0001558370-17-008566.txt : 20171108 0001558370-17-008566.hdr.sgml : 20171108 20171108164805 ACCESSION NUMBER: 0001558370-17-008566 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 82 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171108 DATE AS OF CHANGE: 20171108 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: 171187227 BUSINESS ADDRESS: STREET 1: 8401 MCCLURE DRIVE CITY: FORT SMITH STATE: AR ZIP: 72916 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-20170930x10q.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 September 30, 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.)

 

8401 McClure Drive

Fort Smith, Arkansas 72916

(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 November 3, 2017

Common Stock, $0.01 par value

 

25,636,850 shares

 

 

 

 


 

ARCBEST CORPORATION

 

INDEX

 

 

 

 

 

 

    

    

Page

 

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets — September 30, 2017 and December 31, 2016

 

3

 

 

 

 

 

Consolidated Statements of Operations — For the Three Months and Nine Months Ended September 30, 2017 and 2016

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income — For the Three Months and Nine Months Ended September 30, 2017 and 2016

 

5

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity — For the Nine Months Ended September 30, 2017

 

6

 

 

 

 

 

Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2017 and 2016

 

7

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

Item 2. 

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

 

30

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

53

 

 

 

 

Item 4. 

Controls and Procedures

 

54

 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

55

 

 

 

 

Item 1A. 

Risk Factors

 

55

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

55

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

55

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

55

 

 

 

 

Item 5. 

Other Information

 

55

 

 

 

 

Item 6. 

Exhibits

 

56

 

 

 

 

SIGNATURES 

 

57

 

 

 

 


 

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30

 

December 31

 

 

    

2017

    

2016

 

 

 

(Unaudited)

 

 

 

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

109,034

 

$

114,280

 

Short-term investments

 

 

57,052

 

 

56,838

 

Restricted cash

 

 

 —

 

 

962

 

Accounts receivable, less allowances (2017 – $6,313; 2016 – $5,437)

 

 

301,941

 

 

260,643

 

Other accounts receivable, less allowances (2017 – $906; 2016 – $849)

 

 

15,337

 

 

22,041

 

Prepaid expenses

 

 

22,156

 

 

22,124

 

Prepaid and refundable income taxes

 

 

4,673

 

 

9,909

 

Other

 

 

8,834

 

 

4,300

 

TOTAL CURRENT ASSETS

 

 

519,027

 

 

491,097

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

Land and structures

 

 

340,889

 

 

324,086

 

Revenue equipment

 

 

773,859

 

 

743,860

 

Service, office, and other equipment

 

 

168,627

 

 

154,119

 

Software

 

 

127,109

 

 

120,877

 

Leasehold improvements

 

 

9,228

 

 

8,758

 

 

 

 

1,419,712

 

 

1,351,700

 

Less allowances for depreciation and amortization

 

 

850,054

 

 

819,174

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

569,658

 

 

532,526

 

GOODWILL

 

 

108,981

 

 

108,875

 

INTANGIBLE ASSETS, net

 

 

77,103

 

 

80,507

 

DEFERRED INCOME TAXES

 

 

2,747

 

 

2,978

 

OTHER LONG-TERM ASSETS

 

 

66,916

 

 

66,095

 

TOTAL ASSETS

 

$

1,344,432

 

$

1,282,078

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

147,889

 

$

133,301

 

Income taxes payable

 

 

167

 

 

 —

 

Accrued expenses

 

 

202,408

 

 

198,731

 

Current portion of long-term debt

 

 

62,837

 

 

64,143

 

TOTAL CURRENT LIABILITIES

 

 

413,301

 

 

396,175

 

LONG-TERM DEBT, less current portion

 

 

200,181

 

 

179,530

 

PENSION AND POSTRETIREMENT LIABILITIES

 

 

40,168

 

 

35,848

 

OTHER LONG-TERM LIABILITIES

 

 

16,585

 

 

16,790

 

DEFERRED INCOME TAXES

 

 

60,632

 

 

54,680

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2017: 28,478,150 shares; 2016: 28,174,424 shares

 

 

285

 

 

282

 

Additional paid-in capital

 

 

317,677

 

 

315,318

 

Retained earnings

 

 

403,868

 

 

386,917

 

Treasury stock, at cost, 2017: 2,851,578 shares; 2016: 2,565,399 shares

 

 

(86,064)

 

 

(80,045)

 

Accumulated other comprehensive loss

 

 

(22,201)

 

 

(23,417)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

613,565

 

 

599,055

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,344,432

 

$

1,282,078

 

 

 

 

 

 

See notes to consolidated financial statements.

