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 SeptemberJune 30, 20202021
☐ | 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 | | 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.)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock $0.01 Par Value | ARCB | Nasdaq |
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 every Interactive Data File required to be submitted 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 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 ☐ | | 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 |
Common Stock, $0.01 par value | |
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ARCBEST CORPORATION
INDEX
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| Consolidated Balance Sheets — | | 3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARCBEST CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | September 30 | | December 31 | | | June 30 | | December 31 | | ||||
|
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||
| | (Unaudited) | | | | | | (Unaudited) | | | | | ||
| | (in thousands, except share data) | | | (in thousands, except share data) | | ||||||||
ASSETS | | | | | | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 267,645 | | $ | 201,909 | | | $ | 362,619 | | $ | 303,954 | |
Short-term investments | |
| 83,411 | |
| 116,579 | | |
| 59,967 | |
| 65,408 | |
Accounts receivable, less allowances (2020 – $7,343; 2019 – $5,448) | |
| 323,760 | |
| 282,579 | | |||||||
Other accounts receivable, less allowances (2020 – $665; 2019 – $476) | |
| 14,464 | |
| 18,774 | | |||||||
Accounts receivable, less allowances (2021 – $7,396; 2020 – $7,851) | |
| 360,498 | |
| 320,870 | | |||||||
Other accounts receivable, less allowances (2021 – $667; 2020 – $660) | |
| 13,284 | |
| 14,343 | | |||||||
Prepaid expenses | |
| 29,562 | |
| 30,377 | | |
| 36,355 | |
| 37,774 | |
Prepaid and refundable income taxes | |
| 6,163 | |
| 9,439 | | |
| 5,871 | |
| 11,397 | |
Other | |
| 5,235 | |
| 4,745 | | |
| 4,937 | |
| 4,422 | |
TOTAL CURRENT ASSETS | |
| 730,240 | |
| 664,402 | | |
| 843,531 | |
| 758,168 | |
PROPERTY, PLANT AND EQUIPMENT | | | | | | | | | | | | | | |
Land and structures | |
| 346,322 | |
| 342,122 | | |
| 345,829 | |
| 342,178 | |
Revenue equipment | |
| 912,924 | |
| 896,020 | | |
| 933,264 | |
| 916,760 | |
Service, office, and other equipment | |
| 233,689 | |
| 233,354 | | |
| 239,462 | |
| 233,810 | |
Software | |
| 158,454 | |
| 151,068 | | |
| 170,528 | |
| 163,193 | |
Leasehold improvements | |
| 14,064 | |
| 10,383 | | |
| 15,835 | |
| 15,156 | |
| |
| 1,665,453 | |
| 1,632,947 | | |
| 1,704,918 | |
| 1,671,097 | |
Less allowances for depreciation and amortization | |
| 987,396 | |
| 949,355 | | |
| 1,038,974 | |
| 992,407 | |
PROPERTY, PLANT AND EQUIPMENT, net | |
| 678,057 | |
| 683,592 | | |
| 665,944 | |
| 678,690 | |
GOODWILL | |
| 88,320 | |
| 88,320 | | |
| 86,368 | |
| 88,320 | |
INTANGIBLE ASSETS, net | |
| 56,016 | |
| 58,832 | | |
| 53,084 | |
| 54,981 | |
OPERATING RIGHT-OF-USE ASSETS | | | 112,568 | | | 68,470 | | | | 109,860 | | | 115,195 | |
DEFERRED INCOME TAXES | |
| 6,975 | |
| 7,725 | | |
| 6,419 | |
| 6,158 | |
OTHER LONG-TERM ASSETS | |
| 74,055 | |
| 79,866 | | |
| 76,267 | |
| 77,496 | |
TOTAL ASSETS | | $ | 1,746,231 | | $ | 1,651,207 | | | $ | 1,841,473 | | $ | 1,779,008 | |
| | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | | | | | |
Accounts payable | | $ | 162,021 | | $ | 134,374 | | | $ | 204,124 | | $ | 170,898 | |
Income taxes payable | |
| 5 | |
| 12 | | |
| 7,357 | |
| 316 | |
Accrued expenses | |
| 249,172 | |
| 232,321 | | |
| 260,185 | |
| 246,746 | |
Current portion of long-term debt | |
| 65,887 | |
| 57,305 | | |
| 66,644 | |
| 67,105 | |
Current portion of operating lease liabilities | | | 20,431 | | | 20,265 | | | | 21,950 | | | 21,482 | |
TOTAL CURRENT LIABILITIES | |
| 497,516 | |
| 444,277 | | |
| 560,260 | |
| 506,547 | |
LONG-TERM DEBT, less current portion | |
| 226,037 | |
| 266,214 | | |
| 171,075 | |
| 217,119 | |
OPERATING LEASE LIABILITIES, less current portion | | | 96,549 | | | 52,277 | | | | 92,811 | | | 97,839 | |
POSTRETIREMENT LIABILITIES, less current portion | |
| 20,486 | |
| 20,294 | | |
| 18,514 | |
| 18,555 | |
OTHER LONG-TERM LIABILITIES | |
| 35,377 | |
| 38,892 | | |
| 35,722 | |
| 37,948 | |
DEFERRED INCOME TAXES | |
| 67,627 | |
| 66,210 | | |
| 64,957 | |
| 72,407 | |
STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | |
Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2020: 29,039,994 shares, 2019: 28,810,902 shares | |
| 290 | |
| 288 | | |||||||
Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2021: 29,317,699 shares, 2020: 29,045,309 shares | |
| 293 | |
| 290 | | |||||||
Additional paid-in capital | |
| 339,908 | |
| 333,943 | | |
| 338,263 | |
| 342,354 | |
Retained earnings | |
| 574,053 | |
| 533,187 | | |
| 676,179 | |
| 595,932 | |
Treasury stock, at cost, 2020: 3,632,099 shares; 2019: 3,404,639 shares | |
| (110,245) | |
| (104,578) | | |||||||
Accumulated other comprehensive income (loss) | |
| (1,367) | |
| 203 | | |||||||
Treasury stock, at cost, 2021: 3,783,227 shares; 2020: 3,656,938 shares | |
| (119,273) | |
| (111,173) | | |||||||
Accumulated other comprehensive income | |
| 2,672 | |
| 1,190 | | |||||||
TOTAL STOCKHOLDERS’ EQUITY | |
| 802,639 | |
| 763,043 | | |
| 898,134 | |
| 828,593 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 1,746,231 | | $ | 1,651,207 | | | $ | 1,841,473 | | $ | 1,779,008 | |
See notes to consolidated financial statements.
3
ARCBEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended | | ||||||||||||||||
| | September 30 | | September 30 | | | June 30 | | June 30 | | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
| | (Unaudited) | | | (Unaudited) | | ||||||||||||||||||||
| | (in thousands, except share and per share data) | | | (in thousands, except share and per share data) | | ||||||||||||||||||||
REVENUES | | $ | 794,980 | | $ | 787,563 | | $ | 2,123,749 | | $ | 2,270,892 | | | $ | 948,973 | | $ | 627,370 | | $ | 1,778,186 | | $ | 1,328,769 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
OPERATING EXPENSES | |
| 755,198 | | | 756,355 | |
| 2,055,723 | | | 2,195,893 | | |
| 874,674 | | | 606,945 | |
| 1,671,696 | | | 1,300,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
OPERATING INCOME | |
| 39,782 | |
| 31,208 | |
| 68,026 | |
| 74,999 | | |
| 74,299 | |
| 20,425 | |
| 106,490 | |
| 28,244 | |
| | | | | | | | | | | | | | | | | | | | | | ��� | | | | |
OTHER INCOME (COSTS) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest and dividend income | |
| 756 | |
| 1,768 | |
| 3,122 | |
| 4,862 | | |
| 322 | |
| 991 | |
| 714 | |
| 2,366 | |
Interest and other related financing costs | |
| (2,860) | |
| (2,900) | |
| (9,185) | |
| (8,593) | | |
| (2,274) | |
| (3,378) | |
| (4,702) | |
| (6,325) | |
Other, net | |
| 1,500 | |
| (6,734) | |
| 334 | |
| (7,770) | | |
| 1,111 | |
| 2,696 | |
| 2,303 | |
| (1,166) | |
| |
| (604) | |
| (7,866) | |
| (5,729) | |
| (11,501) | | |
| (841) | |
| 309 | |
| (1,685) | |
| (5,125) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME BEFORE INCOME TAXES | |
| 39,178 | |
| 23,342 | |
| 62,297 | |
| 63,498 | | |
| 73,458 | |
| 20,734 | |
| 104,805 | |
| 23,119 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME TAX PROVISION | |
| 9,774 | |
| 7,072 | |
| 15,111 | |
| 17,964 | | |
| 12,477 | |
| 4,854 | |
| 20,463 | |
| 5,337 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME | | $ | 29,404 | | $ | 16,270 | | $ | 47,186 | | $ | 45,534 | | | $ | 60,981 | | $ | 15,880 | | $ | 84,342 | | $ | 17,782 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
EARNINGS PER COMMON SHARE | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.15 | | $ | 0.64 | | $ | 1.86 | | $ | 1.78 | | | $ | 2.38 | | $ | 0.62 | | $ | 3.30 | | $ | 0.70 | |
Diluted | | $ | 1.11 | | $ | 0.62 | | $ | 1.79 | | $ | 1.72 | | | $ | 2.27 | | $ | 0.61 | | $ | 3.13 | | $ | 0.68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
AVERAGE COMMON SHARES OUTSTANDING | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | |
| 25,470,094 | |
| 25,527,982 | |
| 25,403,786 | |
| 25,550,365 | | |
| 25,586,353 | |
| 25,463,559 | |
| 25,522,453 | |
| 25,468,624 | |
Diluted | |
| 26,592,457 | |
| 26,416,595 | |
| 26,289,946 | |
| 26,461,668 | | |
| 26,910,796 | |
| 26,217,957 | |
| 26,926,133 | |
| 26,252,486 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH DIVIDENDS DECLARED PER COMMON SHARE | | $ | 0.08 | | $ | 0.08 | | $ | 0.24 | | $ | 0.24 | | | $ | 0.08 | | $ | 0.08 | | $ | 0.16 | | $ | 0.16 | |
See notes to consolidated financial statements.
4
ARCBEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended | | ||||||||||||||||
| | September 30 | | September 30 | | | June 30 | | June 30 | | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
| | (Unaudited) | | | (Unaudited) | | ||||||||||||||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||
NET INCOME | | $ | 29,404 | | $ | 16,270 | | $ | 47,186 | | $ | 45,534 | | | $ | 60,981 | | $ | 15,880 | | $ | 84,342 | | $ | 17,782 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER COMPREHENSIVE INCOME (LOSS), net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Pension and other postretirement benefit plans: | | | | | | | | | | | | | | |||||||||||||
Net actuarial loss, net of tax of: (2020 – Three-month period $—, Nine-month period $3; 2019 – Three-month period $310, Nine-month period $100) | |
| — | |
| (894) | |
| (8) | |
| (291) | | |||||||||||||
Pension settlement expense, including termination expense, net of tax of: (2020 – Three-month period $—, Nine-month period $23; 2019 – Three-month period $651, Nine-month period $1,072) | |
| — | |
| 5,850 | |
| 66 | |
| 7,063 | | |||||||||||||
Amortization of unrecognized net periodic benefit cost (credit), net of tax of: (2020 – Three-month period $38, Nine-month period $114; 2019 – Three-month period $75, Nine-month period $252) | | | | | | | | | | | | | | |||||||||||||
Net actuarial (gain) loss | |
| (110) | |
| 222 | |
| (327) | |
| 746 | | |||||||||||||
Prior service credit | |
| — | |
| (6) | |
| — | |
| (18) | | |||||||||||||
Postretirement benefit plans: | | | | | | | | | | | | | | |||||||||||||
Net actuarial loss, net of tax of: (2021 – Three-month period $—, Six-month period $—; 2020 – Three-month period $—, Six-month period $3) | |
| — | |
| — | |
| — | |
| (8) | | |||||||||||||
Pension settlement expense, net of tax of: (2021 – Three-month period $—, Six-month period $—; 2020 – Three-month period $—, Six-month period $23) | |
| — | |
| — | |
| — | |
| 66 | | |||||||||||||
Amortization of unrecognized net periodic benefit costs, net of tax of: (2021 – Three-month period $34, Six-month period $69; 2020 – Three-month period $39, Six-month period $76) | | | | | | | | | | | | | | |||||||||||||
Net actuarial gain | |
| (100) | |
| (109) | |
| (200) | |
| (217) | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swap and foreign currency translation: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in unrealized loss on interest rate swap, net of tax of: (2020 – Three-month period $48, Nine-month period $366; 2019 – Three-month period $120, Nine-month period $425) | | | 136 | | | (338) | | | (1,035) | | | (1,198) | | |||||||||||||
Change in foreign currency translation, net of tax of: (2020 – Three-month period $246, Nine-month period $94; 2019 – Three-month period $12, Nine-month period $108) | |
| 697 | |
| (35) | |
| (266) | |
| 306 | | |||||||||||||
Change in unrealized income (loss) on interest rate swap, net of tax of: (2021 – Three-month period $59, Six-month period $263; 2020 – Three-month period $766, Six-month period $414) | | | 166 | | | (174) | | | 741 | | | (1,171) | | |||||||||||||
Change in foreign currency translation, net of tax of: (2021 – Three-month period $215, Six-month period $333; 2020 – Three-month period $842, Six-month period $340) | |
| 612 | |
| 457 | |
| 941 | |
| (963) | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER COMPREHENSIVE INCOME (LOSS), net of tax | |
| 723 | |
| 4,799 | |
| (1,570) | |
| 6,608 | | |
| 678 | |
| 174 | |
| 1,482 | |
| (2,293) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL COMPREHENSIVE INCOME | | $ | 30,127 | | $ | 21,069 | | $ | 45,616 | | $ | 52,142 | | | $ | 61,659 | | $ | 16,054 | | $ | 85,824 | | $ | 15,489 | |
See notes to consolidated financial statements.
