General
Arkansas Best Corporation (the "Company") is a holding company engaged, through its subsidiaries, primarily in motor carrier freight transportation. The Company's principal operations are conducted through ABF Freight System, Inc. and other subsidiaries of the Company that are engaged in motor carrier freight transportation (collectively "ABF").
The following Management's Discussion and Analysis of Financial Condition and Results of Operations describes the principal factors affecting critical accounting policies, liquidity and capital resources, and results of operations of the Company. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and the Company's Annual Report on Form 10-K for the year ended December 31, 2008. The Company's 2008 Annual Report on Form 10-K includes additional information about significant accounting policies, practices and the transactions that underlie the Company's financial results, as well as a detailed discussion of the most significant risks and uncertainties to which its financial and operating results are subject. 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.
Critical Accounting Policies and Recent Accounting and Disclosure Requirements Impacting the Company
The Company's accounting policies 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 2008 Annual Report on Form 10-K. There have been no material changes in these critical accounting policies during the nine months ended September 30, 2009.
Effective January 1, 2009, the Company adopted new accounting guidance that requires an allocation of dividends paid and a portion of undistributed net income, but not losses, to unvested restricted stock and restricted stock units, which are considered participating securities for purposes of calculating earnings per share. The application of this new guidance also required retrospective adjustment of earnings per share for prior periods. Under the new guidelines, basic earnings per share decreased by $0.02 and $0.04 for the three and nine months ended September 30, 2008, respectively, and diluted earnings per share decreased by $0.01 and $0.03 for the three and nine months ended September 30, 2008, respectively, compared to amounts presented in prior periods (see Note G to the accompanying consolidated financial statements). Liquidity and Capital Resources
The Company's primary sources of liquidity are cash and short-term investments on-hand, cash generated by operations and borrowing capacity under its revolving credit agreement.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS - continued


Cash Flow and Short-Term Investments: Components of cash and cash equivalents
and short-term investments are as follows:

                                                                  September 30        December 31
                                                                      2009               2008
                                                                           ($ thousands)

Cash and cash equivalents, primarily money market funds          $       58,887      $     100,880
Short-term investments (FDIC-insured certificates of deposit)           131,365            117,855
Total                                                            $      190,252      $     218,735

Cash, cash equivalents and short-term investments declined $28.5 million from December 31, 2008 to September 30, 2009. During the nine months ended September 30, 2009, cash, cash equivalents and short-term investments on hand combined with cash provided by operations of $23.9 million were utilized primarily for the purchase of revenue equipment (tractors and trailers used primarily in ABF's operations) and other property and equipment totaling $29.2 million net of asset sales, the payment of dividends on Common Stock of $11.6 million and the acquisition of a majority interest in a privately-owned logistics company for net cash consideration of $6.2 million including repayment of debt assumed in the acquisition.
During the nine months ended September 30, 2008, cash provided by operations of $103.8 million and proceeds from asset sales of $15.0 million were used to purchase revenue equipment (tractors and trailers used primarily in ABF's operations) and other property and equipment totaling $45.4 million and pay dividends on Common Stock of $11.5 million. The decrease in operating cash flow during the nine months ended September 30, 2009 as compared to the same period of 2008 primarily reflects the effect of the weaker freight tonnage environment on ABF's operating results.
Credit Agreement: The Company has a revolving credit agreement (the "Credit Agreement") dated May 4, 2007, with a syndicate of financial institutions. The Credit Agreement, which has a maturity date of May 4, 2012, provides for up to $325.0 million of revolving credit loans (including a $150.0 million sublimit for letters of credit). Interest rates under the agreement are at variable rates as defined by the Credit Agreement. The Credit Agreement contains a pricing grid, based on the Company's senior debt ratings, that determines its interest rate, facility fees, utilization fees and letter of credit fees. The Company has a senior unsecured debt rating of BBB- with a negative outlook by Standard & Poor's Ratings Services and a senior unsecured debt rating of Ba1 with a negative outlook by Moody's Investors Service, Inc. As of September 30, 2009 and December 31, 2008, there were outstanding letters of credit issued of $50.3 million and $50.9 million, respectively, under the Credit Agreement and there were no outstanding revolver advances.
The Credit Agreement contains various customary covenants which limit, among other things, indebtedness and dispositions of assets and which require the Company to maintain compliance with certain quarterly financial ratios. As of September 30, 2009, the Company was in compliance with the covenants. The Company's borrowing ability under the Credit Agreement is restricted by the maximum allowed leverage ratio that limits total outstanding indebtedness to 3.0 times the Company's trailing twelve months earnings before interest, taxes, depreciation and amortization, as defined in the Credit Agreement ("EBITDA"). Due to this limitation, and after consideration of certain outstanding letters of credit, total unused borrowing capacity was $22.6 million as of September 30, 2009.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