3


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

Nine Months Ended 

 

 

 

September 30

 

September 30

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(Unaudited)

 

 

 

(in thousands, except share and per share data)

 

REVENUES

 

$

744,280

 

$

713,923

 

$

2,115,736

 

$

2,012,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

719,931

 

 

693,553

 

 

2,078,906

 

 

1,984,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

24,349

 

 

20,370

 

 

36,830

 

 

27,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (COSTS)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

346

 

 

390

 

 

905

 

 

1,178

 

Interest and other related financing costs

 

 

(1,706)

 

 

(1,296)

 

 

(4,410)

 

 

(3,774)

 

Other, net

 

 

1,079

 

 

1,091

 

 

2,231

 

 

2,028

 

TOTAL OTHER INCOME (COSTS)

 

 

(281)

 

 

185

 

 

(1,274)

 

 

(568)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

24,068

 

 

20,555

 

 

35,556

 

 

27,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX PROVISION

 

 

9,280

 

 

7,615

 

 

12,398

 

 

10,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

14,788

 

$

12,940

 

$

23,158

 

$

17,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.57

 

$

0.50

 

$

0.90

 

$

0.66

 

Diluted

 

$

0.56

 

$

0.49

 

$

0.87

 

$

0.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,671,535

 

 

25,724,550

 

 

25,699,306

 

 

25,779,166

 

Diluted

 

 

26,393,359

 

 

26,211,524

 

 

26,373,382

 

 

26,263,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.08

 

$

0.08

 

$

0.24

 

$

0.24

 

 

See notes to consolidated financial statements.

 

4


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

Nine Months Ended 

 

 

 

September 30

 

September 30

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

NET INCOME

 

$

14,788

 

$

12,940

 

$

23,158

 

$

17,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial gain (loss), net of tax of: (2017 – Three-month period $1,011, Nine-month period $2,010; 2016 – Three-month period $822, Nine-month period $2,637)

 

 

(1,589)

 

 

1,294

 

 

(3,158)

 

 

(4,141)

 

Pension settlement expense, net of tax of: (2017 – Three-month period $366, Nine-month period $1,417; 2016 – Three-month period $313, Nine-month period $882)

 

 

577

 

 

490

 

 

2,227

 

 

1,385

 

Amortization of unrecognized net periodic benefit costs, net of tax of: (2017 – Three-month period $331, Nine-month period $1,084; 2016 – Three-month period $496, Nine-month period $1,410)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial loss

 

 

547

 

 

807

 

 

1,788

 

 

2,301

 

Prior service credit

 

 

(29)

 

 

(29)

 

 

(87)

 

 

(87)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap and foreign currency translation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized income (loss) on interest rate swap, net of tax of: (2017 – Three-month period $16, Nine-month period $156; 2016 – Three-month period $168, Nine-month period $278)

 

 

25

 

 

262

 

 

241

 

 

(430)

 

Change in foreign currency translation, net of tax of: (2017 – Three-month period $190, Nine month-period $132; 2016 – Three-month period $127, Nine-month period $158)

 

 

294

 

 

(420)

 

 

205

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

 

 

(175)

 

 

2,404

 

 

1,216

 

 

(943)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

 

$

14,613

 

$

15,344

 

$

24,374

 

$

16,125

 

 

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 income

 

 

 

 

 

 

 

 

 

 

23,158

 

 

 

 

 

 

 

 

 

 

23,158

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,216

 

 

1,216

 

Issuance of common stock under share-based compensation plans

 

304

 

 

 3

 

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

Tax effect of share-based compensation plans

 

 

 

 

 

 

 

(2,708)

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,708)

 

Share-based compensation expense

 

 

 

 

 

 

 

5,070

 

 

 

 

 

 

 

 

 

 

 

 

 

5,070

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

287

 

 

(6,019)

 

 

 

 

 

(6,019)

 

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

(6,207)

 

 

 

 

 

 

 

 

 

 

(6,207)

 

Balance at September 30, 2017

 

28,478

 

$

285

 

$

317,677

 

$

403,868

 

2,852

 

$

(86,064)

 

$

(22,201)

 

$

613,565

 

 

See notes to consolidated financial statements.

