10-Q 1 arcb-20180331x10q.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, 2018

 

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 May 4, 2018

Common Stock, $0.01 par value

 

25,641,511 shares

 

 

 

 


 

ARCBEST CORPORATION

 

INDEX

 

 

 

 

 

 

    

    

Page

 

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets — March 31, 2018 and December 31, 2017

 

3

 

 

 

 

 

Consolidated Statements of Operations — For the Three Months Ended March 31, 2018 and 2017

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income — For the Three Months Ended March 31, 2018 and 2017

 

5

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity — For the Three Months Ended March 31, 2018

 

6

 

 

 

 

 

Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2018 and 2017

 

7

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

Item 2. 

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

 

31

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

55

 

 

 

 

Item 4. 

Controls and Procedures

 

55

 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

56

 

 

 

 

Item 1A. 

Risk Factors

 

56

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

56

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

56

 

 

 

 

Item 5. 

Other Information

 

56

 

 

 

 

Item 6. 

Exhibits

 

57

 

 

 

 

SIGNATURES 

 

58

 

 

 

 


 

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2018

    

2017

 

 

 

(Unaudited)

 

 

 

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

124,652

 

$

120,772

 

Short-term investments

 

 

54,669

 

 

56,401

 

Accounts receivable, less allowances (2018 – $7,837; 2017 – $7,657)

 

 

289,366

 

 

279,074

 

Other accounts receivable, less allowances (2018 – $936; 2017 – $921)

 

 

19,262

 

 

19,491

 

Prepaid expenses

 

 

24,891

 

 

22,183

 

Prepaid and refundable income taxes

 

 

10,267

 

 

12,296

 

Other

 

 

9,029

 

 

12,132

 

TOTAL CURRENT ASSETS

 

 

532,136

 

 

522,349

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

Land and structures

 

 

338,346

 

 

344,224

 

Revenue equipment

 

 

790,685

 

 

793,523

 

Service, office, and other equipment

 

 

189,055

 

 

179,950

 

Software

 

 

132,088

 

 

129,589

 

Leasehold improvements

 

 

8,948

 

 

8,888

 

 

 

 

1,459,122

 

 

1,456,174

 

Less allowances for depreciation and amortization

 

 

884,959

 

 

865,010

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

574,163

 

 

591,164

 

GOODWILL

 

 

108,320

 

 

108,320

 

INTANGIBLE ASSETS, net

 

 

72,336

 

 

73,469

 

DEFERRED INCOME TAXES

 

 

6,095

 

 

5,965

 

OTHER LONG-TERM ASSETS

 

 

65,033

 

 

64,374

 

TOTAL ASSETS

 

$

1,358,083

 

$

1,365,641

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

139,830

 

$

129,099

 

Income taxes payable

 

 

93

 

 

324

 

Accrued expenses

 

 

202,656

 

 

211,237

 

Current portion of long-term debt

 

 

56,057

 

 

61,930

 

TOTAL CURRENT LIABILITIES

 

 

398,636

 

 

402,590

 

LONG-TERM DEBT, less current portion

 

 

196,425

 

 

206,989

 

PENSION AND POSTRETIREMENT LIABILITIES

 

 

36,984

 

 

39,827

 

OTHER LONG-TERM LIABILITIES

 

 

12,320

 

 

15,616

 

DEFERRED INCOME TAXES

 

 

48,244

 

 

49,157

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2018: 28,498,971 shares; 2017: 28,495,628 shares

 

 

285

 

 

285

 

Additional paid-in capital

 

 

321,265

 

 

319,436

 

Retained earnings

 

 

450,267

 

 

438,379

 

Treasury stock, at cost, 2018: 2,857,460 shares; 2017: 2,851,578 shares

 

 

(86,265)

 

 

(86,064)

 

Accumulated other comprehensive loss

 

 

(20,078)

 

 

(20,574)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

665,474

 

 

651,462

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,358,083

 

$

1,365,641

 

 

 

 

 

 

See notes to consolidated financial statements.