5
ARCBEST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended and Nine Months Ended September 30, 2020 | | | Three and Six Months Ended June 30, 2021 | | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | ||
| | | | | | | Additional | | | | | | | | | | Other | | | | | | | | | | | Additional | | | | | | | | | | Other | | | | | ||||
| | Common Stock |
| Paid-In | | Retained | | Treasury Stock |
| Comprehensive | | Total | | | Common Stock |
| Paid-In | | Retained | | Treasury Stock |
| Comprehensive | | Total | | ||||||||||||||||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Income (Loss) |
| Equity |
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Income |
| Equity |
| ||||||||||||
| | (Unaudited) | | | (Unaudited) | | ||||||||||||||||||||||||||||||||||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | | 28,811 | | $ | 288 | | $ | 333,943 | | $ | 533,187 |
| 3,405 | | $ | (104,578) | | $ | 203 | | $ | 763,043 | | |||||||||||||||||||||||
Adjustments to beginning retained earnings for adoption of accounting standard (see Note A) | | | | | | | | | | | (198) | | | | | | | | | | | (198) | | |||||||||||||||||||||||
Balance at January 1, 2020 |
| 28,811 | | | 288 | | | 333,943 | | | 532,989 | | 3,405 | | | (104,578) | | | 203 | | | 762,845 | | |||||||||||||||||||||||
Net income | | | | | | | | | |
| 1,902 | | | | | | | | | |
| 1,902 | | |||||||||||||||||||||||
Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | |
| (2,467) | |
| (2,467) | | |||||||||||||||||||||||
Issuance of common stock under share-based compensation plans |
| 6 | |
| | |
| | | | | | | | | | | | | |
| | | |||||||||||||||||||||||
Tax effect of share-based compensation plans | | | | | | |
| (60) | | | | | | | | | | | | |
| (60) | | |||||||||||||||||||||||
Share-based compensation expense | | | | | | |
| 2,181 | | | | | | | | | | | | |
| 2,181 | | |||||||||||||||||||||||
Purchase of treasury stock | | | | | | | | | | | | | 150 | | | (3,162) | | | | | | (3,162) | | |||||||||||||||||||||||
Dividends declared on common stock | | | | | | | | | |
| (2,033) | | | | | | | | | |
| (2,033) | | |||||||||||||||||||||||
Balance at March 31, 2020 |
| 28,817 | | $ | 288 | | $ | 336,064 | | $ | 532,858 |
| 3,555 | | $ | (107,740) | | $ | (2,264) | | $ | 759,206 | | |||||||||||||||||||||||
Net income | | | | | | | | | |
| 15,880 | | | | | | | | | |
| 15,880 | | |||||||||||||||||||||||
Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | |
| 174 | |
| 174 | | |||||||||||||||||||||||
Issuance of common stock under share-based compensation plans |
| 141 | |
| 2 | |
| (2) | | | | | | | | | | | | |
| — | | |||||||||||||||||||||||
Tax effect of share-based compensation plans | | | | | | |
| (1,010) | | | | | | | | | | | | |
| (1,010) | | |||||||||||||||||||||||
Share-based compensation expense | | | | | | |
| 2,890 | | | | | | | | | | | | |
| 2,890 | | |||||||||||||||||||||||
Dividends declared on common stock | | | | | | | | | |
| (2,049) | | | | | | | | | |
| (2,049) | | |||||||||||||||||||||||
Balance at June 30, 2020 |
| 28,958 | | $ | 290 | | $ | 337,942 | | $ | 546,689 |
| 3,555 | | $ | (107,740) | | $ | (2,090) | | $ | 775,091 | | |||||||||||||||||||||||
Balance at December 31, 2020 | | 29,045 | | $ | 290 | | $ | 342,354 | | $ | 595,932 |
| 3,657 | | $ | (111,173) | | $ | 1,190 | | $ | 828,593 | | |||||||||||||||||||||||
Net income | | | | | | | | | |
| 29,404 | | | | | | | | | |
| 29,404 | | | | | | | | | | |
| 23,361 | | | | | | | | | |
| 23,361 | |
Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | |
| 723 | |
| 723 | | | | | | | | | | | | | | | | | | |
| 804 | |
| 804 | |
Issuance of common stock under share-based compensation plans |
| 82 | |
| — | |
| — | | | | | | | | | | | | |
| — | |
| 12 | |
| 1 | |
| (1) | | | | | | | | | | | | |
| — | |
Tax effect of share-based compensation plans | | | | | | |
| (919) | | | | | | | | | | | | |
| (919) | | | | | | | |
| (165) | | | | | | | | | | | | |
| (165) | |
Share-based compensation expense | | | | | | |
| 2,885 | | | | | | | | | | | | |
| 2,885 | | | | | | | |
| 2,354 | | | | | | | | | | | | |
| 2,354 | |
Purchase of treasury stock | | | | | | | | | | | | | 77 | | | (2,505) | | | | | | (2,505) | | | | | | | | | | | | | | 15 | | | (1,001) | | | | | | (1,001) | |
Dividends declared on common stock | | | | | | | | | |
| (2,040) | | | | | | | | | |
| (2,040) | | | | | | | | | | |
| (2,037) | | | | | | | | | |
| (2,037) | |
Balance at September 30, 2020 |
| 29,040 | | $ | 290 | | $ | 339,908 | | $ | 574,053 |
| 3,632 | | $ | (110,245) | | $ | (1,367) | | $ | 802,639 | | |||||||||||||||||||||||
Balance at March 31, 2021 |
| 29,057 | | $ | 291 | | $ | 344,542 | | $ | 617,256 |
| 3,672 | | $ | (112,174) | | $ | 1,994 | | $ | 851,909 | | |||||||||||||||||||||||
Net income | | | | | | | | | |
| 60,981 | | | | | | | | | |
| 60,981 | | |||||||||||||||||||||||
Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | |
| 678 | |
| 678 | | |||||||||||||||||||||||
Issuance of common stock under share-based compensation plans |
| 261 | |
| 2 | |
| (2) | | | | | | | | | | | | |
| — | | |||||||||||||||||||||||
Tax effect of share-based compensation plans | | | | | | |
| (9,601) | | | | | | | | | | | | |
| (9,601) | | |||||||||||||||||||||||
Share-based compensation expense | | | | | | |
| 3,324 | | | | | | | | | | | | |
| 3,324 | | |||||||||||||||||||||||
Purchase of treasury stock | | | | | | | | | | | | | 111 | | | (7,099) | | | | | | (7,099) | | |||||||||||||||||||||||
Dividends declared on common stock | | | | | | | | | |
| (2,058) | | | | | | | | | |
| (2,058) | | |||||||||||||||||||||||
Balance at June 30, 2021 |
| 29,318 | | $ | 293 | | $ | 338,263 | | $ | 676,179 |
| 3,783 | | $ | (119,273) | | $ | 2,672 | | $ | 898,134 | |
6
ARCBEST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY – CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended and Nine Months Ended September 30, 2019 | | | Three and Six Months Ended June 30, 2020 | | ||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | ||
| | | | | | | Additional | | | | | | | | | | Other | | | | | | | | | | | Additional | | | | | | | | | | Other | | | | | ||||
| | Common Stock |
| Paid-In | | Retained | | Treasury Stock |
| Comprehensive | | Total | | | Common Stock |
| Paid-In | | Retained | | Treasury Stock |
| Comprehensive | | Total | | ||||||||||||||||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Loss |
| Equity | |
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Income (Loss) |
| Equity |
| ||||||||||||
| | (Unaudited) | | | (Unaudited) | | ||||||||||||||||||||||||||||||||||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 |
| 28,685 | | $ | 287 | | $ | 325,712 | | $ | 501,389 |
| 3,098 | | $ | (95,468) | | $ | (14,238) | | $ | 717,682 | | |||||||||||||||||||||||
Net income | | | | | | | | | |
| 4,888 | | | | | | | | | |
| 4,888 | | |||||||||||||||||||||||
Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | 1,850 | | | 1,850 | | |||||||||||||||||||||||
Tax effect of share-based compensation plans | | | | | | | | (8) | | | | | | | | | | | | | | (8) | | |||||||||||||||||||||||
Share-based compensation expense | | | | | | | | 2,058 | | | | | | | | | | | | | | 2,058 | | |||||||||||||||||||||||
Purchase of treasury stock | | | | | | | | | | | | | 74 | | | (2,663) | | | | | | (2,663) | | |||||||||||||||||||||||
Dividends declared on common stock | | | | | | | | | |
| (2,052) | | | | | | | | | | | (2,052) | | |||||||||||||||||||||||
Balance at March 31, 2019 |
| 28,685 | | $ | 287 | | $ | 327,762 | | $ | 504,225 |
| 3,172 | | $ | (98,131) | | $ | (12,388) | | $ | 721,755 | | |||||||||||||||||||||||
Balance at December 31, 2019 |
| 28,811 | | $ | 288 | | $ | 333,943 | | $ | 533,187 |
| 3,405 | | $ | (104,578) | | $ | 203 | | $ | 763,043 | | |||||||||||||||||||||||
Adjustments to beginning retained earnings for adoption of accounting standard | | | | | | | | | | | (198) | | | | | | | | | | | (198) | | |||||||||||||||||||||||
Balance at January 1, 2020 | | 28,811 | | | 288 | | | 333,943 | | | 532,989 | | 3,405 | | | (104,578) | | | 203 | | | 762,845 | | |||||||||||||||||||||||
Net income | | | | | | | | | |
| 24,376 | | | | | | | | | |
| 24,376 | | | | | | | | | | |
| 1,902 | | | | | | | | | |
| 1,902 | |
Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | | | (41) | | | (41) | | | | | | | | | | | | | | | | | | | | (2,467) | | | (2,467) | |
Issuance of common stock under share-based compensation plans | | 101 | |
| 1 | | | (1) | | | | | | | | | | | | | | — | | | 6 | |
| | | | | | | | | | | | | | | | | | — | |
Tax effect of share-based compensation plans | | | | | | | | (1,174) | | | | | | | | | | | | | | (1,174) | | | | | | | | | (60) | | | | | | | | | | | | | | (60) | |
Share-based compensation expense | | | | | | | | 2,801 | | | | | | | | | | | | | | 2,801 | | | | | | | | | 2,181 | | | | | | | | | | | | | | 2,181 | |
Purchase of treasury stock | | | | | | | | | | | | | 94 | | | (2,508) | | | | | | (2,508) | | | | | | | | | | | | | | 150 | | | (3,162) | | | | | | (3,162) | |
Dividends declared on common stock | | | | | | | | | |
| (2,050) | | | | | | | | | | | (2,050) | | | | | | | | | | |
| (2,033) | | | | | | | | | | | (2,033) | |
Balance at June 30, 2019 |
| 28,786 | | $ | 288 | | $ | 329,388 | | $ | 526,551 |
| 3,266 | | $ | (100,639) | | $ | (12,429) | | $ | 743,159 | | |||||||||||||||||||||||
Balance at March 31, 2020 |
| 28,817 | | $ | 288 | | $ | 336,064 | | $ | 532,858 |
| 3,555 | | $ | (107,740) | | $ | (2,264) | | $ | 759,206 | | |||||||||||||||||||||||
Net income | | | | | | | | | |
| 16,270 | | | | | | | | | |
| 16,270 | | | | | | | | | | |
| 15,880 | | | | | | | | | |
| 15,880 | |
Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | 4,799 | | | 4,799 | | | | | | | | | | | | | | | | | | | | 174 | | | 174 | |
Issuance of common stock under share-based compensation plans | | 15 | |
| — | | | — | | | | | | | | | | | | | | — | | | 141 | |
| 2 | | | (2) | | | | | | | | | | | | | | — | |
Tax effect of share-based compensation plans | | | | | | | | (24) | | | | | | | | | | | | | | (24) | | | | | | | | | (1,010) | | | | | | | | | | | | | | (1,010) | |
Share-based compensation expense | | | | | | | | 2,409 | | | | | | | | | | | | | | 2,409 | | | | | | | | | 2,890 | | | | | | | | | | | | | | 2,890 | |
Purchase of treasury stock | | | | | | | | | | | | | 34 | | | (944) | | | | | | (944) | | |||||||||||||||||||||||
Dividends declared on common stock | | | | | | | | | |
| (2,043) | | | | | | | | | | | (2,043) | | | | | | | | | | |
| (2,049) | | | | | | | | | | | (2,049) | |
Balance at September 30, 2019 |
| 28,801 | | $ | 288 | | $ | 331,773 | | $ | 540,778 |
| 3,300 | | $ | (101,583) | | $ | (7,630) | | $ | 763,626 | | |||||||||||||||||||||||
Balance at June 30, 2020 |
| 28,958 | | $ | 290 | | $ | 337,942 | | $ | 546,689 |
| 3,555 | | $ | (107,740) | | $ | (2,090) | | $ | 775,091 | |
6
ARCBEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | |
| | Nine Months Ended | | ||||
| | September 30 | | ||||
|
| 2020 |
| 2019 |
| ||
| | (Unaudited) | | ||||
| | (in thousands) | | ||||
OPERATING ACTIVITIES | | | | | | | |
Net income | | $ | 47,186 | | $ | 45,534 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 85,189 | |
| 79,967 | |
Amortization of intangibles | |
| 2,942 | |
| 3,365 | |
Pension settlement expense, including termination expense | |
| 89 | |
| 8,135 | |
Share-based compensation expense | |
| 7,956 | |
| 7,268 | |
Provision for losses on accounts receivable | |
| 2,170 | |
| 832 | |
Change in deferred income taxes | |
| 2,831 | |
| 14,099 | |
Gain on sale of property and equipment and lease termination | |
| (3,280) | |
| (1,384) | |
Changes in operating assets and liabilities: | | | | | | | |
Receivables | |
| (38,905) | |
| 4,216 | |
Prepaid expenses | |
| 809 | |
| (265) | |
Other assets | |
| 3,918 | |
| (4,236) | |
Income taxes | |
| 3,065 | |
| (7,883) | |
Operating right-of-use assets and lease liabilities, net | | | 234 | | | 526 | |
Accounts payable, accrued expenses, and other liabilities | |
| 37,062 | |
| (12,161) | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 151,266 | |
| 138,013 | |
| | | | | | | |
INVESTING ACTIVITIES | | | | | | | |
Purchases of property, plant and equipment, net of financings | |
| (20,146) | |
| (69,773) | |
Proceeds from sale of property and equipment | |
| 8,943 | |
| 4,748 | |
Purchases of short-term investments | |
| (159,253) | |
| (105,747) | |
Proceeds from sale of short-term investments | |
| 192,563 | |
| 88,730 | |
Capitalization of internally developed software | |
| (9,568) | |
| (8,500) | |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | |
| 12,539 | |
| (90,542) | |
| | | | | | | |
FINANCING ACTIVITIES | | | | | | | |
Borrowings under credit facilities | |
| 180,000 | |
| — | |
Borrowings under accounts receivable securitization program | | | 45,000 | | | — | |
