0001558370-17-004007.txt : 20170509 0001558370-17-004007.hdr.sgml : 20170509 20170509164243 ACCESSION NUMBER: 0001558370-17-004007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 83 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170509 DATE AS OF CHANGE: 20170509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCBEST CORP /DE/ CENTRAL INDEX KEY: 0000894405 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710673405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19969 FILM NUMBER: 17827119 BUSINESS ADDRESS: STREET 1: 3801 OLD GREENWOOD RD CITY: FORT SMITH STATE: AR ZIP: 72903 BUSINESS PHONE: 4797856000 MAIL ADDRESS: STREET 1: P O BOX 10048 CITY: FORT SMITH STATE: AR ZIP: 72917-0048 FORMER COMPANY: FORMER CONFORMED NAME: ARKANSAS BEST CORP /DE/ DATE OF NAME CHANGE: 19930917 10-Q 1 arcb-20170331x10q.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, 2017

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

Non-accelerated filer ☐    (Do not check if a smaller reporting company)

 

 

Smaller reporting company

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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, 2017

Common Stock, $0.01 par value

 

25,835,826 shares

 

 

 

 


 

ARCBEST CORPORATION

 

INDEX

 

 

 

 

 

 

    

    

Page

 

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets — March 31, 2017 and December 31, 2016

 

3

 

 

 

 

 

Consolidated Statements of Operations — For the Three Months Ended March 31, 2017 and 2016

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income — For the Three Months Ended March 31, 2017 and 2016

 

5

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity — For the Three Months Ended March 31, 2017

 

6

 

 

 

 

 

Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2017 and 2016

 

7

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

Item 2. 

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

 

29

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

48

 

 

 

 

Item 4. 

Controls and Procedures

 

48

 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

49

 

 

 

 

Item 1A. 

Risk Factors

 

49

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

49

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

49

 

 

 

 

Item 5. 

Other Information

 

49

 

 

 

 

Item 6. 

Exhibits

 

50

 

 

 

 

SIGNATURES 

 

52

 

 

 

 


 

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2017

    

2016

 

 

 

(Unaudited)

 

 

 

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

82,253

 

$

114,280

 

Short-term investments

 

 

56,984

 

 

56,838

 

Restricted cash

 

 

962

 

 

962

 

Accounts receivable, less allowances (2017 – $5,283; 2016 – $5,437)

 

 

258,931

 

 

260,643

 

Other accounts receivable, less allowances (2017 – $875; 2016 – $849)

 

 

18,687

 

 

22,041

 

Prepaid expenses

 

 

27,012

 

 

22,124

 

Prepaid and refundable income taxes

 

 

11,008

 

 

9,909

 

Other

 

 

8,226

 

 

4,300

 

TOTAL CURRENT ASSETS

 

 

464,063

 

 

491,097

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

Land and structures

 

 

330,909

 

 

324,086

 

Revenue equipment

 

 

742,394

 

 

743,860

 

Service, office, and other equipment

 

 

155,618

 

 

154,119

 

Software

 

 

123,857

 

 

120,877

 

Leasehold improvements

 

 

8,993

 

 

8,758

 

 

 

 

1,361,771

 

 

1,351,700

 

Less allowances for depreciation and amortization

 

 

838,147

 

 

819,174

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

523,624

 

 

532,526

 

GOODWILL

 

 

108,981

 

 

108,875

 

INTANGIBLE ASSETS, net

 

 

79,371

 

 

80,507

 

DEFERRED INCOME TAXES

 

 

3,064

 

 

2,978

 

OTHER LONG-TERM ASSETS

 

 

65,380

 

 

66,095

 

TOTAL ASSETS

 

$

1,244,483

 

$

1,282,078

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

130,750

 

$

133,301

 

Accrued expenses

 

 

190,829

 

 

198,731

 

Current portion of long-term debt

 

 

59,995

 

 

64,143

 

TOTAL CURRENT LIABILITIES

 

 

381,574

 

 

396,175

 

LONG-TERM DEBT, less current portion

 