3


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31

 

 

    

2018

    

2017

 

 

 

(Unaudited)

 

 

 

(in thousands, except share and per share data)

 

REVENUES

 

$

700,001

 

$

651,088

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

687,276

 

 

660,988

 

 

 

 

 

 

 

 

 

OPERATING INCOME (LOSS)

 

 

12,725

 

 

(9,900)

 

 

 

 

 

 

 

 

 

OTHER INCOME (COSTS)

 

 

 

 

 

 

 

Interest and dividend income

 

 

526

 

 

274

 

Interest and other related financing costs

 

 

(2,059)

 

 

(1,315)

 

Other, net

 

 

(2,201)

 

 

(1,706)

 

TOTAL OTHER INCOME (COSTS)

 

 

(3,734)

 

 

(2,747)

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

8,991

 

 

(12,647)

 

 

 

 

 

 

 

 

 

INCOME TAX BENEFIT

 

 

(963)

 

 

(5,240)

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

9,954

 

$

(7,407)

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) PER COMMON SHARE

 

 

 

 

 

 

 

Basic

 

$

0.39

 

$

(0.29)

 

Diluted

 

$

0.37

 

$

(0.29)

 

 

 

 

 

 

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

Basic

 

 

25,642,871

 

 

25,684,475

 

Diluted

 

 

26,596,376

 

 

25,684,475

 

 

 

 

 

 

 

 

 

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

 

 

    

2018

    

2017

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

NET INCOME (LOSS)

 

$

9,954

 

$

(7,407)

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

Net actuarial gain (loss), net of tax of: (2018 – $899; 2017 – $935)

 

 

2,590

 

 

(1,471)

 

Pension settlement expense, net of tax of: (2018 – $168; 2017 – $761)

 

 

486

 

 

1,196

 

Amortization of unrecognized net periodic benefit costs, net of tax of: (2018 – $219; 2017 – $401)

 

 

 

 

 

 

 

Net actuarial loss

 

 

649

 

 

660

 

Prior service credit

 

 

(17)

 

 

(29)

 

 

 

 

 

 

 

 

 

Interest rate swap and foreign currency translation:

 

 

 

 

 

 

 

Change in unrealized income on interest rate swap, net of tax of: (2018 – $219; 2017 – $88)

 

 

436

 

 

135

 

Change in foreign currency translation, net of tax of: (2018 – $223; 2017 – $76)

 

 

(72)

 

 

119

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME, net of tax

 

 

4,072

 

 

610

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$

14,026

 

$

(6,797)

 

 

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, 2017

 

28,496

 

$

285

 

$

319,436

 

$

438,379

 

2,852

 

$

(86,064)

 

$

(20,574)

 

$

651,462

 

Adjustments to beginning retained earnings for adoption of accounting standards:

 

 

 

 

 

 

 

 

 

 

3,992

 

 

 

 

 

 

 

(3,576)

 

 

416

 

Balance at January 1, 2018

 

28,496

 

 

285

 

 

319,436

 

 

442,371

 

2,852

 

 

(86,064)

 

 

(24,150)

 

 

651,878

 

Net income

 

 

 

 

 

 

 

 

 

 

9,954

 

 

 

 

 

 

 

 

 

 

9,954

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,072

 

 

4,072

 

Issuance of common stock under share-based compensation plans

 

 3

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

Tax effect of share-based compensation plans

 

 

 

 

 

 

 

(41)

 

 

 

 

 

 

 

 

 

 

 

 

 

(41)

 

Share-based compensation expense

 

 

 

 

 

 

 

1,870

 

 

 

 

 

 

 

 

 

 

 

 

 

1,870

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 5

 

 

(201)

 

 

 

 

 

(201)

 

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

(2,058)

 

 

 

 

 

 

 

 

 

 

(2,058)

 

Balance at March 31, 2018

 

28,499

 

$

285

 

$

321,265

 

$

450,267

 

2,857

 

$

(86,265)

 

$

(20,078)

 

$

665,474

 

 

See notes to consolidated financial statements.