 

6


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended 

 

 

 

September 30

 

 

    

2017

    

2016

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

 

$

23,158

 

$

17,068

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

73,417

 

 

73,633

 

Amortization of intangibles

 

 

3,404

 

 

3,059

 

Pension settlement expense

 

 

3,644

 

 

2,267

 

Share-based compensation expense

 

 

5,070

 

 

6,151

 

Provision for losses on accounts receivable

 

 

705

 

 

787

 

Deferred income tax provision

 

 

5,846

 

 

14,199

 

Gain on sale of property and equipment

 

 

(409)

 

 

(2,581)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

(35,590)

 

 

(17,465)

 

Prepaid expenses

 

 

(37)

 

 

1,108

 

Other assets

 

 

(3,962)

 

 

(3,655)

 

Income taxes

 

 

5,180

 

 

2,583

 

Accounts payable, accrued expenses, and other liabilities

 

 

17,915

 

 

(7,812)

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

98,341

 

 

89,342

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net of financings

 

 

(44,377)

 

 

(45,774)

 

Proceeds from sale of property and equipment

 

 

3,585

 

 

7,296

 

Purchases of short-term investments

 

 

(50,274)

 

 

(51,760)

 

Proceeds from sale of short-term investments

 

 

49,980

 

 

54,027

 

Business acquisitions, net of cash acquired

 

 

 —

 

 

(24,805)

 

Capitalization of internally developed software

 

 

(7,225)

 

 

(7,660)

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(48,311)

 

 

(68,676)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Borrowings under accounts receivable securitization program

 

 

10,000

 

 

 —

 

Payments on long-term debt

 

 

(52,262)

 

 

(36,579)

 

Net change in book overdrafts

 

 

2,289

 

 

(3,829)

 

Deferred financing costs

 

 

(959)

 

 

 —

 

Payment of common stock dividends

 

 

(6,207)

 

 

(6,249)

 

Purchases of treasury stock

 

 

(6,019)

 

 

(7,594)

 

Payments for tax withheld on share-based compensation

 

 

(3,080)

 

 

(1,415)

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(56,238)

 

 

(55,666)

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(6,208)

 

 

(35,000)

 

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

 

$

109,034

 

$

131,357

 

 

 

 

 

 

 

 

 

NONCASH INVESTING ACTIVITIES

 

 

 

 

 

 

 

Equipment financed

 

$

61,607

 

$

61,684

 

Accruals for equipment received

 

$

851

 

$

9,391

 

 

 

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 70% of the Company’s total revenues before other revenues and intercompany eliminations for the nine months ended September 30, 2017. As part of our corporate restructuring (further described in “Financial Statement Presentation” within this Note), effective January 1, 2017, certain nonunion sales, pricing, customer service, marketing, and capacity sourcing employees were transferred to our shared services (reported in “Other and eliminations”), which increased the percentage of union employees within the Asset-Based segment. As of September 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, 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.

 

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

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ArcBest. Segment revenues and expenses were adjusted to eliminate certain intercompany charges consistent with the 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.

 

During the third quarter of 2017, the Company modified the presentation of segment expenses allocated from shared services. Previously, expenses allocated from company-wide functions were categorized in individual segment expense line items by type of expense. Allocated expenses are now presented on a single shared services line within the Company’s operating segment disclosures. Reclassifications have been made to the prior period operating segment expenses to conform to the current year presentation. There was no impact on each segment’s total expenses as a result of the reclassifications.