 

167,075

 

 

179,530

 

PENSION AND POSTRETIREMENT LIABILITIES

 

 

37,541

 

 

35,848

 

OTHER LONG-TERM LIABILITIES

 

 

15,844

 

 

16,790

 

DEFERRED INCOME TAXES

 

 

50,773

 

 

54,680

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2017: 28,193,117 shares; 2016: 28,174,424 shares

 

 

282

 

 

282

 

Additional paid-in capital

 

 

316,802

 

 

315,318

 

Retained earnings

 

 

377,444

 

 

386,917

 

Treasury stock, at cost, 2017: 2,565,399 shares

 

 

(80,045)

 

 

(80,045)

 

Accumulated other comprehensive loss

 

 

(22,807)

 

 

(23,417)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

591,676

 

 

599,055

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,244,483

 

$

1,282,078

 

 

 

 

 

 

See notes to consolidated financial statements.

3


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

 

March 31

 

 

 

    

2017

    

2016

    

 

 

 

(Unaudited)

 

 

 

(in thousands, except share and per share data)

 

 

REVENUES

 

$

651,088

 

$

621,455

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

663,341

 

 

630,720

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

(12,253)

 

 

(9,265)

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (COSTS)

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

274

 

 

401

 

 

Interest and other related financing costs

 

 

(1,315)

 

 

(1,247)

 

 

Other, net

 

 

647

 

 

366

 

 

TOTAL OTHER INCOME (COSTS)

 

 

(394)

 

 

(480)

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

 

(12,647)

 

 

(9,745)

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX BENEFIT

 

 

(5,240)

 

 

(3,642)

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$

(7,407)

 

$

(6,103)

 

 

 

 

 

 

 

 

 

 

 

LOSS PER COMMON SHARE

 

 

 

 

 

 

 

 

Basic

 

$

(0.29)

 

$

(0.24)

 

 

Diluted

 

$

(0.29)

 

$

(0.24)

 

 

 

 

 

 

 

 

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

 

Basic

 

 

25,684,475

 

 

25,822,522

 

 

Diluted

 

 

25,684,475

 

 

25,822,522

 

 

 

 

 

 

 

 

 

 

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.08

 

$

0.08

 

 

 

See notes to consolidated financial statements.

 

4


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31

 

 

    

2017

    

2016

    

 

 

(Unaudited)

 

 

(in thousands)

NET LOSS

 

$

(7,407)

 

$

(6,103)

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

Net actuarial loss, net of tax of: (2017 – $935; 2016 – $2,230)

 

 

(1,471)

 

 

(3,504)

 

Pension settlement expense, net of tax of: (2017 – $761; 2016 – $350)

 

 

1,196

 

 

550

 

Amortization of unrecognized net periodic benefit costs, net of tax of: (2017 – $401; 2016 – $437)

 

 

 

 

 

 

 

Net actuarial loss

 

 

660

 

 

714

 

Prior service credit

 

 

(29)

 

 

(29)

 

 

 

 

 

 

 

 

 

Interest rate swap and foreign currency translation:

 

 

 

 

 

 

 

Change in unrealized income (loss) on interest rate swap, net of tax of: (2017 – $88; 2016 – $353)

 

 

135

 

 

(546)

 

Change in foreign currency translation, net of tax of: (2017 – $76 ; 2016 – $371)

 

 

119

 

 

584

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

 

 

610

 

 

(2,231)

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE LOSS

 

$

(6,797)

 

$

(8,334)

 

 

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, 2016

 

28,174

 

$

282

 

$

315,318

 

$

386,917

 

2,565

 

$

(80,045)

 

$

(23,417)

 

$

599,055

 

Net loss

 

 

 

 

 

 

 

 

 

 

(7,407)

 

 

 

 

 

 

 

 

 

 

(7,407)

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

610

 

 

610

 

Issuance of common stock under share-based compensation plans

 

19

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

Tax effect of share-based compensation plans

 

 

 

 

 

 

 

(247)

 

 

 

 

 

 

 

 

 

 

 

 

 

(247)

 

Share-based compensation expense

 

 

 

 

 

 

 

1,731

 

 

 

 

 

 

 

 

 

 

 

 

 

1,731

 

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

(2,066)

 

 

 

 

 

 

 

 

 

 

(2,066)

 

Balance at March 31, 2017

 

28,193

 

$

282

 

$

316,802

 

$

377,444

 

2,565

 

$

(80,045)

 

$

(22,807)

 

$

591,676

 

 

See notes to consolidated financial statements.