 

6


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31

 

 

    

2018

    

2017

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income (loss)

 

$

9,954

 

$

(7,407)

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

25,352

 

 

24,258

 

Amortization of intangibles

 

 

1,134

 

 

1,136

 

Pension settlement expense

 

 

654

 

 

1,957

 

Share-based compensation expense

 

 

1,870

 

 

1,731

 

Provision for losses on accounts receivable

 

 

445

 

 

442

 

Deferred income tax benefit

 

 

(2,749)

 

 

(4,197)

 

Gain on sale of property and equipment

 

 

(221)

 

 

(613)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

(10,260)

 

 

3,345

 

Prepaid expenses

 

 

(2,587)

 

 

(5,174)

 

Other assets

 

 

2,732

 

 

(3,357)

 

Income taxes

 

 

1,938

 

 

(1,205)

 

Accounts payable, accrued expenses, and other liabilities

 

 

3,513

 

 

(9,155)

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

31,775

 

 

1,761

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net of financings

 

 

(7,177)

 

 

(12,273)

 

Proceeds from sale of property and equipment

 

 

1,050

 

 

1,692

 

Purchases of short-term investments

 

 

(4,410)

 

 

(6,223)

 

Proceeds from sale of short-term investments

 

 

6,245

 

 

6,125

 

Capitalization of internally developed software

 

 

(2,164)

 

 

(2,440)

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(6,456)

 

 

(13,119)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Payments on long-term debt

 

 

(16,558)

 

 

(17,297)

 

Net change in book overdrafts

 

 

(2,572)

 

 

(981)

 

Payment of common stock dividends

 

 

(2,058)

 

 

(2,066)

 

Purchases of treasury stock

 

 

(201)

 

 

 —

 

Payments for tax withheld on share-based compensation

 

 

(50)

 

 

(325)

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(21,439)

 

 

(20,669)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

3,880

 

 

(32,027)

 

Cash and cash equivalents and restricted cash at beginning of period

 

 

120,772

 

 

115,242

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

 

$

124,652

 

$

83,215

 

 

 

 

 

 

 

 

 

NONCASH INVESTING ACTIVITIES

 

 

 

 

 

 

 

Equipment financed

 

$

121

 

$

694

 

Accruals for equipment received

 

$

883

 

$

440

 

 

 

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 (“ABF Freight”); 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 68% of the Company’s total revenues before other revenues and intercompany eliminations for the three months ended March 31, 2018. As of March 2018, approximately 82% 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”). 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 increased approximately 2.5% on a compounded annual basis throughout the contract period which extended through March 31, 2018.

 

On March 28, 2018, ABF Freight and the Teamsters National Freight Industry Negotiating Committee, the negotiating arm of the IBT, reached a tentative agreement on a new collective bargaining agreement for the next contract period (the “tentative contract agreement”) and agreed to an extension of the existing ABF NMFA to allow for the ratification process of the new agreement to take place. The tentative contract agreement is currently subject to ratification by ABF Freight’s IBT member employees. In the event ABF Freight’s union employees do not ratify the tentative contract agreement, a work stoppage, the loss of customers, or other events could occur that could have a material adverse effect on the Company’s business, results of operations, cash flows, and financial position in 2018 and subsequent years.

 

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 “SEC”) 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 2017 Annual Report on Form 10-K and other current filings with the SEC. In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary for a fair presentation have been included.

 

As previously disclosed in our 2017 Annual Report on Form 10-K, the Company modified the presentation of segment expenses allocated from shared services during the third quarter of 2017. 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.

 

8


 

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 consolidated 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 2017 Annual Report on Form 10-K. The following policies have been updated during the three months ended March 31, 2018 for the adoption of accounting standard updates disclosed within this Note.

