10-Q 1 arcb-20160331x10q.htm 10-Q arcb_Current folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2016

 

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 000-19969

 

ARCBEST CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

(State or other jurisdiction of
incorporation or organization)

 

71-0673405

(I.R.S. Employer 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 registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

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

 

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 May 4, 2016

Common Stock, $0.01 par value

 

25,736,721 shares

 

 

 

 

 


 

ARCBEST CORPORATION

 

INDEX

 

 

 

 

 

 

    

    

Page

 

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets — March 31, 2016 and December 31, 2015

 

 

 

 

 

 

Consolidated Statements of Operations — For the Three Months Ended March 31, 2016 and 2015

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income — For the Three Months Ended March 31, 2016 and 2015

 

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity — For the Three Months Ended March 31, 2016

 

 

 

 

 

 

Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2016 and 2015

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26 

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

44 

 

 

 

 

Item 4. 

Controls and Procedures

 

44 

 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

45 

 

 

 

 

Item 1A. 

Risk Factors

 

45 

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

45 

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

45 

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

45 

 

 

 

 

Item 5. 

Other Information

 

45 

 

 

 

 

Item 6. 

Exhibits

 

46 

 

 

 

 

SIGNATURES 

 

47 

 

 

 

 


 

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2016

    

2015

 

 

 

(Unaudited)

 

 

 

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

134,788

 

$

164,973

 

Short-term investments

 

 

69,608

 

 

61,597

 

Restricted cash

 

 

1,385

 

 

1,384

 

Accounts receivable, less allowances (2016 – $4,399; 2015 – $4,825)

 

 

226,796

 

 

236,097

 

Other accounts receivable, less allowances (2016 – $1,085; 2015 – $1,029)

 

 

6,854

 

 

6,718

 

Prepaid expenses

 

 

24,725

 

 

20,801

 

Deferred income taxes

 

 

36,510

 

 

38,443

 

Prepaid and refundable income taxes

 

 

28,082

 

 

18,134

 

Other

 

 

5,012

 

 

3,936

 

TOTAL CURRENT ASSETS

 

 

533,760

 

 

552,083

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

Land and structures

 

 

280,510

 

 

273,839

 

Revenue equipment

 

 

700,078

 

 

699,844

 

Service, office, and other equipment

 

 

148,675

 

 

145,286

 

Software

 

 

130,318

 

 

127,010

 

Leasehold improvements

 

 

25,645

 

 

25,419

 

 

 

 

1,285,226

 

 

1,271,398

 

Less allowances for depreciation and amortization

 

 

802,620

 

 

788,351

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

482,606

 

 

483,047

 

GOODWILL

 

 

96,577

 

 

96,465

 

INTANGIBLE ASSETS, net

 

 

76,300

 

 

76,787

 

OTHER ASSETS

 

 

55,988

 

 

54,527

 

TOTAL ASSETS

 

$

1,245,231

 

$

1,262,909

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

139,607

 

$

130,869

 

Income taxes payable

 

 

 —

 

 

91

 

Accrued expenses

 

 

176,918

 

 

188,727

 

Current portion of long-term debt

 

 

45,905

 

 

44,910

 

TOTAL CURRENT LIABILITIES

 

 

362,430

 

 

364,597

 

LONG-TERM DEBT, less current portion

 

 

157,485

 

 

167,599

 

PENSION AND POSTRETIREMENT LIABILITIES

 

 

56,603

 

 

51,241

 

OTHER LIABILITIES

 

 

12,206

 

 

12,689

 

DEFERRED INCOME TAXES

 

 

79,256

 

 

78,055

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2016: 27,950,867 shares; 2015: 27,938,319 shares

 

 

280

 

 

279

 

Additional paid-in capital

 

 

311,199

 

 

309,653

 

Retained earnings

 

 

368,636

 

 

376,827

 

Treasury stock, at cost, 2016: 2,214,146 shares; 2015: 2,080,187 shares

 

 

(73,137)

 

 

(70,535)

 

Accumulated other comprehensive loss

 

 

(29,727)

 

 

(27,496)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

577,251

 

 

588,728

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,245,231

 

$

1,262,909

 

 

 

 

 

 

See notes to consolidated financial statements.