As further discussed in the Executive Overview of Management's Discussion and Analysis of Financial Condition and Results of Operations, ABF's operating results have been adversely impacted by the economic recession. As a result, the Company has reported consolidated net losses in each of the last four quarterly periods beginning with fourth quarter 2008. The resulting reduction in EBITDA has led to a declining fixed charge coverage ratio. For the reporting period ended September 30, 2009, the Company's fixed charge coverage ratio was 2.0 to 1, which is the minimum ratio required by the Credit Agreement. While ABF has implemented cost reduction initiatives, unless operating results in the fourth quarter of 2009 are improved over fourth quarter 2008 levels, the Company may not meet the required fixed charge coverage ratio for the December 31, 2009 reporting period. Although there can be no assurances, management has initiated the process of obtaining and believes that the Company will obtain an amendment to the Credit Agreement or other satisfactory financing arrangements, as needed, that would provide for the Company's letter of credit requirements. However, due to recent liquidity disruptions and continued uncertainty in the credit markets, the terms of any new financing arrangements may be less favorable and result in higher costs than the current Credit Agreement.
Contractual Obligations: The following table provides the aggregate annual contractual obligations of the Company including capital and operating lease obligations, purchase obligations and near-term estimated benefit plan distributions as of September 30, 2009. The Company's 2008 Annual Report on Form 10-K includes additional information and description of these obligations.

                                                        Payments Due by Period
                                                             ($ thousands)
                                            Less Than             1-3               3-5          More Than
Contractual Obligations       Total          1 Year              Years             Years          5 Years

Capital lease
obligations, including
interest                    $   2,324      $       237      $           513      $     419      $     1,155
Operating lease
obligations(1)                 53,543           11,278               18,259         10,391           13,615
Purchase obligations(2)        13,651           13,651                    -              -                -
Voluntary savings plan
distributions(3)                2,568            2,568
Postretirement health
expenditures(4)                   825              825
Deferred salary
distributions(5)                1,144            1,144
Supplemental pension
distributions(6)                2,175            2,175

Total                       $  76,230      $    31,878      $        18,772      $  10,810      $    14,770

(1) While the Company owns the majority of its larger terminals and distribution centers, certain facilities and equipment are leased. As of September 30, 2009, the Company had future minimum rental commitments, net of noncancelable subleases, totaling $53.2 million for terminal facilities and $0.3 million for other equipment. The future minimum rental commitments are presented exclusive of executory costs such as insurance, maintenance and taxes. In addition, the Company has provided lease guarantees through March 2012 totaling $0.6 million related to Clipper Exxpress Company, a former subsidiary of the Company.

(2) Purchase obligations relating to revenue equipment, other equipment and property are cancelable if certain conditions are met. These commitments are included in the Company's 2009 annual net capital expenditure plan, which is estimated to be approximately $45.0 million. Actual 2009 capital expenditures may differ from the estimated amount depending on factors such as availability and timing of delivery of equipment.

(3) Represents elective distributions anticipated within the next twelve months under the Voluntary Savings Plan, a nonqualified deferred compensation plan. Future distributions are subject to change for retirement, death or disability of current employees. As a result, estimates of distributions beyond one year cannot be made with a reasonable level of accuracy and are not presented.