Proceeds from notes payable | | | — | | | 9,552 | |
Payments on long-term debt | |
| (309,640) | |
| (43,773) | |
Net change in book overdrafts | |
| 349 | |
| (5,570) | |
Deferred financing costs | |
| — | |
| (562) | |
Payment of common stock dividends | |
| (6,122) | |
| (6,145) | |
Purchases of treasury stock | | | (5,667) | | | (6,115) | |
Payments for tax withheld on share-based compensation | |
| (1,989) | |
| (1,206) | |
NET CASH USED IN FINANCING ACTIVITIES | |
| (98,069) | |
| (53,819) | |
| | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| 65,736 | |
| (6,348) | |
Cash and cash equivalents at beginning of period | |
| 201,909 | |
| 190,186 | |
CASH AND CASH EQUIVALENTS CASH AT END OF PERIOD | | $ | 267,645 | | $ | 183,838 | |
| | | | | | | |
NONCASH INVESTING ACTIVITIES | | | | | | | |
Equipment financed | | $ | 53,045 | | $ | 40,966 | |
Accruals for equipment received | | $ | 2,146 | | $ | 18,949 | |
Lease liabilities arising from obtaining right-of-use assets | | $ | 60,535 | | $ | 26,810 | |
| | | | | | | |
| | | | | | | |
| | Six Months Ended | | ||||
| | June 30 | | ||||
|
| 2021 |
| 2020 |
| ||
| | (Unaudited) | | ||||
| | (in thousands) | | ||||
OPERATING ACTIVITIES | | | | | | | |
Net income | | $ | 84,342 | | $ | 17,782 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 58,709 | |
| 56,140 | |
Amortization of intangibles | |
| 1,927 | |
| 1,959 | |
Pension settlement expense | |
| — | |
| 89 | |
Share-based compensation expense | |
| 5,678 | |
| 5,071 | |
Provision for losses on accounts receivable | |
| (334) | |
| 999 | |
Change in deferred income taxes | |
| (7,612) | |
| (5,170) | |
Gain on sale of property and equipment and lease termination | |
| (8,408) | |
| (3,581) | |
Gain on sale of subsidiaries | | | (6,923) | | | — | |
Changes in operating assets and liabilities: | | | | | | | |
Receivables | |
| (37,745) | |
| 9,626 | |
Prepaid expenses | |
| 1,419 | |
| 1,444 | |
Other assets | |
| 25 | |
| 4,358 | |
Income taxes | |
| 12,275 | |
| 8,413 | |
Operating right-of-use assets and lease liabilities, net | | | 761 | | | (230) | |
Accounts payable, accrued expenses, and other liabilities | |
| 41,786 | |
| (14,833) | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 145,900 | |
| 82,067 | |
| | | | | | | |
INVESTING ACTIVITIES | | | | | | | |
Purchases of property, plant and equipment, net of financings | |
| (25,395) | |
| (16,209) | |
Proceeds from sale of property and equipment | |
| 10,864 | |
| 7,670 | |
Proceeds from sale of subsidiaries | | | 9,013 | | | — | |
Purchases of short-term investments | |
| (43,690) | |
| (97,493) | |
Proceeds from sale of short-term investments | |
| 49,165 | |
| 46,725 | |
Capitalization of internally developed software | |
| (9,477) | |
| (6,495) | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (9,520) | |
| (65,802) | |
| | | | | | | |
FINANCING ACTIVITIES | | | | | | | |
Borrowings under credit facilities | |
| — | |
| 180,000 | |
Borrowings under accounts receivable securitization program | | | — | | | 45,000 | |
Payments on long-term debt | |
| (54,643) | |
| (29,185) | |
Net change in book overdrafts | |
| (922) | |
| 615 | |
Deferred financing costs | |
| (189) | | | — | |
Payment of common stock dividends | |
| (4,095) | |
| (4,082) | |
Purchases of treasury stock | | | (8,100) | | | (3,162) | |
Payments for tax withheld on share-based compensation | |
| (9,766) | |
| (1,070) | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| (77,715) | |
| 188,116 | |
| | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | |
| 58,665 | |
| 204,381 | |
Cash and cash equivalents at beginning of period | |
| 303,954 | |
| 201,909 | |
CASH AND CASH EQUIVALENTS CASH AT END OF PERIOD | | $ | 362,619 | | $ | 406,290 | |
| | | | | | | |
NONCASH INVESTING ACTIVITIES | | | | | | | |
Equipment and other financings | | $ | 8,138 | | $ | 13,566 | |
Accruals for equipment received | | $ | 5,984 | | $ | 857 | |
Lease liabilities arising from obtaining right-of-use assets | | $ | 6,051 | | $ | 23,727 | |
| | | | | | | |
See notes to consolidated financial statements.
87
NOTE A – ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION
ArcBest Corporation™ (the “Company”) is the parent holding company of freight transportation and integrated logistics businesses providing innovative solutions. The Company’s operations are conducted through its 3 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 69%65% of the Company’s total revenues before other revenues and intercompany eliminations for the ninesix months ended SeptemberJune 30, 2020.2021. As of September 2020,June 2021, approximately 82% of the Asset-Based segment’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “2018 ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”), which will remain in effect through June 30, 2023.
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 20192020 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.
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. The Company considered the impact of the novel coronavirus (“COVID-19”) pandemic on the estimates and assumptions used in preparation of the Company’s consolidated financial statements as of and for the three and ninesix months ended SeptemberJune 30, 2020.2021. Given the uncertainties regarding the economic environment and the impact of the COVID-19 pandemic on our business, it is possible that these estimates and assumptions may materially change in future periods.
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 2019 Annual Report on Form 10-K. The following policies have been updated during the nine months ended September 30, 2020 for the adoption of accounting standard updates disclosed within this Note.
Allowances: On January 1, 2020, the Company adopted ASC Topic 326, Financial Instruments – Credit Losses, (“ASC Topic 326”), which replaces the incurred loss methodology model with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables and other receivables.
The Company maintains allowances for credit losses (formerly known as the allowance for doubtful accounts) and revenue adjustments on its trade receivables. The Company estimates the allowance for credit losses based on historical write-offs, factors surrounding the credit risk of specific customers, and forecasts of future economic conditions. In order to gather information regarding these trends and factors, the Company performs ongoing credit evaluations of customers, an analysis of accounts receivable aging by business segment, and an analysis of future economic conditions at period end. The allowance for revenue adjustments is an estimate based on historical revenue adjustments and current information
9
regarding trends and business changes. Actual write-offs or adjustments could differ from the allowance estimates due to a number of factors, including future changes in the forecasted economic environment or new factors and risks surrounding a particular customer. Accounts receivable are written off when the accounts are turned over to a collection agency or when the accounts are determined to be uncollectible. Actual write-offs and adjustments are charged against the allowances for doubtful accounts and revenue adjustments.The allowance for credit losses on the Company’s trade accounts receivable totaled $3.6 million at September 30, 2020 and $1.8 million at December 31, 2019. There were no material write-offs charged against or increases to the allowance for credit losses during the three and nine months ended September 30, 2020.
Adopted Accounting Pronouncements
As previously discussed within Accounting Policies in this Note, effective January 1, 2020, the Company adopted ASC Topic 326, which replaces the incurred loss methodology model with an expected loss methodology referred to as the CECL methodology for the Company’s trade receivables and other receivables. The Company adopted ASC Topic 326 with the modified retrospective approach. Under this approach, results for reporting periods after January 1, 2020 are presented under ASC Topic 326 while prior period amounts continue to be reported in accordance with previously applicable accounting guidance. The Company recorded a decrease to retained earnings of $0.2 million as of January 1, 2020 for the cumulative effect of adopting ASC Topic 326.
On January 1, 2020 the Company adopted ASC Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, (“ASC Subtopic 350-40”) which was amended by the Financial Accounting Standards Board in August 2018. The amendments to ASC Subtopic 350-40 clarify the accounting treatment for implementation costs incurred by the customer in a cloud computing software arrangement. The amendments allow implementation costs of cloud computing arrangements to be capitalized using the same method prescribed by ASC Subtopic 350-40, Internal-Use Software. The amendments to ASC Subtopic 350-40 were adopted on a prospective basis and did not have an impact on the Company’s consolidated financial statements.
On January 1, 2020 the Company adopted ASC Topic 820, Fair Value Measurement, which was amended to modify the disclosure requirements of fair value measurements, primarily impacting the disclosures for Level 3 fair value measurements. The amendment did not have an impact on the Company’s financial statement disclosures as of September 30, 2020.
The amendments to ASC Topic 848, Reference Rate Reform, (“ASC Topic 848”) are effective as of March 12, 2020 through December 31, 2022 and provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company did not elect the optional expedients or apply the exceptions allowed by ASC Topic 848 during the nine months ended September 30, 2020 and does not expect that the amendments, if elected, will have a significant impact on the Company’s consolidated financial statements. The Company’s revolving credit facility (“Credit Facility”) under its Third Amended and Restated Credit Agreement (“Credit Agreement”), accounts receivable securitization program, and interest rate swap agreements utilize interest rates based on LIBOR, which is expected to be phased out by the end of 2021. The Company’s Credit Facility and current interest rate swap agreement, which was amended on May 4, 2020 (see Note F), mature on October 1, 2024. The Credit Agreement provides for the use of an alternate rate of interest in accordance with the provisions of the agreement and the interest rate on the swap agreement will change to the rate in the Credit Agreement. Any changes to the terms of our borrowing arrangements which would allow for the use of an alternative to LIBOR in calculating the interest rate under such arrangements are anticipated to be effective in 2022 upon the Company’s agreement with the lenders as to the replacement reference rate.
Accounting Pronouncements Not Yet Adopted
ASC Topic 740, Income Taxes, was amended to simplify the accounting for income taxes to improve consistency of accounting methods and remove certain exceptions. The amendment iswas effective for the Company beginningon January 1, 2021. The Company is currently assessing the2021, and did not impact this amendment will have on the consolidated financial statements and disclosures.
10Accounting Pronouncements Not Yet Adopted
Management believes there is no other new accounting guidance issued but not yet effective that is relevant to the Company’s current financial statements.
8
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:
| | | | | | | | | | | | | | |
|
| September 30 |
| December 31 |
|
| June 30 |
| December 31 |
| ||||
| | 2020 | | 2019 | | | 2021 | | 2020 |
| ||||
| | (in thousands) | | | (in thousands) | | ||||||||
Cash and cash equivalents | | | | | | | | | | | | | | |
Cash deposits(1) | | $ | 236,838 | | $ | 166,619 | | | $ | 284,265 | | $ | 240,687 | |
Variable rate demand notes(1)(2) | |
| 14,306 | |
| 14,750 | | |
| 29,253 | |
| 29,066 | |
Money market funds(3) | |
| 16,501 | |
| 20,540 | | |
| 49,101 | |
| 34,201 | |
Total cash and cash equivalents | | $ | 267,645 | | $ | 201,909 | | | $ | 362,619 | | $ | 303,954 | |
| | | | | | | | | | | | | | |
Short-term investments | | | | | | | | | | | | | | |
Certificates of deposit(1) | | $ | 59,243 | | $ | 69,314 | | | $ | 59,967 | | $ | 53,297 | |
U.S. Treasury securities(4) | | | 24,168 | | | 47,265 | | | | — | | | 12,111 | |
Total short-term investments | | $ | 83,411 | | $ | 116,579 | | | $ | 59,967 | | $ | 65,408 | |
(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) | Recorded at amortized cost plus accrued interest, which approximates fair value. |
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 SeptemberJune 30, 20202021 and December 31, 2019,2020, cash, cash equivalents, and short-term investments totaling $118.1$132.5 million and $66.2$156.4 million, respectively, were neither FDIC insured nor direct obligations of the U.S. government.