 

Goodwill: Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is evaluated for impairment annually or more frequently if indicators of impairment exist. The Company’s measurement of goodwill impairment involves a comparison of the estimated fair value of a reporting unit to its carrying value. Fair value is derived using a combination of valuation methods, including earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue multiples (market approach) and the present value of discounted cash flows (income approach). For annual and interim impairment tests, the Company is required to record an impairment charge, if any, by the amount a reporting unit’s fair value is exceeded by the carrying value of the reporting unit, limited to the carrying value of goodwill included in the reporting unit. The Company’s annual impairment testing is performed as of October 1.

 

Revenue Recognition: Revenues are recognized when or as control of the promised services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

 

Asset-Based Segment

Asset-Based segment revenues primarily consist of less-than-truckload freight delivery. Performance obligations are satisfied upon final delivery of the freight to the specified destination. Revenue is recognized based on the relative transit time in each reporting period with expenses recognized as incurred. A bill-by-bill analysis is used to establish estimates of revenue in transit for recognition in the appropriate period. Because the bill-by-bill methodology utilizes the approximate location of the shipment in the delivery process to determine the revenue to recognize, management believes it to be a reliable method.

 

Certain contracts may provide for volume-based or other discounts which are accounted for as variable consideration. The Company estimates these amounts based on the expected discounts earned by customers and revenue is recognized based on the estimates. Revenue adjustments may also occur due to rating or other billing adjustments. The Company estimates revenue adjustments based on historical information and revenue is recognized accordingly at the time of shipment. Management believes that actual amounts will not vary significantly from estimates of variable consideration.

 

Revenue, purchased transportation expense, and third-party service expenses are reported on a gross basis for certain shipments and services where the Company utilizes a third-party carrier for pickup, linehaul, delivery of freight, or performance of services but remains primarily responsible for fulfilling delivery to the customer and maintains discretion in setting the price for the services.

 

ArcBest Segment

ArcBest segment revenues consist primarily of asset-light logistics services using third-party vendors to provide transportation services. ArcBest segment revenue is generally recognized based on the relative transit time in each reporting period using estimated standard delivery times for freight in transit at the end of the reporting period. Purchased transportation expense is recognized as incurred consistent with the recognition of revenue.

 

Revenue and purchased transportation expense are reported on a gross basis for shipments and services where the Company uses a third-party carrier for pickup and delivery but remains primarily responsible to the customer for delivery and has discretion in setting the price for the service.

 

9


 

FleetNet Segment

FleetNet segment revenues consist of service fee revenue, roadside repair revenue and routine maintenance services. Service fee revenue for the FleetNet segment is recognized upon response to the service event. Repair revenue for the FleetNet segment is recognized upon completion of the service by third-party vendors.

Revenue and expense from repair and maintenance services performed by third-party vendors are reported on a gross basis as FleetNet controls the services prior to transfer to the customer and remains primarily responsible to the customer for completion of the services.

 

Other Recognition and Disclosure

The Company records deferred revenue when cash payments are received or due in advance of performance under the contract. Deferred revenues totaled $5.6 million and $0.6 million at March 31, 2018 and December 31, 2017, respectively, and are recorded in accrued expenses in the consolidated balance sheet.

 

Payment terms with customers may vary depending on the service provided, location or specific agreement with the customer. The term between invoicing and when payment is due is not significant. For certain services, payment is required before the services are provided to the customer.

 

The Company expenses sales commissions when incurred because the amortization period is one year or less.

The Company has elected to apply the practical expedient to not disclose the value of unsatisfied performance obligations for contracts with an original length of one year or less or contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.

 

Adopted Accounting Pronouncements

 

Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, (“ASC Topic 606”) provides a single comprehensive revenue recognition model for all contracts with customers and contains principles to apply to determine the measurement of revenue and the timing of when it is recognized. On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic method of accounting under ASC Topic 605, Revenue Recognition, (“ASC Topic 605”). The Company’s major service lines for presentation of disaggregated revenues from contracts with customers are consistent with the Company’s reportable operating segments as presented in Note J.