3


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

March 31

 

 

 

    

2016

    

2015

    

 

 

 

(Unaudited)

 

 

 

 

(in thousands, except share and per share data)

 

 

REVENUES

 

$

621,455

 

$

613,276

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

630,720

 

 

611,996

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME (LOSS)

 

 

(9,265)

 

 

1,280

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (COSTS)

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

401

 

 

234

 

 

Interest and other related financing costs

 

 

(1,247)

 

 

(1,002)

 

 

Other, net

 

 

366

 

 

400

 

 

TOTAL OTHER INCOME (COSTS)

 

 

(480)

 

 

(368)

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

(9,745)

 

 

912

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX PROVISION (BENEFIT)

 

 

(3,642)

 

 

167

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(6,103)

 

$

745

 

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER COMMON SHARE

 

 

 

 

 

 

 

 

Basic

 

$

(0.24)

 

$

0.03

 

 

Diluted

 

$

(0.24)

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

 

Basic

 

 

25,822,522

 

 

26,051,038

 

 

Diluted

 

 

25,822,522

 

 

26,588,518

 

 

 

 

 

 

 

 

 

 

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.08

 

$

0.06

 

 

 

See notes to consolidated financial statements.

 

4


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

March 31

 

 

 

    

2016

    

2015

    

 

 

 

(Unaudited)

 

 

 

 

(in thousands)

 

 

NET INCOME (LOSS)

 

$

(6,103)

 

$

745

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE LOSS, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

 

Net actuarial loss, net of tax of: (2016 – $2,230; 2015 – $1,166)

 

 

(3,504)

 

 

(1,831)

 

 

Pension settlement expense, net of tax of: (2016 – $350; 2015 – $435)

 

 

550

 

 

684

 

 

Amortization of unrecognized net periodic benefit costs, net of tax of: (2016 – $437; 2015 – $400)

 

 

 

 

 

 

 

 

Net actuarial loss

 

 

714

 

 

656

 

 

Prior service credit

 

 

(29)

 

 

(29)

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap and foreign currency translation:

 

 

 

 

 

 

 

 

Change in unrealized loss on interest rate swap, net of tax of: (2016 – $353; 2015 – $235)

 

 

(546)

 

 

(364)

 

 

Change in foreign currency translation, net of tax of: (2016 – $371; 2015 – $187)

 

 

584

 

 

(295)

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE LOSS, net of tax

 

 

(2,231)

 

 

(1,179)

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE LOSS

 

$

(8,334)

 

$

(434)

 

 

 

See notes to consolidated financial statements.

 

5


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

    

Paid-In

 

Retained

 

Treasury Stock

    

Comprehensive

 

Total

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Loss

    

Equity

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

Balance at December 31, 2015

 

27,938

 

$

279

 

$

309,653

 

$

376,827

 

2,080

 

$

(70,535)

 

$

(27,496)

 

$

588,728

 

Net loss

 

 

 

 

 

 

 

 

 

 

(6,103)

 

 

 

 

 

 

 

 

 

 

(6,103)

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,231)

 

 

(2,231)

 

Issuance of common stock under share-based compensation plans

 

13

 

 

1

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Tax effect of share-based compensation plans

 

 

 

 

 

 

 

(164)

 

 

 

 

 

 

 

 

 

 

 

 

 

(164)

 

Share-based compensation expense

 

 

 

 

 

 

 

1,709

 

 

 

 

 

 

 

 

 

 

 

 

 

1,709

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

134

 

 

(2,602)

 

 

 

 

 

(2,602)

 

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

(2,088)

 

 

 

 

 

 

 

 

 

 

(2,088)

 

Balance at March 31, 2016

 

27,951

 

$

280

 

$

311,199

 

$

368,636

 

2,214

 

$

(73,137)

 

$

(29,727)

 

$

577,251

 

 

See notes to consolidated financial statements.