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. |
119
Fair value and carrying value disclosures of financial instruments are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30 | | December 31 | | | June 30 | | December 31 | | ||||||||||||||||
|
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||||||||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||
| | | Carrying |
| | Fair |
| | Carrying |
| | Fair | | | | Carrying |
| | Fair |
| | Carrying |
| | Fair | |
| | | Value |
| | Value |
| | Value |
| | Value | | | | Value |
| | Value |
| | Value |
| | Value | |
Credit Facility(1) | | $ | 70,000 | | $ | 70,000 | | $ | 70,000 | | $ | 70,000 | | | $ | 50,000 | | $ | 50,000 | | $ | 70,000 | | $ | 70,000 | |
Accounts receivable securitization borrowings(2) | | | — | | | — | | | 40,000 | | | 40,000 | | |||||||||||||
Notes payable(3) | |
| 221,914 | |
| 225,330 | |
| 213,504 | |
| 216,432 | | |||||||||||||
New England Pension Fund withdrawal liability(4) | | | 21,563 | | | 26,306 | | | 22,018 | | | 24,462 | | |||||||||||||
Notes payable(2) | |
| 187,715 | |
| 190,519 | |
| 214,216 | |
| 217,226 | | |||||||||||||
New England Pension Fund withdrawal liability(3) | | | 21,092 | | | 23,821 | | | 21,407 | | | 25,523 | | |||||||||||||
| | $ | 313,477 | | $ | 321,636 | | $ | 345,522 | | $ | 350,894 | | | $ | 258,807 | | $ | 264,340 | | $ | 305,623 | | $ | 312,749 | |
(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) |
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). |
ABF Freight’s multiemployer pension plan obligation with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”) was restructured under a transition agreement effective on August 1, 2018, which resulted in a related withdrawal liability (see in Note I to the consolidated financial statements in Item 8 of the Company’s |
1210
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | | June 30, 2021 | | ||||||||||||||||||||
| | | | | Fair Value Measurements Using | | | | | | Fair Value Measurements Using | | ||||||||||||||
| | | | | Quoted Prices |
| Significant |
| Significant | | | | | | Quoted Prices |
| Significant |
| Significant | | ||||||
|
| | | | In Active | | Observable | | Unobservable | |
| | | | In Active | | Observable | | Unobservable | | ||||||
| | | | | Markets | | Inputs | | Inputs | | | | | | Markets | | Inputs | | Inputs | | ||||||
| | Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| | Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds(1) | | $ | 16,501 | | $ | 16,501 | | $ | — | | $ | — | | | $ | 49,101 | | $ | 49,101 | | $ | — | | $ | — | |
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) | |
| 2,523 | |
| 2,523 | |
| — | |
| — | | |
| 3,306 | |
| 3,306 | |
| — | |
| — | |
Interest rate swaps(3) | | | 354 | | | — | | | 354 | | | — | | |||||||||||||
| | $ | 19,024 | | $ | 19,024 | | $ | — | | $ | — | | | $ | 52,761 | | $ | 52,407 | | $ | 354 | | $ | — | |
Liabilities: | |
| | | | | | | | | | | | |
| | | | | | | | | | | |
Interest rate swaps(3) | | $ | 1,964 | | $ | — | | $ | 1,964 | | $ | — | | | $ | 973 | | $ | — | | $ | 973 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | | December 31, 2020 | | ||||||||||||||||||||
| | | | | Fair Value Measurements Using | | | | | | Fair Value Measurements Using | | ||||||||||||||
| | | | | Quoted Prices |
| Significant |
| Significant | | | | | | Quoted Prices |
| Significant |
| Significant | | ||||||
|
| | | | In Active | | Observable | | Unobservable | |
| | | | In Active | | Observable | | Unobservable | | ||||||
| | | | | Markets | | Inputs | | Inputs | | | | | | Markets | | Inputs | | Inputs | | ||||||
| | Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | | | Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds(1) | | $ | 20,540 | | $ | 20,540 | | $ | — | | $ | — | | | $ | 34,201 | | $ | 34,201 | | $ | — | | $ | — | |
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) | |
| 2,427 | |
| 2,427 | |
| — | |
| — | | |
| 2,955 | |
| 2,955 | |
| — | |
| — | |
| | $ | 22,967 | | $ | 22,967 | | $ | — | | $ | — | | | $ | 37,156 | | $ | 37,156 | | $ | — | | $ | — | |
Liabilities: | |
| | | | | | | | | | | | |
| | | | | | | | | | | |
Interest rate swaps(3) | | $ | 563 | | $ | — | | $ | 563 | | $ | — | | | $ | 1,622 | | $ | — | | $ | 1,622 | | $ | — | |
(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 or other long-term liabilities. 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 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 |
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 segment consisted of the following:
| | | | | | | | | | |
|
| Total |
| ArcBest |
| FleetNet |
| |||
| | (in thousands) | ||||||||
Balances at December 31, 2020 |
| $ | 88,320 | | $ | 87,690 | | $ | 630 | |
Goodwill divested(1) | |
| (1,952) | |
| (1,952) | |
| — | |
Balances at June 30, 2021 |
| $ | 86,368 |
| $ | 85,738 |
| $ | 630 |
|
(1) | Goodwill divested due to the sale of the labor services portion of the ArcBest segment’s moving business was determined based on the relative fair value of the business sold to the total fair value of the reporting unit. |
1311
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 $87.7 million and $0.6 million reported in the ArcBest and FleetNet segments, respectively, for both September 30, 2020 and December 31, 2019.
Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2020 | | December 31, 2019 |
| | | | June 30, 2021 | | December 31, 2020 |
| ||||||||||||||||||||||||||||
| | Weighted-Average | | | | | Accumulated | | Net | | | | | Accumulated | | Net |
| | Weighted-Average | | | | | Accumulated | | Net | | | | | Accumulated | | Net |
| ||||||||
|
| Amortization Period |
| Cost |
| Amortization |
| Value |
| | Cost |
| Amortization |
| Value |
|
| Amortization Period |
| Cost |
| Amortization |
| Value |
| | Cost |
| Amortization |
| Value |
| ||||||||||
| | (in years) | | (in thousands) | | (in thousands) |
| | (in years) | | (in thousands) | | (in thousands) |
| ||||||||||||||||||||||||||||
Finite-lived intangible assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships |
| 14 | | $ | 52,721 | | $ | 29,526 | | $ | 23,195 | | $ | 52,721 | | $ | 26,667 | | $ | 26,054 | |
| 14 | | $ | 52,721 | | $ | 32,380 | | $ | 20,341 | | $ | 52,721 | | $ | 30,477 | | $ | 22,244 | |
Other | | 12 | | | 1,420 | | | 899 | | | 521 | | | 1,294 | | | 816 | | | 478 | | | 13 | | | 1,010 | | | 567 | | | 443 | | | 980 | | | 543 | | | 437 | |
|
| 14 | |
| 54,141 | |
| 30,425 | |
| 23,716 | | | 54,015 | |
| 27,483 | |
| 26,532 | |
| 14 | |
| 53,731 | |
| 32,947 | |
| 20,784 | | | 53,701 | |
| 31,020 | |
| 22,681 | |
Indefinite-lived intangible assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade name |
| N/A | |
| 32,300 | |
| N/A | |
| 32,300 | | | 32,300 | |
| N/A | |
| 32,300 | |
| N/A | |
| 32,300 | |
| N/A | |
| 32,300 | | | 32,300 | |
| N/A | |
| 32,300 | |
| | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total intangible assets |
| N/A | | $ | 86,441 | | $ | 30,425 | | $ | 56,016 | | $ | 86,315 | | $ | 27,483 | | $ | 58,832 | |
| N/A | | $ | 86,031 | | $ | 32,947 | | $ | 53,084 | | $ | 86,001 | | $ | 31,020 | | $ | 54,981 | |
The future amortization for intangible assets acquired through business acquisitions as of SeptemberJune 30, 20202021 was as follows:
| | | | | | | | |
|
| Amortization of |
|
| Amortization of |
| ||
| | Intangible Assets | | | Intangible Assets |
| ||
| | (in thousands) | | | (in thousands) | | ||
Remainder of 2020 | | $ | 977 | | ||||
2021 | |
| 3,871 | | ||||
Remainder of 2021 | | $ | 1,911 | | ||||
2022 | |
| 3,844 | | |
| 3,815 | |
2023 | |
| 3,746 | | |
| 3,722 | |
2024 | | | 3,696 | | |
| 3,689 | |
2025 | | | 3,674 | | ||||
Thereafter | | | 7,582 | | | | 3,973 | |
Total amortization | | $ | 23,716 | | | $ | 20,784 | |
Goodwill and indefinite-lived intangible assets are not amortized, but rather are evaluated for impairment annually or more frequently if indicators of impairment exist. Due to the impact of COVID-19 on business and freight levels, the Company considered several factors to evaluate if it was more likely than not that impairment of these assets existed as of September 30, 2020. In making this analysis, management considered current and forecasted business levels and estimated future cash flows over several years. Management’s assumptions include a continuing economic recovery through the remainder of 2020 and into 2021. Based on the analysis performed, management determined it was more likely than not that goodwill and indefinite-lived intangible assets were not impaired as of September 30, 2020.
The evaluation of goodwill impairment requires management’s judgment and the use of estimates and assumptions to determine if indicators of impairment exist at an interim date. Assumptions require considerable judgment because changes in broad economic factors and industry factors can result in variable and volatile fair values. Changes in key estimates and assumptions that impact the fair value of the operations, including the impact of COVID-19 on the reporting units, could materially affect future analyses and result in material impairments of goodwill and indefinite-lived intangible assets.
NOTE D – INCOME TAXES
The effective tax rate was 24.9%17.0% and 24.3%19.5% for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively. The effective tax rate was 30.3%23.4% and 28.3%23.1% for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. State tax rates vary among states and average approximately 6.0% to 6.5%, although some state rates are higher and a small number of states do not impose an income tax.
14
For the three and ninesix months ended SeptemberJune 30, 2021, the difference between the Company’s effective tax rate and the federal statutory rate primarily resulted from state income taxes, nondeductible expenses, changes in the cash surrender value of life insurance, federal research and development tax credits, changes in tax valuation allowances, and tax benefit from the vesting of stock awards. For the three and six months ended June 30, 2020, the difference between the Company’s effective tax rate and the federal statutory rate primarily resulted from state income taxes, nondeductible expenses, changes in the cash surrender value of life insurance, federal alternative fuel and research and development tax credits, changes in tax valuation allowances, and the tax expense (benefit) from the vesting of stock awards. For the nine months ended September 30, 2020, the difference between theThe Company’s effective tax rate andfor the federal statutory ratesix months ended June 30, 2020 was also resulted fromimpacted by the reversal of an uncertain tax position. For the three and nine months ended September 30, 2019, the difference between the Company’s effective tax rate and the federal statutory rate primarily resulted from state income taxes, nondeductible expenses, changes in the cash surrender value of life insurance, tax expense from the vesting of stock awards, and noncash pension settlement expense related to changes in other comprehensive income for which there was no tax benefit.
As of SeptemberJune 30, 2020,2021, the Company’s deferred tax liabilities, which will reverse in future years, exceeded the deferred tax assets. The Company evaluated the total deferred tax assets at SeptemberJune 30, 20202021 and concluded that, other than for certain deferred tax assets related to foreign and state tax credit carryforwards and federal and state net operating losses, the assets did not exceed the amount for which realization is more likely than not. In making this determination, the Company considered the future reversal of existing taxable temporary differences, future taxable income, and tax planning strategies. Valuation allowances for deferred tax assets totaled $1.0$1.4 million and $0.7$1.3 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
The Company had a reserve for uncertain tax positions of $0.9 million at December 31, 2019. The reserve was reversed in the first quarter of 2020 due to the expiration of the statute of limitations.
The Company paid federal, state, and foreign income taxes of $9.2 million and $11.7$15.3 million during the ninesix months ended SeptemberJune 30, 20202021, and 2019, respectively.paid foreign and state income taxes of $2.3 million during the six months ended June 30, 2020. The Company received refunds of $0.4 million of federal and state income taxes and refunds of less than $0.1 million of state income taxes that were paid in prior years of less than $0.1 million and $0.4 million during the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.
12
NOTE E – LEASES
The Company leases, under finance and operating lease arrangements, certain facilities used primarily in the Asset-Based segment service center operations, certain revenue equipment used in the ArcBest segment operations, and certain other office equipment.