 

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. These reclassifications were previously reported in the Company’s first quarter 2017 Quarterly Report on Form 10-Q. The prior period impact of the reclassification of the insurance receivable is also reflected in the consolidated statements of cash flows for the nine months ended September 30, 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 nine months ended September 30, 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.

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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”) 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.

 

In the first quarter of 2017, the Company adopted an amendment to ASC Topic 718, Compensation – Stock 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. 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 as previously disclosed in the Company’s first quarter 2017 Quarterly Report on Form 10‑Q. 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 are classified as cash provided by investing activities, and cash payments for premiums on such insurance policies are 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. While the Company continues to assess some elements of the standard, the Company is in the process of finalizing review of customer contracts and system requirements in preparation for adopting the revenue recognition standard. The Company plans to adopt this standard on the modified retrospective basis and does not expect a significant impact on the consolidated financial statements; however, there are expected to be additional disclosures regarding disaggregated revenue, contract assets and liabilities, and performance obligations, and judgement will be used in applying the disclosure requirements. It is anticipated that upon adoption of the standard, revenue recognition for the Asset-Based and FleetNet segments will not change. However, revenue for the ArcBest segment will be recognized on a relative-transit-time basis instead of the current recognition method at final delivery. Due to relatively short transit times of the ArcBest segment, the financial impact at any period-end is not expected to be significant.

 

An amendment to ASC Topic 715, Compensation – Retirement Benefits will require the service cost component of net periodic pension cost related to pension and other postretirement benefits 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 require the other components of net periodic pension cost, including pension settlement expense, to be presented separately from the service cost component and outside of the subtotal of income from operations. These

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provisions of the amendment are required to be applied retrospectively and are effective for the Company beginning January 1, 2018. Other than the reclassifications described, the Company does not anticipate the amendment to have an impact on the consolidated financial statements.

 

ASC Topic 718 Compensation-Stock Compensation, was amended to provide guidance about which changes to the terms or conditions of a share-based payment award require the application of modification accounting. The amendment is effective for the Company beginning January 1, 2018 and is not expected to have a significant impact on the consolidated financial statements.

 

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, which is required to be adopted on the modified retrospective basis, on the consolidated financial statements and disclosures.

 

ASC Topic 815, Derivatives and Hedging, was amended to change the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results to simplify hedge accounting treatment and better align an entity’s risk management activities and financial reporting for hedging relationships. The amendment is effective for the Company beginning January 1, 2019 and is not expected to have a significant impact on the consolidated financial statements.

 

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.

 

 

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:

 

 

 

 

 

 

 

 

 

 

    

September 30

    

December 31

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

Cash deposits(1)

 

$

67,140

 

$

92,520

 

Variable rate demand notes(1)(2)

 

 

19,677

 

 

16,057

 

Money market funds(3)

 

 

22,217

 

 

5,703

 

Total cash and cash equivalents

 

$

109,034

 

$

114,280

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

Certificates of deposit(1)

 

$

57,052

 

$

56,838

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

 

 

 

 

 

Cash deposits(1)

 

$

 —

 

$

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).

 

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.

 

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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 short-term investments primarily in FDIC-insured certificates of deposit. However, certain cash deposits and certificates of deposit may exceed federally insured limits. At September 30, 2017 and December 31, 2016, cash and cash equivalents totaling $46.9 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. 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30

 

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)

 

 

45,000

 

 

45,000

 

 

35,000

 

 

35,000

 

Notes payable(3)

 

 

147,490

 

 

147,278

 

 

138,032

 

 

137,503

 

 

 

$

262,490

 

$

262,278

 

$

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).

 

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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 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)

 

$

22,217

 

$

22,217

 

$

 —

 

$

 —

 

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

 

 

2,231

 

 

2,231

 

 

 —

 

 

 —

 

Interest rate swap(3)

 

 

86

 

 

 —

 

 

86

 

 

 —

 

 

 

$

24,534

 

$

24,448

 

$

86

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration(4)

 

$

6,790

 

$

 —

 

$

 —

 

$

6,790

 

Interest rate swap(3)

 

 

231

 

 

 —

 

 

231

 

 

 —

 

 

 

$

7,021

 

$

 —

 

$

231

 

$

6,790