 

The primary impact of adopting ASC Topic 606 was to recognize ArcBest segment revenue over time instead of at final delivery of the shipment. As a result, revenue will generally be recorded earlier under ASC Topic 606 compared to ASC Topic 605. Asset-Based and FleetNet segment revenues were not impacted.

 

The Company recorded a net increase to opening retained earnings of $0.4 million as of January 1, 2018 due to the cumulative impact of adopting ASC Topic 606. The impact to both revenues and purchased transportation expense for the quarter ended March 31, 2018 was a decrease of $0.3 million, as a result of applying ASC Topic 606.

 

Effective January 1, 2018, the Company adopted an amendment to ASC Topic 715, Compensation – Retirement Benefits, (“ASC Topic 715”) which requires changes to the financial statement presentation of certain components of net periodic benefit cost related to pension and other postretirement benefits accounted for under ASC Topic 715. The amendment requires the service cost component of net periodic benefit cost to continue to be included in the same line item as other compensation costs arising from services rendered by the related employees, but requires the other components of net periodic benefit cost, including pension settlement expense, to be presented separately from the service cost component and outside of the subtotal of income from operations. The provisions of the amendment are required to be applied retrospectively and were effective for the Company beginning January 1, 2018.

 

10


 

The Company has not incurred service cost under its nonunion defined benefit pension plan or its supplemental benefit plan (the “SBP”) since the accrual of benefits under the plans were frozen on July 1, 2013 and December 31, 2009, respectively; however, the Company incurs service cost under its postretirement health benefit plan which will continue to be reported within operating expenses in the consolidated statements of operations. The other components of net periodic benefit cost (including pension settlement charges) of the nonunion defined benefit pension plan, SBP, and postretirement health benefit plan are reported within the other line item of other income (costs) beginning in first quarter 2018. As a result of retrospectively applying the provisions of the amendment, $2.4 million was reclassified from operating expenses to other income (costs) for the three months ended March 31, 2017. There was no change to consolidated net income (loss) or earnings (loss) per share as a result of the change in presentation under the new standard.

 

In February 2018, the FASB issued an amendment to ASC Topic 220, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, (“ASC Topic 220”) which allows a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Company early adopted this amendment for first quarter 2018 and adjusted the tax effect of items within accumulated other comprehensive income to reflect the appropriate tax rate under the Tax Reform Act in the period of adoption. As a result of applying the provisions of the amendment, the Company elected to reclassify $3.6 million of stranded income tax effects from accumulated other comprehensive loss to retained earnings as of January 1, 2018.

 

Amounts recognized in other comprehensive income or loss related to the Company’s nonunion defined benefit pension plan, supplemental benefit plan, and postretirement health benefit plan are subsequently expensed as components of net periodic benefit cost by amortizing unrecognized net actuarial losses over the average remaining active service period of the plan participants and amortizing unrecognized prior service credits over the remaining years of service until full eligibility of the active participants at the time of the plan amendment which created the prior service credit. A corridor approach is not used for determining the amounts of net actuarial losses to be amortized. Amounts recognized in other comprehensive income or loss related to the change in unrealized gain or loss on the Company’s interest rate swap agreements are reclassified out of accumulated other comprehensive loss into income (loss) in the period during which the hedged transaction affects earnings.

 

Effective January 1, 2018, the Company early adopted an amendment to ASC Topic 350, Intangibles – Goodwill and Other, Simplifying the Test of Goodwill Impairment, which removes Step 2 of the goodwill impairment test. For annual and interim impairment tests, the Company is required to record an impairment charge, if any, by the amount a reporting unit’s fair value is exceeded by the carrying value of the reporting unit, limited to the carrying value of goodwill included in the reporting unit. The adoption of the amendment did not have an impact on the consolidated financial statements for the three months ended March 31, 2018.