The components of operating lease expense were as follows:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30 | | September 30 | | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
| | (in thousands) | | ||||||||||
Operating lease expense | | $ | 6,351 | | $ | 5,651 | | $ | 17,950 | | $ | 16,632 | |
Variable lease expense | | | 665 | | | 878 | | | 2,248 | | | 2,491 | |
Sublease income | | | (120) | | | (99) | | | (254) | | | (235) | |
| | | | | | | | | | | | | |
Total operating lease expense | | $ | 6,896 | | $ | 6,430 | | $ | 19,944 | | $ | 18,888 | |
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30 | | June 30 | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
| | (in thousands) | | ||||||||||
Operating lease expense | | $ | 6,584 | | $ | 5,803 | | $ | 13,226 | | $ | 11,599 | |
Variable lease expense | | | 963 | | | 543 | | | 2,295 | | | 1,583 | |
Sublease income | | | (156) | | | (42) | | | (311) | | | (134) | |
| | | | | | | | | | | | | |
Total operating lease expense(1) | | $ | 7,391 | | $ | 6,304 | | $ | 15,210 | | $ | 13,048 | |
(1) | Operating lease expense excludes short-term leases with a term of 12 months or less. |
The operating cash flows from operating lease activity were as follows:
| | | | | | | | | | | ||||
| | Nine Months Ended | | | Six Months Ended | | ||||||||
| | September 30, 2020 | | September 30, 2019 | | | June 30, 2021 | | June 30, 2020 |
| ||||
| | (in thousands) | | | (in thousands) | | ||||||||
Noncash change in operating right-of-use assets | | $ | 15,718 | | $ | 15,093 | | | $ | 11,386 | | $ | 11,002 | |
Change in operating lease liabilities | | | (15,484) | | | (14,567) | | | | (10,625) | | | (11,232) | |
Operating right-of-use-assets and lease liabilities, net | | $ | 234 | | $ | 526 | | | $ | 761 | | $ | (230) | |
| | | | | | | | | | | | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | (17,715) | | $ | (16,256) | | | $ | (12,446) | | $ | (11,826) | |
Maturities of operating lease liabilities at June 30, 2021 were as follows:
| | | | | | | | | | |
| | | | | | | | Equipment | | |
| | | | | Land and | | and | | ||
|
| Total |
| Structures(1) |
| Other |
| |||
|
| (in thousands) | | |||||||
Remainder of 2021 | | $ | 13,071 | | $ | 13,071 | | $ | — | |
2022 | |
| 22,759 | |
| 22,723 | |
| 36 | |
2023 | |
| 18,281 | |
| 18,256 | |
| 25 | |
2024 | |
| 16,020 | |
| 16,020 | |
| — | |
2025 | |
| 13,407 | |
| 13,407 | |
| — | |
Thereafter | |
| 44,136 | |
| 44,136 | |
| — | |
Total lease payments | | | 127,674 | | | 127,613 | | | 61 | |
Less imputed interest | | | (12,913) | | | (12,912) | | | (1) | |
Total | | $ | 114,761 | | $ | 114,701 | | $ | 60 | |
(1) | Excludes future minimum lease payments for a lease which was executed but had not yet commenced as of June 30, 2021 of $37.3 million which will be paid over approximately 10 years. The Company plans to take possession of the leased space in third quarter 2022. |
1513
Maturities of operating lease liabilities at September 30, 2020 were as follows:
| | | | | | | | | | |
| | | | | | | | Equipment | | |
| | | | | Land and | | and | | ||
|
| Total |
| Structures |
| Other |
| |||
|
| (in thousands) | | |||||||
Remainder of 2020 | | $ | 5,941 | | $ | 5,713 | | $ | 228 | |
2021 | |
| 23,560 | |
| 23,283 | |
| 277 | |
2022 | |
| 20,008 | |
| 19,997 | |
| 11 | |
2023 | |
| 15,755 | |
| 15,755 | |
| — | |
2024 | |
| 13,766 | |
| 13,766 | |
| — | |
Thereafter | |
| 51,827 | |
| 51,827 | |
| — | |
Total lease payments | | | 130,857 | | | 130,341 | | | 516 | |
Less imputed interest | | | (13,877) | | | (13,872) | | | (5) | |
Total | | $ | 116,980 | | $ | 116,469 | | $ | 511 | |
NOTE F – LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-Term Debt Obligations
Long-term debt consisted of borrowings outstanding under the Company’s revolving credit facility and accounts receivable securitization program, both of which areis further described in Financing Arrangements within this Note, and notes payable and finance lease obligations related to the financing of revenue equipment (tractors and trailers used primarily in Asset-Based segment operations), certain other equipment, and software as follows:
| | | | | | | | | | | | | | |
| | September 30 | | December 31 | | | June 30 | | December 31 | | ||||
|
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||
| | (in thousands) | | | (in thousands) | | ||||||||
Credit Facility (interest rate of 1.3%(1) at September 30, 2020) | | $ | 70,000 | | $ | 70,000 | | |||||||
Accounts receivable securitization borrowings | |
| — | |
| 40,000 | | |||||||
Notes payable (weighted-average interest rate of 3.0% at September 30, 2020) | |
| 221,914 | |
| 213,504 | | |||||||
Finance lease obligations (weighted-average interest rate of 3.3% at September 30, 2020) | |
| 10 | |
| 15 | | |||||||
Credit Facility (interest rate of 1.2%(1) at June 30, 2021) | | $ | 50,000 | | $ | 70,000 | | |||||||
Notes payable (weighted-average interest rate of 2.9% at June 30, 2021) | |
| 187,715 | |
| 214,216 | | |||||||
Finance lease obligations (weighted-average interest rate of 3.3% at June 30, 2021) | |
| 4 | |
| 8 | | |||||||
| |
| 291,924 | |
| 323,519 | | |
| 237,719 | |
| 284,224 | |
Less current portion | |
| 65,887 | |
| 57,305 | | |
| 66,644 | |
| 67,105 | |
Long-term debt, less current portion | | $ | 226,037 | | $ | 266,214 | | | $ | 171,075 | | $ | 217,119 | |
(1) | The interest rate swap mitigates interest rate risk by effectively converting the $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 3.12% |
16
Scheduled maturities, including interest payments, of long-term debt obligations as of SeptemberJune 30, 20202021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Credit | | Notes | | Finance Lease | | | | | | Credit | | Notes | | Finance Lease | | ||||||
|
| Total |
| Facility(1) |
| Payable |
| Obligations | |
| Total |
| Facility(1) |
| Payable |
| Obligations |
| ||||||||
|
| (in thousands) | |
| (in thousands) | | ||||||||||||||||||||
Due in one year or less |
| $ | 72,505 |
| $ | 899 |
| $ | 71,599 | | $ | 7 | |
| $ | 71,778 |
| $ | 637 |
| $ | 71,137 | | $ | 4 | |
Due after one year through two years | |
| 66,329 | |
| 885 | |
| 65,441 | |
| 3 | | |
| 57,710 | |
| 784 | |
| 56,926 | |
| — | |
Due after two years through three years | |
| 50,883 | |
| 908 | |
| 49,975 | |
| — | | |
| 42,571 | |
| 1,049 | |
| 41,522 | |
| — | |
Due after three years through four years | |
| 33,744 | |
| 994 | |
| 32,750 | |
| — | | |
| 72,345 | |
| 50,296 | |
| 22,049 | |
| — | |
Due after four years through five years | |
| 84,331 | |
| 70,000 | |
| 14,331 | |
| — | | |
| 4,567 | |
| — | |
| 4,567 | |
| — | |
Due after five years | | | 133 | | | — | | | 133 | | | — | | | | 124 | | | — | | | 124 | | | — | |
Total payments | |
| 307,925 | |
| 73,686 | |
| 234,229 | |
| 10 | | |
| 249,095 | |
| 52,766 | |
| 196,325 | |
| 4 | |
Less amounts representing interest | |
| 16,001 | |
| 3,686 | |
| 12,315 | |
| — | | |
| 11,376 | |
| 2,766 | |
| 8,610 | |
| — | |
Long-term debt |
| $ | 291,924 |
| $ | 70,000 |
| $ | 221,914 | | $ | 10 | |
| $ | 237,719 |
| $ | 50,000 |
| $ | 187,715 | | $ | 4 | |
(1) | The future interest payments included in the scheduled maturities due are calculated using variable interest rates based on the LIBOR swap curve, plus the anticipated applicable margin. |
Assets securing notes payable or held under finance leases were included in property, plant and equipment as follows:
| | | | | | | | | | | | | | |
| | September 30 | | December 31 | | | June 30 | | December 31 | | ||||
|
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||
| | (in thousands) |
| | (in thousands) |
| ||||||||
Revenue equipment |
| $ | 317,318 |
| $ | 265,315 | |
| $ | 326,914 |
| $ | 326,823 | |
Software | | | — | | | 2,140 | | |||||||
Service, office, and other equipment | | | 26,270 | | | 26,344 | | | | 26,250 | | | 26,270 | |
Total assets securing notes payable or held under finance leases | |
| 343,588 | |
| 293,799 | | |
| 353,164 | |
| 353,093 | |
Less accumulated depreciation and amortization(1) | |
| 103,425 | |
| 71,405 | | |
| 135,538 | |
| 115,424 | |
Net assets securing notes payable or held under finance leases | | $ | 240,163 | | $ | 222,394 | | | $ | 217,626 | | $ | 237,669 | |
(1) | Amortization of assets held under finance leases and depreciation of assets securing notes payable are included in depreciation expense. |
14
Financing Arrangements
Credit Facility
The Company has a revolving credit facility (the “Credit Facility”) under its Third Amended and Restated Credit Agreement (the “Credit Agreement”) with an initial maximum credit amount of $250.0 million, including a swing line facility in an aggregate amount of up to $25.0 million and a letter of credit sub-facility providing for the issuance of letters of credit up to an aggregate amount of $20.0 million. The Company may request additional revolving commitments or incremental term loans thereunder up to an aggregate amount of $125.0 million, subject to certain additional conditions as provided in the Credit Agreement. TheIn June 2021, the Company borrowed an additional $180.0repaid $20.0 million of borrowings under the Credit Facility. As of June 30, 2021, standby letters of credit of $0.6 million have been issued under the Credit Facility, in March 2020 as a precautionary measure to preserve financial flexibility duringwhich reduced the COVID-19 pandemic, and repaid the borrowing in August 2020. As of September 30, 2020, the Company had available borrowing capacity of $180.0to $199.4 million under the initial maximum credit amount of the Credit Facility.Facility, as of June 30, 2021.
Principal payments under the Credit Facility are due upon maturity of the facility on October 1, 2024; however, borrowings may be repaid, at the Company’s discretion, in whole or in part at any time, without penalty, subject to required notice periods and compliance with minimum prepayment amounts. Borrowings under the Credit Agreement can either be, at the Company’s election: (i) at an alternate base rate (as defined in the Credit Agreement) plus a spread; or (ii) at a Eurodollar rate (as defined in the Credit Agreement) plus a spread. The applicable spread is dependent upon the Company’s Adjusted Leverage Ratio (as defined in the Credit Agreement). The Credit Agreement contains conditions, representations and warranties, events of default, and indemnification provisions that are customary for financings of this type, including, but not limited to, a minimum interest coverage ratio, a maximum adjusted leverage ratio, and limitations on incurrence of debt, investments, liens on assets, certain sale and leaseback transactions, transactions with affiliates, mergers,
17
consolidations, purchases and sales of assets, and certain restricted payments. The Company was in compliance with the covenants under the Credit Agreement at SeptemberJune 30, 2020.2021.
Interest Rate Swaps
The Company has an interest rate swap agreement with a $50.0 million notional amount which started on January 2, 2020 and will mature on June 30, 2022. The Company receives floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 1.99% over the life of the agreement. The interest rate swap mitigates interest rate risk by effectively converting $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 3.12% based on the margin of the Credit Facility as of SeptemberJune 30, 2020.2021. The fair value of the interest rate swap of $1.7$1.0 million and $0.6$1.4 million was recorded in other long-term liabilities in the consolidated balance sheet at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
The Company had a five-yearalso has an interest rate swap agreement with a $50.0 million notional amount that maturedwhich will start on January 2, 2020June 30, 2022 and mature on October 1, 2024. The Company will receive floating-rate interest amounts based on one-month LIBOR in exchange for which less than $0.1fixed-rate interest payments of 0.43% beginning on June 30, 2022 throughout the remaining term of the agreement. From June 30, 2022 to October 1, 2024, the extended interest rate swap agreement will effectively convert the $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 1.56% based on the margin of the Credit Facility as of June 30, 2021. The fair value of the interest rate swap of $0.4 million was recorded in other long-term assets and $0.2 million was recorded in other long-term liabilities in the consolidated balance sheet at June 30, 2021 and December 31, 2019.2020, respectively.
The unrealized gain or loss on the interest rate swap instruments was reported as a component of accumulated other comprehensive loss,income, net of tax, in stockholders’ equity at SeptemberJune 30, 20202021 and December 31, 2019,2020, and the change in the unrealized income or loss on the interest rate swaps for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 was reported in other comprehensive income (loss), net of tax, in the consolidated statements of comprehensive income. The interest rate swaps are subject to certain customary provisions that could allow the counterparty to request immediate settlement of the fair value liability or asset upon violation of any or all of the provisions. The Company was in compliance with all provisions of the interest rate swap agreements at September 30, 2020.
On May 4, 2020, the Company extended the term of its $50.0 million notional amount interest rate swap agreement from June 30, 2022 to October 1, 2024. The Company will receive floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 0.43% beginning on June 30, 2022 throughout the remaining term of the agreement. From June 30, 2022 to October 1, 2024, the extended interest rate swap agreement will effectively convert $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 1.56% based on the margin of the Credit Facility as of September 30, 2020. The fair value of the interest rate swap of $0.3 million was recorded in other long-term liabilities in the consolidated balance sheet at September 30, 2020.2021.
Accounts Receivable Securitization Program
The Company’sIn June 2021, the Company amended and restated its accounts receivable securitization program. The amendment extended the maturity date of this program which matures onfrom October 1, 2021 allows forto July 1, 2024, decreased the amount of available cash proceeds ofunder the facility from $125.0 million to be provided$50.0 million and increased the amount of additional borrowings the Company may request under the program and has an accordion feature allowing the Companyfrom $25.0 million to request additional borrowings up to $25.0$100.0 million, subject to certain conditions. As of December 31, 2019, $40.0 million was borrowed under the program. The Company borrowed an additional $45.0 million under the program in March 2020 as a precautionary measure to preserve financial flexibility during the COVID-19 pandemic, and repaid the outstanding balance of $85.0 million during the third quarter of 2020.
15
Under this program, certain subsidiaries of the Company continuously sell a designated pool of trade accounts receivables to a wholly owned subsidiary which, in turn, may borrow funds on a revolving basis. This wholly owned consolidated subsidiary is a separate bankruptcy-remote entity, and its assets would be available only to satisfy the claims related to the lender’s interest in the trade accounts receivables. Borrowings under the accounts receivable securitization program bear interest based upon LIBOR, plus a margin, and an annual facility fee. The securitization agreement contains representations and warranties, affirmative and negative covenants, and events of default that are customary for financings of this type, including a maximum adjusted leverage ratio covenant. The Company was in compliance with the covenants under the accounts receivable securitization program at SeptemberJune 30, 2020.2021.
The accounts receivable securitization program includes a provision under which the Company may request and the letter of credit issuer may issue standby letters of credit, primarily in support of workers’ compensation and third-party casualty claims liabilities in various states in which the Company is self-insured. The outstanding standby letters of credit reduce the availability of borrowings under the program. As of SeptemberJune 30, 2020,2021, standby letters of credit of $11.7$10.1 million have been issued under the program, which reduced the available borrowing capacity to $113.3$39.9 million.
18
Letter of Credit Agreements and Surety Bond Programs
As of SeptemberJune 30, 2020,2021, the Company had letters of credit outstanding of $12.3$11.2 million (including $11.7$10.1 million issued under the accounts receivable securitization program)program and $0.6 million issued under the Credit Facility). The Company has programs in place with multiple surety companies for the issuance of surety bonds in support of its self-insurance program. As of SeptemberJune 30, 2020,2021, surety bonds outstanding related to the self-insurance program totaled $61.6 million.
Notes Payable
The Company has financed the purchase of certain revenue equipment, other equipment, and software through promissory note arrangements, including $39.4 million and $53.0$8.1 million for revenue equipment during the three and nine months ended SeptemberJune 30, 2020, respectively.2021.