 

6


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net loss

 

$

(7,407)

 

$

(6,103)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,258

 

 

24,164

 

Amortization of intangibles

 

 

1,136

 

 

987

 

Pension settlement expense

 

 

1,957

 

 

900

 

Share-based compensation expense

 

 

1,731

 

 

1,709

 

Provision for losses on accounts receivable

 

 

442

 

 

82

 

Deferred income tax provision (benefit)

 

 

(4,197)

 

 

5,212

 

Gain on sale of property and equipment

 

 

(613)

 

 

(311)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

3,345

 

 

9,569

 

Prepaid expenses

 

 

(5,174)

 

 

(3,998)

 

Other assets

 

 

(3,357)

 

 

(2,954)

 

Income taxes

 

 

(1,205)

 

 

(10,211)

 

Accounts payable, accrued expenses, and other liabilities

 

 

(9,155)

 

 

(6,706)

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

1,761

 

 

12,340

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net of financings

 

 

(12,273)

 

 

(13,357)

 

Proceeds from sale of property and equipment

 

 

1,692

 

 

2,435

 

Purchases of short-term investments

 

 

(6,223)

 

 

(15,745)

 

Proceeds from sale of short-term investments

 

 

6,125

 

 

7,840

 

Capitalization of internally developed software

 

 

(2,440)

 

 

(2,668)

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(13,119)

 

 

(21,495)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Payments on long-term debt

 

 

(17,297)

 

 

(11,066)

 

Net change in book overdrafts

 

 

(981)

 

 

(5,095)

 

Payment of common stock dividends

 

 

(2,066)

 

 

(2,088)

 

Purchases of treasury stock

 

 

 —

 

 

(2,602)

 

Payments for tax withheld on share-based compensation

 

 

(325)

 

 

(178)

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(20,669)

 

 

(21,029)

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(32,027)

 

 

(30,184)

 

Cash and cash equivalents and restricted cash at beginning of period

 

 

115,242

 

 

166,357

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

 

$

83,215

 

$

136,173

 

 

 

 

 

 

 

 

 

NONCASH INVESTING ACTIVITIES

 

 

 

 

 

 

 

Equipment financed

 

$

694

 

$

1,947

 

Accruals for equipment received

 

$

440

 

$

8,486

 

 

 

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 integrated logistics solutions. The Company’s operations are conducted through its three reportable operating segments: Asset-Based, which consists of ABF Freight System, Inc. and certain other subsidiaries; ArcBest, the Company’s asset-light logistics operation; and FleetNet. References to the Company in this Quarterly Report on Form 10-Q are primarily to the Company and its subsidiaries on a consolidated basis.

 

The Asset-Based segment represented approximately 71% of the Company’s total revenues before other revenues and intercompany eliminations for the three months ended March 31, 2017. As of March 2017, approximately 83% of the Asset-Based segment’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 upon the November 3, 2013 implementation date, followed by wage rate increases of 2% on July 1 in each of the next three years, which began in 2014, 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 the Asset-Based segment’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% on a compounded annual basis throughout the contract period which extends through March 31, 2018.

 

On September 2, 2016, the ArcBest segment acquired Logistics & Distribution Services, LLC (“LDS”), a private logistics and distribution company, in a transaction valued at $25.0 million (subject to post-closing adjustments), reflecting net cash consideration of $17.0 million paid at closing and an additional $8.0 million of contingent consideration to be paid over the two years following the acquisition upon the achievement of certain financial targets. As the LDS acquisition is 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 date have been included in the accompanying consolidated financial statements. The Company is in the process of making a final determination of the value of acquired assets and liabilities for the LDS transaction and the provisional measurements are subject to change during the measurement period.