 

6


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31

 

 

    

2016

    

2015

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income (loss)

 

$

(6,103)

 

$

745

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,164

 

 

21,084

 

Amortization of intangibles

 

 

987

 

 

1,148

 

Pension settlement expense

 

 

900

 

 

1,119

 

Share-based compensation expense

 

 

1,709

 

 

1,647

 

Provision for losses on accounts receivable

 

 

82

 

 

312

 

Deferred income tax provision

 

 

5,212

 

 

1,507

 

Gain on sale of property and equipment

 

 

(311)

 

 

(310)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

9,569

 

 

(902)

 

Prepaid expenses

 

 

(3,998)

 

 

(1,689)

 

Other assets

 

 

(2,954)

 

 

456

 

Income taxes

 

 

(10,211)

 

 

(2,426)

 

Accounts payable, accrued expenses, and other liabilities

 

 

(6,884)

 

 

(11,759)

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

12,162

 

 

10,932

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net of financings

 

 

(13,357)

 

 

(16,546)

 

Proceeds from sale of property and equipment

 

 

2,435

 

 

977

 

Purchases of short-term investments

 

 

(15,745)

 

 

 —

 

Proceeds from sale of short-term investments

 

 

7,840

 

 

 —

 

Business acquisitions, net of cash acquired

 

 

 —

 

 

(5,170)

 

Capitalization of internally developed software

 

 

(2,668)

 

 

(2,087)

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(21,495)

 

 

(22,826)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Borrowings under credit facilities

 

 

 —

 

 

70,000

 

Borrowings under accounts receivable securitization program

 

 

 —

 

 

35,000

 

Payments on long-term debt

 

 

(11,066)

 

 

(77,254)

 

Net change in book overdrafts

 

 

(5,095)

 

 

(2,005)

 

Net change in restricted cash

 

 

(1)

 

 

 —

 

Deferred financing costs

 

 

 —

 

 

(824)

 

Payment of common stock dividends

 

 

(2,088)

 

 

(1,584)

 

Purchases of treasury stock

 

 

(2,602)

 

 

(2,459)

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

(20,852)

 

 

20,874

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(30,185)

 

 

8,980

 

Cash and cash equivalents at beginning of period

 

 

164,973

 

 

157,042

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

134,788

 

$

166,022

 

 

 

 

 

 

 

 

 

NONCASH INVESTING ACTIVITIES

 

 

 

 

 

 

 

Accruals for equipment received

 

$

8,486

 

$

163

 

Equipment financed

 

$

1,947

 

$

 —

 

 

 

See notes to consolidated financial statements.

 

 

7


 

Table of Contents

ARCBEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

NOTE A – ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION

 

ArcBest Corporation® (the “Company”) is the parent holding company of businesses providing freight transportation services and logistics solutions. The Company’s principal operations are conducted through its Freight Transportation (ABF Freight®) segment, which consists of ABF Freight System, Inc. and certain other subsidiaries. The Company’s other reportable operating segments are the following asset-light logistics businesses: Premium Logistics (Panther), Transportation Management (ABF Logistics®), Emergency & Preventative Maintenance (FleetNet), and Household Goods Moving Services (ABF Moving®). References to the Company in this Quarterly Report on Form 10-Q are primarily to the Company and its subsidiaries on a consolidated basis.

 

ABF Freight represented approximately 69% of the Company’s total revenues before other revenues and intercompany eliminations for the three months ended March 31, 2016. As of March 2016, approximately 77% of ABF Freight’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”), which extends through March 31, 2018. The ABF NMFA included a 7% wage rate reduction effective on the November 3, 2013 implementation date, wage rate increases of 2% on July 1 in each of the next three years, 2014 through 2016, and a 2.5% increase on July 1, 2017; a one-week reduction in annual compensated vacation effective for employee anniversary dates on or after April 1, 2013; the option to expand the use of purchased transportation; and increased flexibility in labor work rules. The ABF NMFA and the related supplemental agreements provide for continued contributions to various multiemployer health, welfare, and pension plans maintained for the benefit of ABF Freight’s employees who are members of the IBT. The estimated net effect of the November 3, 2013 wage rate reduction and the benefit rate increase which was applied retroactively to August 1, 2013 was an initial reduction of approximately 4% to the combined total contractual wage and benefit rate under the ABF NMFA. Following the initial reduction, the combined contractual wage and benefit contribution rate under the ABF NMFA is estimated to increase approximately 2.5% to 3.0% on a compounded annual basis throughout the contract period which extends through March 31, 2018.