Subsequent to SeptemberJune 30, 2020,2021, the Company financed the purchase of an additional $7.2$12.9 million of revenue equipment through promissory note arrangements as of November 1, 2020.August 2, 2021.
16
NOTE G – POSTRETIREMENT BENEFIT PLANS
Supplemental Benefit and Postretirement Health Benefit Plans
The following is a summary of the components of net periodic benefit cost:
| | | | | | | | | | | | | |
| | Three Months Ended June 30 | | ||||||||||
| | Supplemental | | Postretirement | | ||||||||
| | Benefit Plan | | Health Benefit Plan | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
| | (in thousands) | | ||||||||||
Service cost | | $ | — | | $ | — | | $ | 48 | | $ | 47 | |
Interest cost | |
| 1 | |
| 2 | |
| 107 | |
| 144 | |
Amortization of net actuarial (gain) loss(1) | |
| 3 | |
| 1 | |
| (137) | |
| (149) | |
Net periodic benefit cost(2) | | $ | 4 | | $ | 3 | | $ | 18 | | $ | 42 | |
| | | | | | | | | | | | | |
| | Six Months Ended June 30 | | ||||||||||
| | Supplemental | | Postretirement | | ||||||||
| | Benefit Plan | | Health Benefit Plan | | ||||||||
|
| 2021 |
| 2020 |
| 2021(2) |
| 2020 |
| ||||
| | (in thousands) | | ||||||||||
Service cost | | $ | — | | $ | — | | $ | 96 | | $ | 94 | |
Interest cost | |
| 2 | |
| 5 | |
| 214 | |
| 288 | |
Amortization of prior service credit | |
| — | |
| — | |
| — | |
| — | |
Pension settlement expense(3) | |
| — | |
| 89 | |
| — | |
| — | |
Amortization of net actuarial (gain) loss(1) | |
| 5 | |
| 5 | |
| (274) | |
| (298) | |
Net periodic benefit cost(2) | | $ | 7 | | $ | 99 | | $ | 36 | | $ | 84 | |
(1) | The Company amortizes actuarial gains and losses over the average remaining active service period of the plan participants and does not use a corridor approach. |
(2) | Service cost is reported within operating expenses and the other components of net periodic benefit cost (including pension settlement expense) are reported within the other line item of other income (costs) in the consolidated statements of operations. |
(3) | For the six months ended June 30, 2020, pension settlement expense for the supplemental benefit plan of $0.1 million (pre-tax), or $0.1 million (after-tax), was due to a $0.7 million benefit related to an officer retirement. |
Multiemployer Plans
ABF Freight System, Inc. and certain other subsidiaries reported in the Company’s Asset-Based operating segment (“ABF Freight”) contribute to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. The 25 multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. Contributions to these plans are based generally on the time worked by ABF Freight’s contractual employees at rates specified in the 2018 ABF NMFA and other related supplemental agreements. ABF Freight recognizes as expense the contractually required contributions for each period and recognizes as a liability any contributions due and unpaid. The funding obligations to the multiemployer pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006, which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015.
Approximately one half of ABF Freight’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). As set forth in the 2020 Annual Funding Notice for the Central States Pension Plan, the funded percentage of the plan was 19.5% as of January 1, 2020. In the Notice of Critical and Declining Status for the Central States Pension Plan dated March 31, 2021, the plan’s actuary certified that the plan is in critical and declining status, as defined by the Reform Act, for the plan year beginning January 1, 2021. Critical and declining status is applicable to critical status plans that are projected to become insolvent anytime within the next 14 plan years, or if the plan is projected to become insolvent within the next 19 plan years and
17
either the plan’s ratio of inactive participants to active participants exceeds 2 to one or the plan’s funded percentage is less than 80%.
On March 11, 2021, H.R.1319, the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) was signed into law. The American Rescue Plan Act includes the Butch Lewis Emergency Pension Plan Relief Act of 2021 (the “Pension Relief Act”). The Pension Relief Act includes provisions to improve funding for multiemployer pension plans, including financial assistance provided through the Pension Benefit Guarantee Corporation (the “PBGC”) to qualifying underfunded plans to secure pension benefits for plan participants. Without the funding to be provided by the Pension Relief Act, many of the multiemployer pension funds to which ABF Freight contributes, including the Central States Pension Plan, could become insolvent in the near future; however, ABF Freight would continue to be obligated to make contributions to those funds under the terms of the 2018 ABF NMFA.
On July 9, 2021, the PBGC announced an interim final rule implementing a Special Financial Assistance Program (the “SFA Program”)to administer funds to severely underfunded eligible multiemployer pension plans under the Pension Relief Act. The Company is currently evaluating the impact of the assistance to be provided by the SFA Program to the multiemployer pension plans to which ABF Freight contributes. Through the term of the 2018 ABF NMFA, which extends through June 30, 2023, ABF Freight’s multiemployer pension contribution obligations generally will be satisfied by making the specified contributions when due. Future contribution rates will be determined through the negotiation process for contract periods following the term of the current collective bargaining agreement. While the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees, management believes future contribution rates to multiemployer pension plans may be less likely to increase as a result of the provisions of the Pension Relief Act. If ABF Freight was to completely withdraw from certain multiemployer pension plans, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan.
The multiemployer plan administrators have provided to the Company no other significant changes in information related to multiemployer plans from the information disclosed in the Company’s 2020 Annual Report on Form 10-K.
NOTE H – STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Income
Components of accumulated other comprehensive income were as follows:
| | | | | | | |
|
| June 30 |
| December 31 | | ||
|
| 2021 |
| 2020 |
| ||
| | (in thousands) | | ||||
Pre-tax amounts: | | | | | | | |
Unrecognized net periodic benefit credit | | $ | 4,121 | | $ | 4,390 | |
Interest rate swap | | | (618) | | | (1,622) | |
Foreign currency translation | |
| 92 | |
| (1,182) | |
| | | | | | | |
Total | | $ | 3,595 | | $ | 1,586 | |
| | | | | | | |
After-tax amounts: | | | | | | | |
Unrecognized net periodic benefit credit | | $ | 3,060 | | $ | 3,260 | |
Interest rate swap | | | (457) | | | (1,198) | |
Foreign currency translation | |
| 69 | |
| (872) | |
| | | | | | | |
Total | | $ | 2,672 | | $ | 1,190 | |
18
NOTE G – PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Nonunion Defined Benefit Pension, Supplemental Benefit, and Postretirement Health Benefit Plans
The following is a summary of the components of net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | ||||||||||||||||
| | Nonunion Defined | | Supplemental | | Postretirement | | ||||||||||||
| | Benefit Pension Plan | | Benefit Plan | | Health Benefit Plan | | ||||||||||||
|
| 2020(1) |
| 2019 |
| 2020 |
| 2019 |
| 2020(2) |
| 2019 |
| ||||||
| | (in thousands) | | ||||||||||||||||
Service cost | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 46 | | $ | 80 | |
Interest cost | |
| — | |
| 138 | |
| 2 | |
| 9 | |
| 144 | |
| 303 | |
Expected return on plan assets | |
| — | |
| 29 | |
| — | |
| — | |
| — | |
| — | |
Amortization of prior service credit | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (8) | |
Pension settlement expense(3) | |
| — | |
| 2,530 | |
| — | |
| — | |
| — | |
| — | |
Amortization of net actuarial (gain) loss(4) | |
| — | |
| 50 | |
| 2 | |
| 24 | |
| (150) | |
| 225 | |
Net periodic benefit cost | | $ | — | | $ | 2,747 | | $ | 4 | | $ | 33 | | $ | 40 | | $ | 600 | |
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30 | | ||||||||||||||||
| | Nonunion Defined | | Supplemental | | Postretirement | | ||||||||||||
| | Benefit Pension Plan | | Benefit Plan | | Health Benefit Plan | | ||||||||||||
|
| 2020(1) |
| 2019 |
| 2020 |
| 2019 |
| 2020(2) |
| 2019 |
| ||||||
| | (in thousands) | | ||||||||||||||||
Service cost | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 140 | | $ | 240 | |
Interest cost | |
| — | |
| 624 | |
| 7 | |
| 29 | |
| 432 | |
| 909 | |
Expected return on plan assets | |
| — | |
| (60) | |
| — | |
| — | |
| — | |
| — | |
Amortization of prior service credit | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (25) | |
Pension settlement expense(3) | |
| — | |
| 4,164 | |
| 89 | |
| — | |
| — | |
| — | |
Amortization of net actuarial (gain) loss(4) | |
| — | |
| 260 | |
| 7 | |
| 71 | |
| (448) | |
| 674 | |
Net periodic benefit cost | | $ | — | | $ | 4,988 | | $ | 103 | | $ | 100 | | $ | 124 | | $ | 1,798 | |
Multiemployer Plans
ABF Freight System, Inc. and certain other subsidiaries reported in the Company’s Asset-Based operating segment (“ABF Freight”) contribute to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. ABF Freight’s contributions generally are based on the time worked by its contractual employees, in accordance with the 2018 ABF NMFA and other related supplemental agreements. ABF Freight recognizes as expense the contractually required contributions for each period and recognizes as a liability any contributions due and unpaid.
20
The 25 multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. Contribution obligations to these plans are generally specified in the 2018 ABF NMFA, which will remain in effect through June 30, 2023. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006, which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Provisions of the Reform Act include, among others, providing qualifying plans the ability to self-correct funding issues, subject to various requirements and restrictions, including applying to the U.S. Department of the Treasury for the reduction of certain accrued benefits. Through the term of its current collective bargaining agreement, ABF Freight’s contribution obligations generally will be satisfied by making the specified contributions when due. However, the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees. If ABF Freight was to completely withdraw from certain multiemployer pension plans, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan.
Approximately one half of ABF Freight’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). As set forth in the 2019 Annual Funding Notice for the Central States Pension Plan, the funded percentage of the plan was 24.8% as of January 1, 2019. In the Notice of Critical and Declining Status for the Central States Pension Plan dated March 30, 2020, the plan’s actuary certified that, as of January 1, 2020, the plan is in critical and declining status, as defined by the Reform Act. Critical and declining status is applicable to critical status plans that are projected to become insolvent anytime within the next 14 plan years, or if the plan is projected to become insolvent within the next 19 plan years and either the plan’s ratio of inactive participants to active participants exceeds 2 to one or the plan’s funded percentage is less than 80%.
The Company received a notice of insolvency dated September 30, 2020 for the Trucking Employees of North Jersey Welfare Fund, Inc. – Pension Fund (the “560 Pension Fund”) which is expected to become insolvent in April 2021. Approximately 2% of ABF Freight’s total multiemployer pension contributions for the year ended December 31, 2019, were made to the 560 Pension Fund. While the board of trustees of the 560 Pension Fund will continue to administer the fund, the PBGC will provide financial assistance to the fund by paying retiree benefits not to exceed the PBGC guarantee limits for insolvent multiemployer plans.
The multiemployer plan administrators have provided to the Company no other significant changes in information related to multiemployer plans from the information disclosed in the Company’s 2019 Annual Report on Form 10-K.