 

Financial Statement Presentation

 

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 2016 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.

 

Certain restatements have been made to the prior year’s operating segment data to conform to the current year presentation, reflecting the realignment of the Company’s organizational structure as announced on November 3, 2016. Under the new structure, the segments previously reported as Premium Logistics (Panther), Transportation Management (ABF Logistics), and Household Goods Moving Services (ABF Moving) are consolidated as a single Asset-Light logistics operation under ArcBest. Segment revenues and expenses were adjusted to eliminate certain intercompany charges consistent with the

8


 

manner in which they are reported under the new corporate structure. Certain intercompany charges among the previously reported Panther, ABF Logistics, and ABF Moving segments which were previously eliminated in the “Other and eliminations” line, are now eliminated within the ArcBest segment. There was no impact on the Company’s consolidated revenues, operating expenses, operating income, or earnings per share as a result of the restatements.

 

Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current year presentation. The insurance receivable for the amount of workers’ compensation and third-party casualty claims in excess of self-insurance retention limits, which was previously offset against the reserve included in accrued expenses, has been reclassed to other accounts receivable, resulting in an $8.7 million increase in other accounts receivable and a corresponding increase in accrued expenses in the consolidated balance sheet at December 31, 2016. Amounts totaling $18.6 million related to certain service centers of the Company’s Asset-Based operations previously recorded in leasehold improvements were reclassed to land and structures in the consolidated balance sheet at December 31, 2016. Other reclassifications were made to the consolidated financial statements to apply the provisions of accounting pronouncements adopted during the first quarter of 2017 related to deferred income taxes, share-based compensation, and cash flow classification (see Adopted Accounting Pronouncements within this Note). The Company’s deferred tax assets were reclassed, by jurisdiction, from current to long-term in the consolidated balance sheets. The net change in restricted cash previously presented in financing activities of the Company’s consolidated statements of cash flows was removed and restricted cash was included in the reconciliation of beginning- and end-of-period totals of cash and cash equivalents and restricted cash. Cash paid by the Company when directly withholding shares from an employee’s share-based compensation award for tax-withholding purposes was reclassified from an operating activity within changes in income taxes to a financing activity in the consolidated statements of cash flows. There was no impact on the Company’s consolidated revenues, operating expenses, operating income, or earnings per share as a result of the reclassifications.

 

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 amounts may differ from those estimates.

 

Accounting Policies

 

The Company’s accounting policies are described in Note B to the consolidated financial statements included in Part II, Item 8 of the Company’s 2016 Annual Report on Form 10-K. The following policy became effective for the Company during the three months ended March 31, 2017.

 

Share-Based Compensation: The fair value of restricted stock awards is determined based upon the closing market price of the Company’s common stock on the date of grant. The restricted stock units generally vest at the end of a five‑year period following the date of grant, except for certain awards granted to non-employee directors that typically vest at the end of a one-year period for awards granted on or after January 1, 2016 and at the end of a three-year period for previous grants, subject to accelerated vesting due to death, disability, retirement, or change in control provisions. When restricted stock units become vested, the Company issues new shares which are subsequently distributed. Dividends or dividend equivalents are paid on certain restricted stock units during the vesting period. The Company recognizes the income tax benefits of dividends on share-based payment awards as income tax expense or benefit in the consolidated statements of operations when awards vest or are settled.

 

Share based awards are amortized to compensation expense on a straight line basis over the vesting period of awards or over the period to which the recipient first becomes eligible for retirement, whichever is shorter, with vesting accelerated upon death or disability. The Company recognizes forfeitures as they occur.

 

Adopted Accounting Pronouncements

 

In the first quarter of 2017, the Company adopted guidance issued by the Financial Accounting Standards Board (the “FASB”) which amended Accounting Standards Codification (“ASC”) ASC Topic 740 with the addition of Balance Sheet Classification of Deferred Taxes.  The amendment was retrospectively adopted and resulted in reclassifications to the consolidated balance sheets to present all deferred tax assets and liabilities as noncurrent by jurisdiction.