(4) Represents distributions projected over the next twelve months related to postretirement health benefits. Future distributions are subject to change based upon increases and other changes in premiums and medical costs and continuation of the plan for current participants. As a result, estimates of distributions beyond one year are not presented.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

(5) Represents deferred salary agreement distributions projected over the next twelve months. Future distributions are subject to change based upon assumptions for projected salaries and retirements, deaths, disability or early retirement of current employees. As a result, estimates of distributions beyond one year cannot be made with a reasonable level of accuracy and are not presented.

(6) Represents distributions within the next twelve months under the unfunded supplemental benefit pension plan based on retirements announced as of September 30, 2009. The Company anticipates settling additional obligations of $12.5 million related to the supplemental benefit pension plan within the next twelve months based on retirements announced subsequent to the balance sheet date. The amounts and dates of distributions in future periods are dependent upon actual retirement dates of eligible officers and other events and factors, including assumptions involved in distribution calculations such as the discount rate, years of service and future salary changes. As a result, estimates of distributions beyond one year cannot be made with a reasonable level of accuracy and are not presented.

The Company made voluntary tax-deductible contributions totaling $15.5 million to its nonunion pension plan in March 2009 (see Note E to the accompanying consolidated financial statements). Due to a higher level of employee terminations and retirements, the full-year cash distributions from the nonunion defined benefit plan may exceed the annual service and interest costs and result in recognition of pension settlement expense during fourth quarter 2009. The amount of pension settlement expense recognized, if any, is dependent upon the total 2009 benefit plan distributions, which are influenced by participant elections, and pension actuarial valuations, which are based on the applicable discount rates for pension plan liabilities and the market value of plan assets determined at the settlement date. Based on information currently available to the Company, the non-cash charge for pension settlement expense related to the nonunion defined benefit pension plan, if any, recognized in fourth quarter 2009 could be between $6.0 million and $8.0 million, pre-tax.
ABF contributes to multiemployer health, welfare and pension plans based generally on the time worked by its contractual employees, as specified in the collective bargaining agreement and other supporting supplemental agreements (see Note E to the accompanying consolidated financial statements). Other Liquidity Information: Management believes cash generated by operations, cash and cash equivalents, short-term investments and amounts available under the Credit Agreement, including any future amendments thereof or other alternative financing arrangements, will be sufficient for the foreseeable future to finance the Company's lease commitments; letter of credit commitments; quarterly dividends; stock repurchases; nonunion benefit plan contributions; unfunded supplemental pension benefits; capital expenditures; health, welfare and pension contributions under collective bargaining agreements; and other expenditures. There can be no assurances that management will be able to obtain an amendment to the Credit Agreement or other satisfactory financing arrangements.
Financial Instruments: The Company has not historically entered into financial instruments for trading purposes, nor has the Company historically engaged in a program for hedging fuel prices. No such instruments were outstanding as of September 30, 2009 or as of December 31, 2008.
Off-Balance-Sheet Arrangements: The Company's off-balance-sheet arrangements include future minimum rental commitments, net of noncancelable subleases, of $53.5 million under operating lease agreements. The Company has no investments, loans or any other known contractual arrangements with affiliated special-purpose entities, variable interest entities or financial partnerships.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Results of Operations
Executive Overview
Arkansas Best Corporation ("the Company") is a holding company engaged, through its subsidiaries, primarily in motor carrier freight transportation. The Company's principal operations are conducted through ABF, which represented 94% of the Company's consolidated revenues for the nine months ended September 30, 2009.
On an ongoing basis, ABF's ability to operate profitably and generate cash is impacted by tonnage (gross weight hauled), which influences operating leverage as tonnage levels vary; the pricing environment; customer mix; and the ability to manage costs effectively, primarily in the area of salaries, wages and benefits ("labor").
For the three and nine months ended September 30, 2009, respectively, the Company reported consolidated net losses allocable to the Company's shareholders of $5.6 million and $39.2 million after taxes, primarily reflecting the operating results of ABF. During the three and nine months ended September 30, 2009, ABF's revenues decreased 22.4% and 24.5%, respectively, on a per-day basis compared to the same periods in 2008. This revenue decline primarily reflects decreases in tonnage levels and changes in revenue per hundredweight, including fuel surcharges. ABF's third quarter 2009 operating ratio increased to 103.8% from 94.7% in the third quarter of 2008. During the nine months ended September 30, 2009, ABF's operating ratio increased to 106.5% from 95.4% during the same period of 2008. The ABF operating results are more fully discussed in the ABF section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
ABF's operations are affected by general economic conditions, as well as a number of other competitive factors that are more fully described in the General Development of Business and Risk Factors sections of the Company's 2008 Annual Report on Form 10-K. The prolonged unfavorable economic environment has impacted the business activities of ABF's customers which has had a corresponding adverse effect on ABF's tonnage levels and limited ABF's ability to secure adequate pricing for its services. ABF's tonnage trends began decreasing in the fourth quarter of 2006. Year-over-year tonnage comparisons on a per-day basis declined 5.8% in third quarter 2007 and 5.1% in third quarter 2008. ABF's third quarter 2009 operating results were impacted by a 10.1% year-over-year decline in tonnage per day, which was preceded by year-over-year declines in tonnage per day of 16.3% in the first half of 2009. ABF's management believes that these tonnage trends are representative of the weakened domestic and global economies due, in part, to turmoil in the financial markets and the related effects on industrial production and the residential and commercial construction and retail sectors. For the month of October 2009, average daily total tonnage for ABF declined approximately 5% compared to the same period last year. There can be no assurances that ABF will not experience further declines in tonnage levels due to a number of factors including, but not limited to, continued weakness in general economic activity.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