NOTE H – STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Income (Loss)
Components of accumulated other comprehensive income (loss) were as follows:
| | | | | | | |
|
| September 30 |
| December 31 | | ||
|
| 2020 |
| 2019 |
| ||
| | (in thousands) | | ||||
Pre-tax amounts: | | | | | | | |
Unrecognized net periodic benefit credit | | $ | 2,535 | | $ | 2,898 | |
Interest rate swap | | | (1,964) | | | (563) | |
Foreign currency translation | |
| (2,435) | |
| (2,075) | |
| | | | | | | |
Total | | $ | (1,864) | | $ | 260 | |
| | | | | | | |
After-tax amounts: | | | | | | | |
Unrecognized net periodic benefit credit | | $ | 1,883 | | $ | 2,152 | |
Interest rate swap | | | (1,451) | | | (416) | |
Foreign currency translation | |
| (1,799) | |
| (1,533) | |
| | | | | | | |
Total | | $ | (1,367) | | $ | 203 | |
21
The following is a summary of the changes in accumulated other comprehensive income (loss), net of tax, by component for the ninethree months ended SeptemberJune 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Unrecognized | | | Interest |
| Foreign | | | | | | Unrecognized | | | Interest |
| Foreign | | ||||
| | | | | Net Periodic | | | Rate | | Currency | | | | | | Net Periodic | | | Rate | | Currency | | ||||
|
| Total |
| Benefit Costs |
| | Swap |
| Translation | |
| Total |
| Benefit Costs |
| | Swap |
| Translation |
| ||||||
| | (in thousands) | | |||||||||||||||||||||||
Balances at December 31, 2020 | | $ | 1,190 | | $ | 3,260 | | $ | (1,198) | | $ | (872) | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Other comprehensive income before reclassifications | |
| 1,682 | |
| — | | | 741 | |
| 941 | | |||||||||||||
Amounts reclassified from accumulated other comprehensive loss | |
| (200) | |
| (200) | | | — | |
| — | | |||||||||||||
Net current-period other comprehensive income (loss) | |
| 1,482 | |
| (200) | | | 741 | |
| 941 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Balances at June 30, 2021 | | $ | 2,672 | | $ | 3,060 | | $ | (457) | | $ | 69 | | |||||||||||||
| | (in thousands) | | | | | | | | | | | | | | | ||||||||||
Balances at December 31, 2019 | | $ | 203 | | $ | 2,152 | | $ | (416) | | $ | (1,533) | | | | 203 | | | 2,152 | | | (416) | | | (1,533) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive loss before reclassifications | |
| (1,309) | |
| (8) | | | (1,035) | |
| (266) | | | | (2,142) | | | (8) | | | (1,171) | | | (963) | |
Amounts reclassified from accumulated other comprehensive income | |
| (261) | |
| (261) | | | — | |
| — | | | | (151) | | | (151) | | | — | | | — | |
Net current-period other comprehensive loss | |
| (1,570) | |
| (269) | | | (1,035) | |
| (266) | | | | (2,293) | | | (159) | | | (1,171) | | | (963) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at September 30, 2020 | | $ | (1,367) | | $ | 1,883 | | $ | (1,451) | | $ | (1,799) | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Balances at December 31, 2018 | | $ | (14,238) | | $ | (12,749) | | $ | 591 | | $ | (2,080) | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Other comprehensive income (loss) before reclassifications | | | (1,183) | | | (291) | | | (1,198) | | | 306 | | |||||||||||||
Amounts reclassified from accumulated other comprehensive loss | | | 7,791 | | | 7,791 | | | — | | | — | | |||||||||||||
Net current-period other comprehensive income (loss) | | | 6,608 | | | 7,500 | | | (1,198) | | | 306 | | |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Balances at September 30, 2019 | | $ | (7,630) | | $ | (5,249) | | $ | (607) | | $ | (1,774) | | |||||||||||||
Balances at June 30, 2020 | | $ | (2,090) | | $ | 1,993 | | $ | (1,587) | | $ | (2,496) | |
The following is a summary of the significant reclassifications out of accumulated other comprehensive income (loss) by component:
| | | | | | | | | | | | | | |
| | Unrecognized Net Periodic | | | Unrecognized Net Periodic | | ||||||||
| | Benefit Credit (Costs)(1)(2) |
| | Benefit Credit(1)(2) |
| ||||||||
| | Nine Months Ended September 30 | | | Six Months Ended June 30 | | ||||||||
|
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| ||||
| | (in thousands) |
| | (in thousands) |
| ||||||||
Amortization of net actuarial gain (loss) | | $ | 441 | | $ | (1,005) | | |||||||
Amortization of prior service credit | | | — | |
| 25 | | |||||||
Pension settlement expense, including termination expense(3)(4) | | | (89) | |
| (8,135) | | |||||||
Amortization of net actuarial gain | | $ | 269 | | $ | 293 | | |||||||
Pension settlement expense(3) | | | — | |
| (89) | | |||||||
Total, pre-tax | | | 352 | |
| (9,115) | | | | 269 | |
| 204 | |
Tax benefit (expense) | | | (91) | |
| 1,324 | | |||||||
Tax expense | | | (69) | |
| (53) | | |||||||
Total, net of tax | | $ | 261 | | $ | (7,791) | | | $ | 200 | | $ | 151 | |
(1) | Amounts in parentheses indicate increases in expense or loss. |
(2) | These components of accumulated other comprehensive |
(3) | For the |
22
Dividends on Common Stock
The following table is a summary of dividends declared during the applicable quarter:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | | 2021 | | 2020 | | ||||||||||||||||
|
| Per Share |
| Amount |
| Per Share |
| Amount |
|
| Per Share |
| Amount |
| Per Share |
| Amount |
| ||||||||
| | (in thousands, except per share data) | | (in thousands, except per share data) | ||||||||||||||||||||||
First quarter | | $ | 0.08 | | $ | 2,033 | | $ | 0.08 | | $ | 2,052 | | | $ | 0.08 | | $ | 2,037 | | $ | 0.08 | | $ | 2,033 | |
Second quarter | | $ | 0.08 | | $ | 2,049 | | $ | 0.08 | | $ | 2,050 | | | $ | 0.08 | | $ | 2,058 | | $ | 0.08 | | $ | 2,049 | |
Third quarter | | $ | 0.08 | | $ | 2,040 | | $ | 0.08 | | $ | 2,043 | |
On October 30, 2020,July 27, 2021, the Company’s Board of Directors declared a dividend of $0.08 per share to stockholders of record as of November 13, 2020.August 11, 2021.
19
Treasury Stock
The Company has a program to repurchase its common stock in the open market or in privately negotiated transactions. The program has no expiration date but may be terminated at any time at the Board of Directors’ discretion. Repurchases may be made using the Company’s cash reserves or other available sources. As of December 31, 2019,2020, the Company had $13.2$6.6 million remaining under the program for repurchases of its common stock. On January 28, 2021 the Board of Directors extended the share repurchase program by authorizing a total of $50.0 million to be available for purchases of the Company’s common stock. During the ninesix months ended SeptemberJune 30, 2020,2021, the Company purchased 227,460126,289 shares for an aggregate cost of $5.7$8.1 million, leaving $7.5$41.9 million available for repurchase of common stock under the program.
NOTE I – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended | | ||||||||||||||||
| | September 30 | | September 30 | | | June 30 | | June 30 | | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
| | (in thousands, except share and per share data) | | | (in thousands, except share and per share data) | | ||||||||||||||||||||
Basic | | | | | | | | | | | | | | | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 29,404 | | $ | 16,270 | | $ | 47,186 | | $ | 45,534 | | | $ | 60,981 | | $ | 15,880 | | $ | 84,342 | | $ | 17,782 | |
Effect of unvested restricted stock awards | |
| (4) | |
| (2) | |
| (22) | |
| (28) | | |
| — | |
| (17) | |
| — | |
| (18) | |
Adjusted net income | | $ | 29,400 | | $ | 16,268 | | $ | 47,164 | | $ | 45,506 | | | $ | 60,981 | | $ | 15,863 | | $ | 84,342 | | $ | 17,764 | |
Denominator: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average shares | |
| 25,470,094 | |
| 25,527,982 | |
| 25,403,786 | |
| 25,550,365 | | |
| 25,586,353 | |
| 25,463,559 | |
| 25,522,453 | |
| 25,468,624 | |
Earnings per common share | | $ | 1.15 | | $ | 0.64 | | $ | 1.86 | | $ | 1.78 | | | $ | 2.38 | | $ | 0.62 | | $ | 3.30 | | $ | 0.70 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | | | | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 29,404 | | $ | 16,270 | | $ | 47,186 | | $ | 45,534 | | | $ | 60,981 | | $ | 15,880 | | $ | 84,342 | | $ | 17,782 | |
Effect of unvested restricted stock awards | |
| (4) | |
| (2) | |
| (22) | |
| (28) | | |
| — | |
| (17) | |
| — | |
| (18) | |
Adjusted net income | | $ | 29,400 | | $ | 16,268 | | $ | 47,164 | | $ | 45,506 | | | $ | 60,981 | | $ | 15,863 | | $ | 84,342 | | $ | 17,764 | |
Denominator: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average shares | |
| 25,470,094 | |
| 25,527,982 | |
| 25,403,786 | |
| 25,550,365 | | |
| 25,586,353 | |
| 25,463,559 | |
| 25,522,453 | |
| 25,468,624 | |
Effect of dilutive securities | |
| 1,122,363 | |
| 888,613 | |
| 886,160 | |
| 911,303 | | |
| 1,324,443 | |
| 754,398 | |
| 1,403,680 | |
| 783,862 | |
Adjusted weighted-average shares and assumed conversions | |
| 26,592,457 | |
| 26,416,595 | |
| 26,289,946 | |
| 26,461,668 | | |
| 26,910,796 | |
| 26,217,957 | |
| 26,926,133 | |
| 26,252,486 | |
Earnings per common share | | $ | 1.11 | | $ | 0.62 | | $ | 1.79 | | $ | 1.72 | | | $ | 2.27 | | $ | 0.61 | | $ | 3.13 | | $ | 0.68 | |
Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested RSUs that receive dividends, which are considered participating securities. For the three months ended September 30, 2020, there were 0 antidilutive securities. Outstanding stock awards of less than $0.1 million for the nine months ended September 30, 2020 and outstanding stock awards of $0.2 million for the three and
2320
nine months ended September 30, 2019, were not included in the diluted earnings per share calculation because their inclusion would have the effect of increasing the earnings per share.
NOTE J – OPERATING SEGMENT DATA
The Company uses the “management approach” to determine its reportable operating segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company’s management uses to make operating decisions. Management uses revenues, operating expense categories, operating ratios, operating income, and key operating statistics to evaluate performance and allocate resources to the Company’s operations.
Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, and other company-wide services. Certain overhead costs are not attributable to any segment and remain unallocated in “Other and eliminations.” Included in unallocated costs are expenses related to investor relations, legal, the ArcBest Board of Directors, and certain technology investments. Shared services costs attributable to the operating segments are predominantly allocated based upon estimated and planned resource utilization-related metrics such as estimated shipment levels, number of pricing proposals, or number of personnel supported. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual incidence of cost incurred by the operating segments. Management believes the methods used to allocate expenses are reasonable.
The Company’s reportable operating segments are impacted by seasonal fluctuations which affect tonnage, shipment or service event levels, and demand for services, as described below; therefore, operating results for the interim periods presented may not necessarily be indicative of the results for the fiscal year. The COVID-19 pandemic had a significant negative impact on demand for the Company’s services during the second quarter ofthree months ended June 30, 2020, resulting in lower tonnage, shipment, and service event levels and, consequently, lower segment revenues for the second quarter of 2020. Although business levels improved in the third quarter of 2020,As a result, the Company’s operating segment information for the ninethree months ended SeptemberJune 30, 2020 does not reflect typical seasonal trends in business levels as described below for the Company’s reportable operating segments as a result of the impact on the COVID-19 pandemic on second quarter business levels.segments.
The Company’s reportable operating segments are as follows:
● | The Asset-Based segment includes the results of operations of ABF Freight System, Inc. and certain other subsidiaries. The segment operations include national, inter-regional, and regional transportation of general commodities through standard, expedited, and guaranteed LTL services. |
Freight shipments and operating costs of the Asset-Based segment can be adversely affected by inclement weather conditions. The second and third calendar quarters of each year usually have the highest tonnage levels while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, available capacity in the market, and the impact of other adverse external events or conditions, including the COVID-19 pandemic, as previously described, may influence quarterly freight tonnage levels.
● | The ArcBest segment includes the results of operations of the Company’s service offerings in ground expedite, truckload, |
24
ArcBest segment operations are influenced by seasonal fluctuations that impact customers’ supply chains. The second and third calendar quarters of each year usually have the highest shipment levels while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, available capacity in the market, and the impact of other adverse external events or conditions, including the COVID-19 pandemic, as previously described, may impact quarterly business levels. Shipments of the ArcBest segment may decline during winter months because of post-holiday slowdowns, but expedite shipments can be subject to short-term increases depending on the impact of weather disruptions to customers’ supply chains. Plant shutdowns during summer months may affect shipments for automotive and manufacturing customers of the ArcBest segment, but severe weather events can result in higher demand for expedite services. Moving services of the ArcBest segment are impacted by seasonal fluctuations, generally resulting in higher business levels in the second and third quarters as the demand for moving services is typically stronger in the summer months.
● | FleetNet includes the results of operations of FleetNet America, Inc. and certain other subsidiaries that provide roadside assistance and maintenance management services for commercial vehicles through a network of third-party service providers. FleetNet provides services to the Asset-Based and ArcBest segments. |
Emergency roadside service events of the FleetNet segment are favorably impacted by extreme weather conditions that affect commercial vehicle operations, and the segment’s results of operations will be influenced by seasonal variations in service event volume and the impact of other external events or conditions, including the COVID-19 pandemic as previously described.pandemic.
21
The Company’s other business activities and operating segments that are not reportable include ArcBest Corporation and certain other subsidiaries. Certain costs incurred by the parent holding company and the Company’s shared services subsidiary are allocated to the reporting segments. The Company eliminates intercompany transactions in consolidation. However, the information used by the Company’s management with respect to its reportable segments is before intersegment eliminations of revenues and expenses.
Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, and other company-wide services. Certain overhead costs are not attributable to any segment and remain unallocated in “Other and eliminations.” Included in unallocated costs are expenses related to investor relations, legal, the ArcBest Board of Directors, and certain technology investments. Shared services costs attributable to the operating segments are predominantly allocated based upon estimated and planned resource utilization-related metrics such as estimated shipment levels, number of pricing proposals, or number of personnel supported. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual incidence of cost incurred by the operating segments. Management believes the methods used to allocate expenses are reasonable.
Further classifications of operations or revenues by geographic location are impracticable and, therefore, are not provided. The Company’s foreign operations are not significant.