 

Accounting Pronouncements Not Yet Adopted

 

ASC Topic 842, Leases, which is effective for the Company beginning January 1, 2019, requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. The new standard is expected to be adopted on the modified retrospective basis, which will require leases existing at or entered into after the beginning of the earliest comparative period to be valued and recorded on the consolidated balance sheets.  The Company has established an implementation team and is evaluating the new guidance. Management expects the new standard to have a material impact on the Company’s consolidated balance sheets, and is still evaluating the impact on the consolidated statements of operations and consolidated statements of cash flows.

 

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 there is no other new accounting guidance issued but not yet effective that is relevant to the Company’s current financial statements.

11


 

 

 

NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Financial Instruments

 

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

 

 

 

 

 

 

 

 

 

 

    

March 31

    

December 31

 

 

 

2018

 

2017

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

Cash deposits(1)

 

$

93,022

 

$

86,510

 

Variable rate demand notes(1)(2)

 

 

17,810

 

 

19,744

 

Money market funds(3)

 

 

13,820

 

 

14,518

 

Total cash and cash equivalents

 

$

124,652

 

$

120,772

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

Certificates of deposit(1)

 

$

54,669

 

$

56,401

 

 


(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 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 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, 2018 and December 31, 2017, cash and cash equivalents totaling $69.1 million and $61.1 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. 

 

12


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

December 31

 

 

    

2018

    

2017

  

 

 

(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

 

 

45,000

 

 

45,000

 

Notes payable(3)

 

 

137,056

 

 

135,282

 

 

153,441

 

 

152,131

 

 

 

$

252,056

 

$

250,282

 

$

268,441

 

$

267,131

 

 


(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).

 

13


 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

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)

 

$

13,820

 

$

13,820

 

$

 —

 

$

 —

 

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

 

 

2,332

 

 

2,332

 

 

 —

 

 

 —

 

Interest rate swaps(3)

 

 

1,199

 

 

 —

 

 

1,199

 

 

 —

 

 

 

$

17,351

 

$

16,152

 

$

1,199

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration(4)

 

$

3,711

 

$

 —

 

$

 —

 

$

3,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 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)

 

$

14,518

 

$

14,518

 

$

 —

 

$

 —

 

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

 

 

2,359

 

 

2,359

 

 

 —

 

 

 —

 

Interest rate swaps(3)

 

 

481

 

 

 —

 

 

481

 

 

 —

 

 

 

$

17,358

 

$

16,877

 

$

481

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration(4)

 

$

6,970

 

$

 —

 

$

 —

 

$

6,970

 

 


(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 other long-term assets. The fair values of the interest rate swaps were determined by discounting future cash flows and receipts based on expected interest rates observed in market interest rate curves (Level 2 inputs) 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, 2018 and December 31, 2017 and considers the interest rate swap valuations in Level 2 of the fair value hierarchy.

(4)

Included in accrued expenses as of March 31, 2018 and included in accrued expenses and other long-term liabilities based on when expected payouts become due as of December 31, 2017. 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 11.9% and 12.5% as of March 31, 2018 and December 31, 2017. Subsequent changes to the fair value as a result of recurring assessments will be recognized in operating income. 

 

 

14


 

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, 2017

 

$

6,970

 

Payments(1)

 

 

(3,528)

 

Change in fair value included in operating expenses

 

 

269

 

Balances at March 31, 2018

 

$

3,711

 

 


(1)

Payments released from escrow account reported in other current assets in the consolidated balance sheet.

 

 

 

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 $107.7 million and $0.6 million reported in the ArcBest and FleetNet segments, respectively, for both March 31, 2018 and December 31, 2017.

 

Intangible assets consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Weighted-Average

 

 

 

 

Accumulated

 

Net

 

 

 

 

Accumulated

 

Net

 

 

    

Amortization Period

    

Cost

    

Amortization

    

Value

    

 

Cost

    

Amortization

    

Value

 

 

 

(in years)

 

(in thousands)

 

(in thousands)

 

Finite-lived intangible assets