NOTE H – LONG-TERM DEBT AND FINANCING ARRANGEMENTS

Long-Term Debt Obligations

Long-term debt consisted of a Term Loan under the Credit Agreement further described in Financing Arrangements within this Note and notes payable and capital lease obligations related to the financing of revenue equipment (tractors and trailers used primarily in ABF’s operations), real estate, and certain other equipment as follows:

	December 31
	2012		2011
	(in thousands)

Term Loan (interest rate of 2.0% at December 31, 2012)	$	95,000	$	–
Notes payable (weighted-average interest rate of 3.0% at December 31, 2012)	37,756		26,751
Capital lease obligations (weighted-average interest rate of 4.5% at December 31, 2012)	23,229		44,261
	155,985		71,012
Less current portion	43,044		24,262
Long-term debt, less current portion	$	112,941	$	46,750

Scheduled maturities under the Term Loan and notes payable and future minimum payments under capital lease obligations included in long-term debt as of December 31, 2012 were as follows:

					Notes Payable		Capital Lease Obligations(1)
			Term		Revenue		Revenue				Equipment
	Total		Loan		Equipment		Equipment		Terminals		and Other
	(in thousands)

2013	$	46,434	$	13,037	$	16,443	$	16,458	$	195	$	301
2014	33,871		15,298		15,670		2,425		200		278
2015	28,269		17,510		7,051		3,061		207		440
2016	18,638		18,425		–		–		213		–
2017	36,803		36,584		–		–		219		–
Thereafter	477		–		–		–		477		–
Total payments	164,492		100,854		39,164		21,944		1,511		1,019
Less amounts representing interest	8,507		5,854		1,408		890		284		71
Long-term debt	$	155,985	$	95,000	$	37,756	$	21,054	$	1,227	$	948

(1) Minimum payments of capital lease obligations include maximum amounts due under rental adjustment clauses contained in the capital lease agreements.

Assets held under capital leases or securitized by notes payable at December 31 were included in property, plant and equipment as follows:

	2012		2011
	(in thousands)
Land and structures (terminals)	$	1,794	$	1,794
Revenue equipment	93,004		91,925
Service, office, and other equipment	1,813		1,813
	96,611		95,532
Less accumulated amortization(1)	35,183		26,759
	$	61,428	$	68,773

(1) Amortization of assets under capital leases and notes payable is included in depreciation expense.

The Company’s long-term debt obligations have a weighted-average interest rate of 2.6% at December 31, 2012. The Company paid interest of $4.5 million in 2012, $3.3 million in 2011, and $2.6 million in 2010, net of capitalized interest which totaled less than $0.1 million for each of the years ended December 31, 2012, 2011, and 2010.

Financing Arrangements

Term Loan

On June 15, 2012, the Company entered into a credit agreement (the “Credit Agreement”) with a syndicate of financial institutions. Pursuant to the Credit Agreement, a five-year, $100.0 million secured term loan (the “Term Loan”) was provided to finance a portion of the cost of the acquisition of Panther (see Note D). The Credit Agreement also provides the Company with the right to request revolving commitments thereunder up to an aggregate amount of $75.0 million, subject to the satisfaction of certain additional conditions provided in the agreement. The Term Loan is secured by a lien on certain of the Company’s assets and pledges of the equity interests in certain subsidiaries (with these assets and subsidiaries defined in the Credit Agreement). The Term Loan requires quarterly principal payments, which commenced in third quarter 2012, and monthly interest payments, with remaining amounts outstanding due upon the maturity date of June 15, 2017. Borrowings under the Term Loan can be repaid in whole or in part at any time, without penalty, subject to required notice periods and compliance with minimum prepayment amounts. The Term Loan allows for the election of interest at a base rate or LIBOR plus a margin based on the adjusted leverage ratio, as defined, which is measured at the end of each fiscal quarter. The Credit Agreement contains conditions, representations and warranties, events of default, and indemnification provisions that are customary for financings of this type including, but not limited to, a minimum fixed charge coverage ratio, a maximum adjusted leverage ratio, and limitations on incurrence of debt, investments, liens on assets, transactions with affiliates, mergers, consolidations, and purchases and sales of assets. As of December 31, 2012, the Company was in compliance with the covenants. For the reporting period ended December 31, 2012, the Company’s fixed charge coverage ratio was 1.5 to 1.0, compared to the minimum ratio required by the Credit Agreement of 1.25 to 1.0.

