nine months ended September 30, 2005 and 2004 and the federal statutory rate resulted from state income taxes, tax-exempt income and nondeductible expenses. The lower tax rate for the three and nine months ended September 30, 2005 as compared to the same period in 2004 is due primarily to higher income levels, a lower effective state income tax rate, and an increased amount of tax-exempt income from short-term investments.

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

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 third calendar quarter of each year usually has the highest tonnage levels while the first quarter has the lowest. Clipper’s operations are similar to operations at ABF, with revenues usually being weaker in the first quarter and stronger during the months of June through October.

Effects of Inflation

Management believes that, for the periods presented, inflation has not had a material effect on the Company’s operations.

Forward-Looking Statements

Statements contained in the Management’s Discussion and Analysis section of this report that are not based on historical facts are “forward-looking statements.” Terms such as “estimate,” “forecast,” “expect,” “predict,” “plan,” “anticipate,” “believe,” “intend,” “should,” “would,” “scheduled” and similar expressions and the negatives of such terms are intended to identify forward-looking statements. Such statements are by their nature subject to uncertainties and 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 nonunion employee wages and benefits; actual costs of continuing investments in technology; the timing and amount of capital expenditures; competitive initiatives and pricing pressures; general economic conditions; and other financial, operational and legal risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission (“SEC”) public filings.

29

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Instruments

The Company has historically been subject to market risk on all or a part of its borrowings under bank credit lines, which have variable interest rates.

The Company was a party to an interest rate swap on a notional amount of $110.0 million, which matured on April 1, 2005.

Other Market Risks

Since December 31, 2004, there have been no significant changes in the Company’s other market risks, as reported in the Company’s Form 10-K Annual Report.

30

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2005. There have been no changes in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

31

PART II.
OTHER INFORMATION
ARKANSAS BEST CORPORATION

ITEM 1. LEGAL PROCEEDINGS.

Various legal actions, the majority of which arise in the normal course of business, are pending. None of these legal actions are expected to have a material adverse effect on the Company’s financial condition, cash flows or results of operations. The Company maintains 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     (a) Recent sales of unregistered securities.

          None.

     (b) Use of proceeds from registered securities.

          None.

     (c) Purchases of equity securities by the issuer and affiliated purchasers.

The Company has a program to repurchase its own Common Stock in the open market or in privately negotiated transactions. The Company’s Board of Directors authorized stock repurchases of up to $25.0 million in 2003 and an additional $50.0 million in July of 2005. The repurchases may be made either from the Company’s cash reserves or from other available sources. The program has no expiration date but may be terminated at any time at the Board’s discretion. The following table presents purchases made during the third quarter 2005 and an additional repurchase authorization made by the Board:

		Average		Maximum Dollar
	Total Number	Price Paid	Total Number of	Value of Shares
	of Shares	Per Share	Shares Purchased	That May Yet Be
	Purchased During	During	as Part of Publicly	Purchased Under
Period Ending	3rd Quarter 2005	3rd Quarter 2005	Announced Program	the Program
June 30, 2005	—	—	634,150	$	7,072,662.40
July 31, 2005(1)	—	—	634,150	$	57,072,662.40
August 31, 2005	209,000	$33.84	843,150	$	49,999,630.18
September 30, 2005	—	—	843,150	$	49,999,630.18

(1) On July 28, 2005, the Company’s Board of Directors announced the authorization of an additional $50.0 million to the Company’s stock repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

32

PART II. — continued
OTHER INFORMATION
ARKANSAS BEST CORPORATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

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

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ARKANSAS BEST CORPORATION               (Registrant)
Date: November 7, 2005	/s/ David E. Loeffler
	David E. Loeffler
	Senior Vice President — Chief Financial Officer, Treasurer and Principal Accounting Officer

34