 

9


 

An amendment to ASC Topic 718, Compensation – Stock Compensation, was issued to simplify the accounting for share-based compensation, which requires the income tax effects of awards to be recognized in the statement of operations when awards vest or are settled and allows employers to make a policy election to account for forfeitures as they occur. The Company adopted the amendment in the first quarter of 2017. As a result of applying the provisions of the amendment, the Company recognized a $0.2 million cumulative effect adjustment to the opening balance of retained earnings for the three months ended March 31, 2017. The Company also made a policy election to account for forfeitures as they occur. The Company may experience volatility in its income tax provision as a result of recording all excess tax benefits and tax deficiencies in the income statement upon settlement of awards, which is primarily during the second quarter of each year. This provision of the amendment related to recognition of excess tax benefits and tax deficiencies was adopted prospectively; therefore, the prior period has not been adjusted for this provision. Cash paid by the Company to taxing authorities on the employee’s behalf for withheld shares was reclassified from an operating activity within changes in accounts payable, accrued expenses, and other liabilities to a financing activity in the consolidated statements of cash flows. The other provisions of the adopted amendment did not have a significant impact on the Company’s consolidated financial statements.

 

In the first quarter of 2017, the Company also adopted amendments to ASC Topic 230, Statement of Cash Flows, which provide classification guidance for restricted cash and certain cash receipts and cash payments presented in the statement of cash flows. The retrospective adoption of the amendments resulted in reclassification to the consolidated statement of cash flows to include restricted cash in the reconciliation of beginning- and end-of-period totals of cash and cash equivalents. Proceeds from the settlement of corporate-owned life insurance policies will be classified as cash provided by investing activities, and cash payments for premiums on such insurance policies will be classified as cash used in operating activities in the consolidated statements of cash flows.

 

Accounting Pronouncements Not Yet Adopted

 

ASC Topic 606, which amends the guidance in former ASC Topic 605, Revenue Recognition, 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. The standard is effective for the Company on January 1, 2018. The Company plans to adopt this standard on the modified retrospective basis and does not expect a significant impact on the consolidated financial statements.

 

An amendment to ASC Topic 715, Compensation – Retirement Benefits will require the service cost component of net benefit cost related to benefit plans accounted for under ASC Topic 715 to be included in the same line item or items as other compensation costs arising from services rendered by the related employees and will allow only the service cost component of the net benefit cost to be eligible for capitalization of internal costs. The amendment will also require the other components of net benefit cost, including pension settlement expense, to be presented in other income (costs) rather than in operating income. The amendment is effective for the Company beginning January 1, 2018. The Company is currently assessing the impact this update will have on the consolidated financial statements and disclosures.

 

ASC Topic 842, Leases, which is effective for the Company beginning January 1, 2019, 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 and disclosures.

 

An amendment to ASC Topic 326, Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments, is effective for the Company beginning January 1, 2020. The Company is currently assessing the impact this update will have on the consolidated 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.

 

 

10


 

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

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

Cash deposits(1)

 

$

61,067

 

$

92,520

 

Variable rate demand notes(1)(2)

 

 

578

 

 

16,057

 

Money market funds(3)

 

 

20,608

 

 

5,703

 

Total cash and cash equivalents

 

$

82,253

 

$

114,280

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

Certificates of deposit(1)

 

$

56,984

 

$

56,838

 

 

 

 

 

 

 

 

 

Restricted cash(4)

 

 

 

 

 

 

 

Cash deposits(1)

 

$

962

 

$

962

 

 


(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. At March 31, 2017 and December 31, 2016, cash and cash equivalents totaling $32.6 million and $39.9 million, respectively, were not FDIC insured.

 

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. 