 

On December 1, 2015, ABF Logistics acquired Bear Transportation Services, L.P. (“Bear”), a private, non-asset truckload brokerage firm, for net cash consideration of $24.6 million (subject to post-closing adjustments). On January 2, 2015, ABF Logistics acquired Smart Lines Transportation Group, LLC, a privately-owned truckload brokerage firm, for net cash consideration of $5.2 million. As these acquired businesses are not significant to the Company’s consolidated operating results and financial condition, pro forma financial information and the purchase price allocations of acquired assets and liabilities have not been presented. The results of the acquired operations subsequent to the acquisition dates have been included in the accompanying consolidated financial statements. The Company is in the process of making a final determination of acquired assets and liabilities for the Bear transaction and the provisional measurements are subject to change during the measurement period.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable rules and regulations of the Securities and Exchange Commission (the “Commission”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements and, therefore, should be read in conjunction with the audited financial statements and accompanying notes included in the Company’s 2015 Annual Report on Form 10-K and other current filings with the Commission. In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary for a fair presentation have been included.

 

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 reported amounts of assets and liabilities, the disclosed amounts of contingent liabilities, and the reported amounts of revenues and expenses. If the underlying estimates and assumptions, upon which the financial statements and accompanying notes are based, change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.

8


 

 

Adopted Accounting Pronouncements

 

In the first quarter of 2016, the Company adopted guidance amending Accounting Standards Codification (“ASC”) Topic 835, Interest – Imputation of Interest,  issued by the Financial Accounting Standards Board (the “FASB”) addressing the presentation of debt issuance costs in the balance sheet. The Company’s debt issuance costs related to its revolving credit agreements continue to be presented as an asset, as permitted, and amortized over the term of the agreements within interest expense. The new guidance did not result in retrospective adjustments to the Company’s financial statements or disclosures.

 

During the first quarter 2016, the Company adopted amended ASC Topic 805, Business Combinations, issued by the FASB. The amendment eliminated the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively and instead recognize measurement-period adjustments during the period in which it determines the amount of the adjustments, including the effect on earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition date. The amendment was prospectively adopted and did not result in significant adjustments to financial statements or disclosure presentation.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued an accounting pronouncement related to revenue recognition (ASC Topic 606), which amends the guidance in former ASC Topic 605, Revenue Recognition. The new standard provides a single comprehensive revenue recognition model for all contracts with customers and contains principles to apply to determine the measurement of revenue and timing of when it is recognized. In July 2015, the FASB announced its decision to defer the effective date of the new standard for one year, making the standard effective for the Company on January 1, 2018. The Company is evaluating the impact of the new standard on the consolidated financial statements.

 

In February 2016, the FASB issued an accounting pronouncement creating ASC Topic 842, Leases. The amendment is effective for the Company beginning January 1, 2019. The update will require leases with a term greater than twelve months to be reflected as liabilities with associated right-of-use assets in the Company’s consolidated balance sheet. The Company is evaluating the impact of the new standard on the consolidated financial statements.

 

In March 2016, the FASB issued an accounting standard update to amend ASC Topic 718, Compensation – Stock Compensation. The update simplifies the accounting for share-based compensation, which will require the income tax effects of awards to be recognized in the statement of operations when awards vest or are settled and will allow employers to make a policy election to account for forfeitures as they occur. The amendment is effective for the Company beginning January 1, 2017. The Company is currently assessing the impact this update will have on the Company’s financial statements or disclosures.