As a result of the extended period of an adverse economic environment and the historically severe tonnage declines, ABF has implemented cost reduction programs. ABF is generally effective in managing its costs to business levels. However, incremental reductions in labor and other operating costs become increasingly challenging and less effective as ABF maintains service levels and continues its focus on serving the regional markets. A larger proportion of ABF's operating costs are fixed in nature when maintaining customer service levels. ABF's ability to effectively manage labor costs, which amounted to 70.1% of ABF's revenues for the nine months ended September 30, 2009, has a direct impact on its operating performance. Labor costs, including retirement and health care benefits for ABF's contractual employees that are provided by a number of multiemployer plans (see Note E to the accompanying consolidated financial statements), are impacted by ABF's contractual obligations under its labor agreement primarily with the International Brotherhood of Teamsters ("IBT"). The current five-year collective bargaining agreement, which became effective April 1, 2008, provides for compounded annual contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living adjustments, as further discussed in the ABF section of Management's Discussion and Analysis of Financial Condition and Results of Operations. ABF's operating results will continue to be adversely impacted if tonnage remains at the current levels.
The industry pricing environment is another key to ABF's operating performance. The pricing environment, which generally becomes more competitive during periods of lower tonnage levels, influences ABF's ability to obtain compensatory margins and price increases on customer accounts. ABF's pricing is typically measured by billed revenue per hundredweight, which is a reasonable, although approximate, measure of price change. This measure is affected by freight profile factors such as average shipment size, average length of haul, freight density and customer and geographic mix. ABF focuses on individual account profitability rather than billed revenue per hundredweight when considering customer account or market evaluations due to the difficulty in quantifying, with sufficient accuracy, the impact of changes in freight profile characteristics, which is necessary to estimate true price changes. However, total company profitability for ABF is considered together with measures of billed revenue per hundredweight. Total billed revenue per hundredweight decreased 13.6% and 12.1%, respectively, during the three and nine months ended September 30, 2009 versus the same periods of 2008, primarily due to lower fuel surcharges resulting from lower fuel-related costs. The fuel surcharge constituted a higher proportion of the total freight rate during the majority of 2008, as further discussed below. Management believes that higher fuel surcharges, along with the competitive environment, prevented ABF from securing adequate increases in base LTL rates during periods of higher fuel surcharge levels in 2008. Obtaining base rate increases involves a lengthy process to address the pricing and resulting profitability of individual customer accounts. Prolonged periods with insufficient base LTL rate improvements result in higher operating ratios as elements of unit cost, including contractual wage and benefit rates, continue to increase. ABF also experienced freight profile changes during the nine months ended September 30, 2009 that impacted the reported billed revenue per hundredweight, as further discussed in the ABF section of Management's Discussion and Analysis of Financial Condition and Results of Operations. Excluding freight profile changes and the changes in fuel surcharges, pricing on ABF's traditional less-than-truckload ("LTL") business continued to weaken in the third quarter of 2009, with percentage declines in the low single digits as compared to the third quarter of 2008. During the three and nine months ended September 30, 2009, the pricing environment was very competitive and management expects the pricing environment to remain competitive throughout the remainder of 2009.
ABF operates in a highly competitive industry with both union and nonunion motor carriers. The Company's nonunion competitors have a lower fringe benefit cost structure, and certain carriers have recently reduced their wage rates for their freight-handling and driving personnel. In addition, wage concessions granted to certain union competitors allow for a lower wage and benefit cost structure than that of ABF. Competitors with lower labor cost structures could reduce freight rates to gain market share which may further limit ABF's ability to maintain or increase base freight rates and, therefore, adversely impact the Company's competitiveness in the industry. ABF has communicated to the IBT the effect of these matters on ABF's operating results, and discussions are continuing in an attempt to address this issue with the IBT.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