 

11


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2017

    

2016

  

 

 

(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)

 

 

121,444

 

 

120,775

 

 

138,032

 

 

137,503

 

 

 

$

226,444

 

$

225,775

 

$

243,032

 

$

242,503

 

 


(1)

The revolving credit facility (the “Credit Facility”) carries a variable interest rate based on LIBOR, plus a margin, that 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. The 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).

 

12


 

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, 2017

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices

    

Significant

    

Significant

 

 

    

 

 

 

In Active

 

Observable

 

Unobservable

 

 

 

 

 

 

Markets

 

Inputs

 

Inputs

 

 

 

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

20,608

 

$

20,608

 

$

 —

 

$

 —

 

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

 

 

2,271

 

 

2,271

 

 

 —

 

 

 —

 

 

 

$

22,879

 

$

22,879

 

$

 —

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration(3)

 

$

6,790

 

$

 —

 

$

 —

 

$

6,790

 

Interest rate swap(4)

 

 

319

 

 

 —

 

 

319

 

 

 —

 

 

 

$

7,109

 

$

 —

 

$

319

 

$

6,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices

    

Significant

    

Significant

 

 

    

 

 

 

In Active

 

Observable

 

Unobservable

 

 

 

 

 

 

Markets

 

Inputs

 

Inputs

 

 

 

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

5,703

 

$

5,703

 

$

 —

 

$

 —

 

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

 

 

2,220

 

 

2,220

 

 

 —

 

 

 —

 

 

 

$

7,923

 

$

7,923

 

$

 —

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration(3)

 

$

6,775

 

$

 —

 

$

 —

 

$

6,775

 

Interest rate swap(4)

 

 

542

 

 

 —

 

 

542

 

 

 —

 

 

 

$

7,317

 

$

 —

 

$

542

 

$

6,775

 

 


(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. Included in other long-term assets, with a corresponding liability reported within other long-term liabilities.

(3)

Included in accrued expenses and other long-term liabilities, based on when expected payouts become due. The estimated fair value of contingent consideration for an earn-out agreement related to the September 2016 acquisition of LDS was determined by assessing Level 3 inputs with a discounted cash flow approach using various probability-weighted scenarios. The Level 3 assessments utilize a Monte Carlo simulation with inputs including scenarios of estimated revenues and gross margins to be achieved for the applicable performance periods, probability weightings assigned to the performance scenarios, and the discount rate applied, which was 12.3% as of March 31, 2017. Subsequent changes to the fair value as a result of recurring assessments will be recognized in operating income. 

(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 adjusted for estimated credit valuation considerations reflecting nonperformance risk of the Company and the counterparty, which are considered to be in Level 3 of the fair value hierarchy. The Company assessed Level 3 inputs as insignificant to the valuation at March 31, 2017 and December 31, 2016 and considers the interest rate swap valuation in Level 2 of the fair value hierarchy.

 

13


 

The following table provides the changes in fair value of the liabilities measured at fair value using inputs categorized in Level 3 of the fair value hierarchy:

 

 

 

 

 

 

 

 

Contingent Consideration

 

 

 

(in thousands)

 

 

 

 

 

Balances at December 31, 2016

 

$

6,775

 

Change in fair value included in operating expenses

 

 

15

 

Balances at March 31, 2017

 

$

6,790

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

    

ArcBest

    

FleetNet

    

 

 

(in thousands)

Balances at December 31, 2016

 

$

108,875

 

$

108,245

 

$

630

 

Purchase accounting adjustments(1)

 

 

106

 

 

106

 

 

 

Balances at March 31, 2017

 

$

108,981

 

$

108,351

 

$

630

 

 


(1)

Goodwill related to the September 2, 2016 acquisition of LDS is based on preliminary information as of March 31, 2017.

 

 

Intangible assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

December 31, 2016

 

 

 

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(1)

 

14

 

$

60,431

 

$

16,450

 

$

43,981

 

$

60,431

 

$

15,350

 

$

45,081

 

Driver network

 

 3

 

 

3,200

 

 

3,200

 

 

 —

 

 

3,200

 

 

3,200

 

 

 —

 

Other

 

 9

 

 

1,032