 

Management believes that there is no other new accounting guidance issued but not yet effective that is relevant to the Company’s current financial statements. However, there are new proposals under development by the standard setting bodies which, if and when enacted, may have a significant impact on the Company’s financial statement disclosures, including changes in disclosure requirements for defined benefit plans.

 

 

9


 

NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Financial Instruments

 

The following table presents the components of cash and cash equivalents, short-term investments, and restricted funds:

 

 

 

 

 

 

 

 

 

 

    

March 31

    

December 31

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

Cash deposits(1)

 

$

87,820

 

$

110,279

 

Variable rate demand notes(1)(2)

 

 

19,863

 

 

29,790

 

Money market funds(3)

 

 

27,105

 

 

24,904

 

Total cash and cash equivalents

 

$

134,788

 

$

164,973

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

Certificates of deposit(1)

 

$

69,608

 

$

61,597

 

 

 

 

 

 

 

 

 

Restricted cash(4)

 

 

 

 

 

 

 

Cash deposits(1)

 

$

1,385

 

$

1,384

 

 


(1)

Recorded at cost plus accrued interest, which approximates fair value.

(2)

Amounts may be redeemed on a daily basis with the original issuer.

(3)

Recorded at fair value as determined by quoted market prices (see amounts presented in the table of financial assets and liabilities measured at fair value within this Note).

(4)

Amounts restricted for use are subject to change based on the requirements of the Company’s collateralized facilities (see Note E).

 

The Company’s long-term investment financial instruments are presented in the table of financial assets and liabilities measured at fair value within this Note.

 

Concentrations of Credit Risk of Financial Instruments

The Company is potentially subject to concentrations of credit risk related to its cash, cash equivalents, and short-term investments. The Company reduces credit risk by maintaining its cash deposits primarily in FDIC-insured accounts and placing its unrestricted short-term investments primarily in FDIC-insured certificates of deposit. However, certain cash deposits and certificates of deposit may exceed federally insured limits. Cash and cash equivalents totaling $55.3 million and $69.9 million were not FDIC insured at March 31, 2016 and December 31, 2015, respectively.

 

Fair Value Disclosure of Financial Instruments

Fair value disclosures are made in accordance with the following hierarchy of valuation techniques based on whether the inputs of market data and market assumptions used to measure fair value are observable or unobservable:

 

·

Level 1 — Quoted prices for identical assets and liabilities in active markets.

·

Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

·

Level 3 — Unobservable inputs (Company’s market assumptions) that are significant to the valuation model.

 

10


 

Fair value and carrying value disclosures of financial instruments are presented in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2016

    

2015

  

 

 

(in thousands)

 

 

 

 

Carrying

    

 

Fair

    

 

Carrying

    

 

Fair

 

 

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

Credit Facility(1)

 

$

70,000

 

$

70,000

 

$

70,000

 

$

70,000

 

Accounts receivable securitization borrowings(2)

 

 

35,000

 

 

35,000

 

 

35,000

 

 

35,000

 

Notes payable(3)

 

 

97,626

 

 

97,224

 

 

106,703

 

 

106,495

 

 

 

$

202,626

 

$

202,224

 

$

211,703

 

$

211,495

 

 


(1)

The revolving credit facility (the “Credit Facility”) under the Company’s Amended and Restated Credit Agreement carries a variable interest rate based on LIBOR, plus a margin. The Credit Facility is considered to be priced at market for debt instruments having similar terms and collateral requirements (Level 2 of the fair value hierarchy).

(2)

Borrowings under the Company’s accounts receivable securitization program carry a variable interest rate based on LIBOR, plus a margin. Borrowings are considered to be priced at market for debt instruments having similar terms and collateral requirements (Level 2 of the fair value hierarchy).

(3)

Fair value of the notes payable was determined using a present value income approach based on quoted interest rates from lending institutions with which the Company would enter into similar transactions (Level 2 of the fair value hierarchy).

 

Assets and Liabilities Measured at Fair Value on Recurring Basis

 

The following table presents the assets and liabilities that are measured at fair value on a recurring basis.