The transportation industry is dependent upon the availability of adequate fuel supplies. The Company has not experienced a lack of available fuel but could be adversely impacted if a fuel shortage were to develop. ABF charges a fuel surcharge based on changes in diesel fuel prices compared to a national index. The ABF fuel surcharge rate in effect is available on the ABF Web site at abf.com. (The information contained on the ABF Web site is not a part of this Quarterly Report on Form 10-Q nor shall it be deemed incorporated by reference into this Quarterly Report on Form 10-Q.) Although revenues from fuel surcharges generally more than offset increases in direct diesel fuel costs, other operating costs have been, and may continue to be, impacted by fluctuating fuel prices. The total impact of energy prices on other nonfuel-related expenses is difficult to ascertain. ABF cannot predict, with reasonable certainty, future fuel price fluctuations, the impact of energy prices on other cost elements, recoverability of fuel costs through fuel surcharges, and the effect of fuel surcharges on ABF's overall rate structure or the total price that ABF will receive from its customers. During periods of changing diesel fuel prices, the fuel surcharge and associated direct diesel fuel costs also vary by different degrees. Depending upon the rates of these changes and the impact on costs in other fuel- and energy-related areas, operating margins could be impacted. Whether fuel prices fluctuate or remain constant, ABF's operating income may be adversely affected if competitive pressures limit its ability to recover fuel surcharges. Throughout the first nine months of 2009, the fuel surcharge mechanism had strong market acceptance among ABF customers. While the fuel surcharge is one of several components in ABF's overall rate structure, the actual rate paid by customers is governed by market forces based on value provided to the customer. ABF experienced significantly higher fuel prices in the first ten months of 2008 compared to the same period in 2007. Beginning in the middle of July 2008, fuel prices declined steadily through mid-March 2009 and then increased over 50% in the third quarter 2009 from the March 2009 low. As of the end of October 2009, the fuel surcharge rate was approximately 20 revenue percentage points below the peak reached in July 2008. While fuel prices and the related fuel surcharge levels have declined in 2009 compared to 2008, ABF has not been able to increase other elements of margin primarily due to the competitive freight environment which has been influenced by lower levels of available tonnage.
The Company ended the third quarter of 2009 with $190.3 million of cash, cash equivalents and short-term investments, $584.3 million in stockholders' equity and minimal long-term debt. Because of the Company's financial position at . . .