Notes Payable and Capital Leases

ABF entered into 36-month promissory notes during 2012 and 2011 to finance $38.0 million and $28.5 million of revenue equipment, respectively. The promissory notes specify the terms of the arrangements, including the monthly payment and interest rates. The future payments due under the notes payable arrangements are shown in the table in the Long-Term Debt Obligations section within this Note.

The Company has financed revenue equipment, real estate, and certain other equipment through capital lease agreements. ABF entered into 36-month capital lease agreements during 2011 to finance $1.9 million of revenue equipment. During 2010, ABF entered into capital lease agreements, which have 36-month and 60-month terms, to finance $36.3 million of revenue equipment and certain other equipment. In 2010, ABF entered into capital lease agreements with 36-month terms to finance revenue equipment of $11.4 million that was acquired in 2009. The capital lease agreements specify the terms of the arrangements, including the monthly base rent and interest rates, and contain rental adjustment clauses for which the maximum amounts have been included in the future minimum payments under the capital leases in the table in the Long-Term Debt Obligations section within this Note.

Accounts Receivable Securitization Program

On June 15, 2012, the Company terminated its accounts receivable securitization program with SunTrust Bank. There were no borrowings during the term of the program and no borrowings outstanding under the program on the date of termination. As of June 15, 2012 and December 31, 2011 and 2010, the Company was in compliance with the covenants of the program.

On June 15, 2012, the Company entered into a replacement accounts receivable securitization program with PNC Bank which provides for cash proceeds of an amount up to $75.0 million. Under this facility, which matures on June 15, 2015, certain subsidiaries of the Company continuously sell a designated pool of trade accounts receivables to a wholly owned subsidiary which, in turn, may borrow funds on a revolving basis. This wholly-owned consolidated subsidiary is a separate bankruptcy-remote entity, and its assets would be available only to satisfy the claims related to the lender’s interest in the trade accounts receivables. Advances under the facility bear interest based upon LIBOR, plus a margin, and an annual facility fee. The securitization agreement contains representations and warranties, affirmative and negative covenants, and events of default that are customary for financings of this type, including a maximum adjusted leverage ratio covenant. As of December 31, 2012, the Company was in compliance with the covenants. There have been no borrowings under this facility.

The accounts receivable securitization program includes a provision under which the Company may request and the letter of credit issuer may issue standby letters of credit, primarily in support of workers’ compensation and third-party casualty claims liabilities in various states in which the Company is self-insured. The outstanding standby letters of credit reduce the availability of borrowings under the facility. As of December 31, 2012, standby letters of credit of $16.2 million have been issued under the facility, which reduced the available borrowing capacity to $58.8 million.

In the event that a collective bargaining agreement is not in place seven days prior to the March 31, 2013 expiration of ABF’s current agreement, the facility requires the Company to maintain $50.0 million of available liquidity, which may consist of unrestricted cash, cash equivalents, and short term investments on hand, available borrowing capacity under the accounts receivable securitization facility, or any other revolving liquidity facility of the Company. This restriction would end upon ratification of a subsequent collective bargaining agreement.

Letter of Credit Agreements and Surety Bond Programs

The Company has agreements with certain financial institutions to provide collateralized facilities for the issuance of letters of credit (“LC Agreements”). These financial institutions issue letters of credit on behalf of the Company primarily in support of the self-insurance program previously discussed within this Note. The Company pays quarterly fees to the financial institutions based on the amount of letters of credit outstanding. The LC Agreements contain no financial ratios or financial covenants which the Company is required to maintain. The LC Agreements require cash or short-term investments to be pledged as collateral for outstanding letters of credit. During 2012, the Company transferred $26.1 million of previously collateralized letters of credit to a new, uncollateralized bond program. As of December 31, 2012 and 2011, the Company had letters of credit outstanding of $22.7 million (of which $16.2 million were issued under the accounts receivable securitization facility previously described within this Note) and $46.2 million, respectively, of which $5.9 million and $45.7 million, respectively, were collateralized by restricted cash equivalents and short-term investments under the LC Agreements. The Company had up to $69.1 million available as of December 31, 2012 for issuance of letters of credit, subject to the Company’s compliance with the requirements of issuance.

The Company has programs in place with multiple surety companies for the issuance of partially secured or unsecured surety bonds in support of the self-insurance program discussed in the previous paragraphs. As of December 31, 2012 and 2011, surety bonds outstanding related to the collateralized self-insurance program totaled $13.8 million. The outstanding bonds were collateralized by $3.8 million and $7.0 million of restricted short-term investments in certificates of deposit at December 31, 2012 and 2011, respectively. Under separate uncollateralized bond programs, surety bonds outstanding related to the Company’s self-insurance program totaled $36.6 million as of December 31, 2012.