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

Money market funds(1)(3)

 

$

27,105

 

$

24,904

 

Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2)(3)

 

 

2,038

 

 

2,127

 

 

 

$

29,143

 

$

27,031

 

Liabilities:

 

 

 

 

 

 

 

Interest rate swap(4)

 

$

1,796

 

$

897

 

 


(1)

Included in cash and cash equivalents.

(2)

Nonqualified deferred compensation plan investments consist of U.S. and international equity mutual funds, government and corporate bond mutual funds, and money market funds which are held in a trust with a third-party brokerage firm. Quoted market prices are used to determine fair values of the investments which are included in other long-term assets, with a corresponding liability reported in other long-term liabilities.

(3)

Fair value measured using quoted prices of identical assets in active markets (Level 1 of the fair value hierarchy).

(4)

Included in other long-term liabilities. The interest rate swap fair value was determined by discounting future cash flows and receipts based on expected interest rates observed in market interest rate curves (Level 2 of the fair value hierarchy) adjusted for estimated credit valuation considerations reflecting nonperformance risk of the Company and the counterparty (Level 3 of the fair value hierarchy). The Company assessed Level 3 inputs as insignificant to the valuation at March 31, 2016 and December 31, 2015 and considers the interest rate swap valuation in Level 2 of the fair value hierarchy.

 

 

 

11


 

NOTE C – GOODWILL AND INTANGIBLE ASSETS

 

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired. Goodwill by reportable operating segment consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABF

 

ABF

 

 

 

 

 

    

Total

    

Panther

    

Moving

    

Logistics

    

FleetNet

    

.

 

(in thousands)

Balances at December 31, 2015

 

$

96,465

 

$

71,096

 

$

5,352

 

$

19,387

 

$

630

 

Purchase accounting adjustments

 

 

112

 

 

 

 

 

 

112

 

 

 

Balances at March 31, 2016

 

$

96,577

 

$

71,096

 

$

5,352

 

$

19,499

 

$

630

 

 

 

Intangible assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Weighted-Average

 

 

 

 

Accumulated

 

Net

 

 

 

 

Accumulated

 

Net

 

 

    

Amortization Period

    

Cost

    

Amortization

    

Value

    

 

Cost

    

Amortization

    

Value

 

 

 

(in years)

 

(in thousands)

 

(in thousands)

 

Finite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

14

 

$

52,721

 

$

12,280

 

$

40,441

 

$

52,221

 

$

11,331

 

$

40,890

 

Driver network

 

3

 

 

3,200

 

 

3,200

 

 

 —

 

 

3,200

 

 

3,200

 

 

 —

 

Other

 

8

 

 

1,032

 

 

295

 

 

737

 

 

1,032

 

 

257

 

 

775

 

 

 

13

 

 

56,953

 

 

15,775

 

 

41,178

 

 

56,453

 

 

14,788

 

 

41,665

 

Indefinite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade name

 

N/A

 

 

32,300

 

 

N/A

 

 

32,300

 

 

32,300

 

 

N/A

 

 

32,300

 

Other

 

N/A

 

 

2,822

 

 

N/A

 

 

2,822

 

 

2,822

 

 

N/A

 

 

2,822

 

 

 

 

 

 

35,122

 

 

 

 

 

35,122

 

 

35,122

 

 

 

 

 

35,122

 

Total intangible assets

 

N/A

 

$

92,075

 

$

15,775

 

$

76,300

 

$

91,575

 

$

14,788

 

$

76,787

 

 

Amortization expense on intangible assets totaled $1.0 million and $1.1 million for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, amortization expense on intangible assets (excluding acquired software which is reported within property, plant and equipment) is anticipated to be approximately $4.0 million per year for the years ended December 31, 2016 through 2020.

 

NOTE D – INCOME TAXES

 

The Company’s statutory federal tax rate is 35%. State tax rates vary among states and average approximately 6.0% to 6.5%, although some state rates are higher and a small number of states do not impose an income tax. The effective tax benefit rate for the three months ended March 31, 2016 was 37.4%. The effective tax rate for the three months ended March 31, 2015 was 18.3%. The tax rate for the first three months of 2015 reflects a benefit of 20.9% from reduced state deferred tax liabilities to reflect enactment of lower tax rates in some states.

 

In addition to the adjustment to deferred tax liabilities for state tax rate changes in the first three months of 2015, the difference between the Company’s effective tax rate and the federal statutory rate for the three months ended March 31, 2015 and 2016, primarily results from state income taxes, nondeductible expenses, and changes in the cash surrender value of life insurance. The first three months of 2016 were also impacted by the alternative fuel tax credit.

 

As of March 31, 2016, the Company’s deferred tax liabilities, which will reverse in future years, exceeded the deferred tax assets. The Company evaluated the total deferred tax assets at March 31, 2016 and concluded that, other than for certain deferred tax assets related to foreign net operating loss carryforwards, the assets did not exceed the amount for which realization is more likely than not. In making this determination, the Company considered the future reversal of existing taxable temporary differences, taxable income in carryback years, future taxable income, and tax planning strategies.

 

The Company paid federal, state, and foreign income taxes of $1.6 million and $1.1 million during the three months ended March 31, 2016 and 2015, respectively. During the three months ended March 31, 2016 and 2015, the Company received refunds of $0.7 million and $0.1 million, respectively, of federal and state income taxes that were paid in prior years.

 

12


 

NOTE E – LONG-TERM DEBT AND FINANCING ARRANGEMENTS

 

Long-Term Debt Obligations

 

Long-term debt consisted of borrowings outstanding under the Company’s revolving credit facility and accounts receivable securitization program, both of which are 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 Freight’s operations), real estate, and certain other equipment as follows:

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

Credit Facility (interest rate of 1.7% at March 31, 2016)

 

$

70,000

 

$

70,000

 

Accounts receivable securitization borrowings (interest rate of 1.3% at March 31, 2016)

 

 

35,000

 

 

35,000

 

Notes payable (weighted-average interest rate of 1.9% at March 31, 2016)

 

 

97,626

 

 

106,703

 

Capital lease obligations (weighted-average interest rate of 5.8% at March 31, 2016)

 

 

764

 

 

806

 

 

 

 

203,390

 

 

212,509

 

Less current portion

 

 

45,905

 

 

44,910

 

Long-term debt, less current portion

 

$

157,485

 

$

167,599

 

 

 

Scheduled maturities of long-term debt obligations as of March 31, 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

 

 

 

 

 

 

 

 

 

 

Credit

 

Securitization

 

Notes

 

Capital Lease

 

    

Total

    

Facility(1)

    

Program(1)

    

Payable

    

Obligations(2)

 

 

(in thousands) 

Due in one year or less

 

$

49,216

 

$

1,294

 

$

496

 

$

47,212

 

$

214

Due after one year through two years

 

 

73,929

 

 

1,455

 

 

35,428

 

 

36,825

 

 

221

Due after two years through three years

 

 

17,622

 

 

1,623

 

 

 —

 

 

15,772

 

 

227

Due after three years through four years

 

 

71,589

 

 

71,339

 

 

 

 

56

 

 

194

Due after four years through five years

 

 

 —

 

 

 —

 

 

 

 

 

 

 —

Total payments

 

 

212,356

 

 

75,711

 

 

35,924

 

 

99,865

 

 

856

Less amounts representing interest

 

 

8,966

 

 

5,711

 

 

924

 

 

2,239

 

 

92

Long-term debt

 

$

203,390

 

$

70,000

 

$

35,000

 

$

97,626

 

$

764

 


(1)

The future interest payments included in the scheduled maturities due are calculated using variable interest rates based on the LIBOR swap curve, plus the anticipated applicable margin.

(2)

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

 

13


 

Assets securing notes payable or held under capital leases were included in property, plant and equipment as follows:

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2016

    

2015

 

 

 

(in thousands)

 

Revenue equipment

 

$

138,551

 

$

136,698

 

Land and structures (terminals)

 

 

1,794

 

 

1,794