2522
The following tables reflect reportable operating segment information:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | Three Months Ended | | Six Months Ended |
| ||||||||||||||||
| | September 30 | | September 30 |
| | June 30 | | June 30 |
| ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
| | (in thousands) |
| | (in thousands) |
| ||||||||||||||||||||
REVENUES | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset-Based | | $ | 561,856 | | $ | 565,621 |
| $ | 1,537,639 |
| $ | 1,631,348 | | | $ | 652,832 | | $ | 460,070 |
| $ | 1,209,124 |
| $ | 975,783 | |
ArcBest | |
| 217,294 | |
| 199,758 | |
| 533,536 | |
| 554,135 | | |
| 270,748 | |
| 151,467 | |
| 523,084 | |
| 316,242 | |
FleetNet | |
| 50,545 | |
| 53,976 | |
| 149,424 | |
| 158,957 | | |
| 59,547 | |
| 46,440 | |
| 118,710 | |
| 98,879 | |
Other and eliminations | |
| (34,715) | |
| (31,792) | |
| (96,850) | |
| (73,548) | | |
| (34,154) | |
| (30,607) | |
| (72,732) | |
| (62,135) | |
Total consolidated revenues |
| $ | 794,980 |
| $ | 787,563 |
| $ | 2,123,749 |
| $ | 2,270,892 | |
| $ | 948,973 |
| $ | 627,370 |
| $ | 1,778,186 |
| $ | 1,328,769 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset-Based | | | | | | | | | | | | | | | | | | | | | | | | | | |
Salaries, wages, and benefits | | $ | 287,385 | | $ | 296,503 |
| $ | 820,218 |
| $ | 873,795 | | | $ | 302,370 | | $ | 248,995 |
| $ | 588,064 |
| $ | 532,833 | |
Fuel, supplies, and expenses | |
| 50,144 | |
| 65,738 | |
| 157,044 | |
| 195,502 | | |
| 64,689 | |
| 45,675 | |
| 125,530 | |
| 106,900 | |
Operating taxes and licenses | |
| 12,296 | |
| 12,865 | |
| 36,719 | |
| 37,477 | | |
| 12,303 | |
| 11,629 | |
| 24,551 | |
| 24,423 | |
Insurance | |
| 8,587 | |
| 7,646 | |
| 24,658 | |
| 23,235 | | |
| 9,454 | |
| 8,247 | |
| 18,393 | |
| 16,071 | |
Communications and utilities | |
| 4,373 | |
| 5,064 | |
| 13,426 | |
| 14,181 | | |
| 4,663 | |
| 4,342 | |
| 9,633 | |
| 9,053 | |
Depreciation and amortization | |
| 24,054 | |
| 23,776 | |
| 70,651 | |
| 66,370 | | |
| 23,308 | |
| 23,327 | |
| 46,792 | |
| 46,597 | |
Rents and purchased transportation | |
| 69,442 | |
| 61,102 | |
| 171,364 | |
| 167,234 | | |
| 95,082 | |
| 46,152 | |
| 170,670 | |
| 101,922 | |
Shared services | | | 60,664 | | | 56,031 | | | 155,154 | | | 161,664 | | | | 69,372 | | | 45,605 | | | 125,238 | | | 94,490 | |
Gain on sale of property and equipment | |
| 133 | |
| (82) | |
| (3,206) | |
| (1,703) | | |
| 71 | |
| (1,175) | |
| (8,624) | |
| (3,339) | |
Innovative technology costs | |
| 6,199 | |
| 4,664 | |
| 15,521 | |
| 9,200 | | |
| 7,532 | |
| 4,789 | |
| 14,400 | |
| 9,322 | |
Other | |
| 1,933 | |
| 592 | |
| 5,168 | |
| 2,878 | | |
| 77 | |
| 1,448 | |
| 511 | |
| 3,235 | |
Total Asset-Based | |
| 525,210 | |
| 533,899 | | | 1,466,717 | | | 1,549,833 | | |
| 588,921 | |
| 439,034 | | | 1,115,158 | | | 941,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
ArcBest | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchased transportation | |
| 181,129 | |
| 164,521 | |
| 443,401 | |
| 452,178 | | |
| 226,603 | |
| 125,090 | |
| 437,598 | |
| 262,272 | |
Supplies and expenses | |
| 2,746 | |
| 2,780 | |
| 7,015 | |
| 8,412 | | |
| 2,476 | |
| 1,989 | |
| 5,044 | |
| 4,269 | |
Depreciation and amortization | |
| 2,413 | |
| 2,607 | |
| 7,332 | |
| 8,813 | | |
| 2,366 | |
| 2,449 | |
| 4,752 | |
| 4,919 | |
Shared services | | | 24,217 | | | 25,032 | | | 64,784 | | | 71,204 | | | | 29,078 | | | 18,840 | | | 55,150 | | | 40,567 | |
Gain on sale of subsidiaries(3) | | | (6,923) | | | — | | | (6,923) | | | — | | |||||||||||||
Other | | | 1,958 | |
| 2,366 | | | 6,279 | | | 7,224 | | | | 2,021 | |
| 1,796 | | | 4,071 | | | 4,321 | |
Total ArcBest | |
| 212,463 | |
| 197,306 | |
| 528,811 | |
| 547,831 | | |
| 255,621 | |
| 150,164 | |
| 499,692 | |
| 316,348 | |
| | | | | | | |
| | |
| | | | | | | | | |
| | |
| | |
FleetNet | |
| 49,558 | |
| 52,805 | |
| 146,615 | |
| 155,272 | | |
| 58,409 | |
| 45,658 | |
| 116,549 | |
| 97,057 | |
Other and eliminations | |
| (32,033) | |
| (27,655) |
|
| (86,420) | |
| (57,043) | | |
| (28,277) | |
| (27,911) |
|
| (59,703) | |
| (54,387) | |
Total consolidated operating expenses | | $ | 755,198 | | $ | 756,355 | | $ | 2,055,723 | | $ | 2,195,893 | | | $ | 874,674 | | $ | 606,945 | | $ | 1,671,696 | | $ | 1,300,525 | |
| | | | | | | | | | | | | | |||||||||||||
OPERATING INCOME | | | | | | | | | | | | | | |||||||||||||
Asset-Based | | $ | 63,911 | | $ | 21,036 | | $ | 93,966 | | $ | 34,276 | | |||||||||||||
ArcBest | |
| 15,127 | |
| 1,303 | |
| 23,392 | |
| (106) | | |||||||||||||
FleetNet | |
| 1,138 | |
| 782 | |
| 2,161 | |
| 1,822 | | |||||||||||||
Other and eliminations | |
| (5,877) | |
| (2,696) | | $ | (13,029) | | $ | (7,748) | | |||||||||||||
Total consolidated operating income | | $ | 74,299 | | $ | 20,425 | | | 106,490 | | | 28,244 | | |||||||||||||
OTHER INCOME (COSTS) | | | | | | | | | | | | | | |||||||||||||
Interest and dividend income | | $ | 322 | | $ | 991 | | $ | 714 | | $ | 2,366 | | |||||||||||||
Interest and other related financing costs | |
| (2,274) | |
| (3,378) | |
| (4,702) | |
| (6,325) | | |||||||||||||
Other, net(4) | |
| 1,111 | |
| 2,696 | |
| 2,303 | |
| (1,166) | | |||||||||||||
Total other income (costs) | |
| (841) | |
| 309 | |
| (1,685) | |
| (5,125) | | |||||||||||||
INCOME BEFORE INCOME TAXES | | $ | 73,458 | | $ | 20,734 | | $ | 104,805 | | $ | 23,119 | |
| | | | | | | | | | | | | |
| | | | | | | | |
| ||||
OPERATING INCOME (LOSS) | | | | | | | | | | | | | |
Asset-Based | | $ | 36,646 | | $ | 31,722 | | $ | 70,922 | | $ | 81,515 | |
ArcBest | |
| 4,831 | |
| 2,452 | |
| 4,725 | |
| 6,304 | |
FleetNet | |
| 987 | |
| 1,171 | |
| 2,809 | |
| 3,685 | |
Other and eliminations | |
| (2,682) | |
| (4,137) | |
| (10,430) | |
| (16,505) | |
Total consolidated operating income | | $ | 39,782 | | $ | 31,208 | | $ | 68,026 | | $ | 74,999 | |
| | | | | | | | | | | | | |
OTHER INCOME (COSTS) | | | | | | | | | | | | | |
Interest and dividend income | | $ | 756 | | $ | 1,768 | | $ | 3,122 | | $ | 4,862 | |
Interest and other related financing costs | |
| (2,860) | |
| (2,900) | |
| (9,185) | |
| (8,593) | |
Other, net(2) | |
| 1,500 | |
| (6,734) | |
| 334 | |
| (7,770) | |
Total other income (costs) | |
| (604) | |
| (7,866) | |
| (5,729) | |
| (11,501) | |
INCOME BEFORE INCOME TAXES | | $ | 39,178 | | $ | 23,342 | | $ | 62,297 | | $ | 63,498 | |
(1) | The six months ended June 30, 2021 includes an $8.6 million gain on the sale of an unutilized service center property. |
(2) | Represents costs associated with the freight handling pilot test program at ABF Freight. |
Gain recognized for the three and six months ended June 30, 2021 relates to the sale of the labor services portion of the ArcBest segment’s moving business in May 2021. |
(4) | Includes the components of net periodic benefit cost other than service cost related to the Company’s |
2623
The following table reflects information about revenues from customers and intersegment revenues:
| | | | | | | | | | | | | |
|
| Three Months Ended | | Six Months Ended |
| ||||||||
| | June 30 | | June 30 |
| ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
| | (in thousands) |
| ||||||||||
Revenues from customers | | | | | | | | | | | | | |
Asset-Based | | $ | 630,145 | | $ | 439,585 |
| $ | 1,159,869 |
| $ | 935,313 | |
ArcBest | |
| 268,038 | |
| 149,683 | |
| 518,279 | |
| 312,631 | |
FleetNet | |
| 49,951 | |
| 37,245 | |
| 98,385 | |
| 78,989 | |
Other | |
| 839 | |
| 857 | |
| 1,653 | |
| 1,836 | |
Total consolidated revenues |
| $ | 948,973 |
| $ | 627,370 |
| $ | 1,778,186 |
| $ | 1,328,769 | |
| | | | | | | | | | | | | |
Intersegment revenues | | | | | | | | | | | | | |
Asset-Based | | $ | 22,687 | | $ | 20,485 | | $ | 49,255 | | $ | 40,470 | |
ArcBest | | | 2,710 | | | 1,784 | | | 4,805 | | | 3,611 | |
FleetNet | | | 9,596 | | | 9,195 | | | 20,325 | | | 19,890 | |
Other and eliminations | | | (34,993) | | | (31,464) | | | (74,385) | | | (63,971) | |
Total intersegment revenues | | $ | — |
| $ | — |
| $ | — |
| $ | — | |
| | | | | | | | | | | | | |
Total segment revenues | | | | | | | | | | | | | |
Asset-Based | | $ | 652,832 | | $ | 460,070 | | $ | 1,209,124 | | $ | 975,783 | |
ArcBest | | | 270,748 | | | 151,467 | | | 523,084 | | | 316,242 | |
FleetNet | | | 59,547 | | | 46,440 | | | 118,710 | | | 98,879 | |
Other and eliminations | | | (34,154) | | | (30,607) | | | (72,732) | | | (62,135) | |
Total consolidated revenues | | $ | 948,973 | | $ | 627,370 | | $ | 1,778,186 | | $ | 1,328,769 | |
The following table presents operating expenses by category on a consolidated basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended |
|
| Three Months Ended | | Six Months Ended |
| ||||||||||||||||
| | September 30 | | September 30 | | | June 30 | | June 30 | | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
|
| (in thousands) | | | | | | | |
| (in thousands) | | ||||||||||||||
OPERATING EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | |
Salaries, wages, and benefits | | $ | 363,035 | | $ | 363,902 | | $ | 1,013,201 | | $ | 1,068,685 | | | $ | 389,146 | | $ | 305,220 | | $ | 748,541 | | $ | 650,166 | |
Rents, purchased transportation, and other costs of services | |
| 267,438 | |
| 249,110 | |
| 672,380 | |
| 706,200 | | |
| 347,760 | |
| 187,914 | |
| 657,098 | |
| 404,942 | |
Fuel, supplies, and expenses | |
| 61,321 | |
| 81,023 | |
| 187,932 | |
| 241,059 | | |
| 80,020 | |
| 54,838 | |
| 153,169 | |
| 126,611 | |
Depreciation and amortization(1) | |
| 30,032 | |
| 29,361 | |
| 88,131 | |
| 83,332 | | |
| 30,282 | |
| 29,086 | |
| 60,636 | |
| 58,099 | |
Other | |
| 33,372 | |
| 32,959 | |
| 94,079 | |
| 96,617 | | |
| 27,466 | |
| 29,887 | |
| 52,252 | |
| 60,707 | |
| | $ | 755,198 | | $ | 756,355 | | $ | 2,055,723 | | $ | 2,195,893 | | | $ | 874,674 | | $ | 606,945 | | $ | 1,671,696 | | $ | 1,300,525 | |
(1) | Includes amortization of intangible assets. |
(2) | The three and six months ended June 30, 2021 includes a $6.9 million gain related to the sale of a subsidiary within the ArcBest segment. The six months ended June 30, 2021 also includes an $8.6 million gain related to the sale of an unutilized service center property within the Asset-Based segment. |
24
NOTE K – LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS, AND OTHER EVENTS
The Company is involved in various legal actions arising in the ordinary course of business. The Company maintains liability insurance against certain risks arising out of the normal course of its business, subject to certain self-insured retention limits. The Company routinely establishes and reviews the adequacy of reserves for estimated legal, environmental, and self-insurance exposures. While management believes that amounts accrued in the consolidated financial statements are adequate, estimates of these liabilities may change as circumstances develop. Considering amounts recorded, routine legal matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Environmental Matters
The Company’s subsidiaries store fuel for use in tractors and trucks in 56 underground tanks located in 16 states.at certain facilities. Maintenance of such tanks is regulated at the federal and, in most cases, state levels. The Company believes it is in substantial compliance with all such regulations. The Company’s underground storage tanks are required to have leak detection systems. The Company is not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on the Company.
The Company has received notices from the Environmental Protection Agency (the “EPA”) and others that it has been identified as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act, or other federal or state environmental statutes, at several hazardous waste sites. After investigating the Company’s involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements or determined that its obligations, other than those specifically accrued with respect to such sites, would involve immaterial monetary liability, although there can be no assurances in this regard.
At September 30, 2020 and December 31, 2019, the Company’s reserve, The Company maintains an accrual which was reportedis included in accrued expenses in the consolidated balance sheets, for estimated environmental cleanup costs of properties currently or previously operated by the Company totaled $0.5 million and $0.4 million, respectively.Company. Amounts accrued reflect management’s best estimate of the future undiscounted exposure related to identified properties based on current environmental regulations, management’s experience with similar environmental matters, and testing performed at certain sites.
Certain Asset-Based service center facilities operate with no exposure certifications or stormwater permits under the federal Clean Water Act (“the CWA”). The no exposure certification and stormwater permits may require periodic facility inspections and monitoring and reporting of stormwater sampling results. The Company determined that certain procedures regarding sampling, documentation, and reporting were not appropriately being performed in accordance with the CWA. As such, the Company self-reported the matter to the EPA. An estimated settlement expense for this matter is accrued within accrued expenses in the consolidated balance sheet as of June 30, 2021. Resolution of this matter is not expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
Other Events
In February 2021, the Company received a Notice of Assessment from a state pertaining to uncollected sales and use tax, including interest and penalties, for the period September 1, 2016 to November 30, 2018. The Company does not agree with the basis of the assessment and filed an appeal in May 2021. The Company has previously accrued an amount related to this assessment consistent with applicable accounting guidance, but if the state prevails in its position, the Company may owe additional tax. Management does not believe the amount involved will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
2725
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
ArcBest CorporationTM (together with its subsidiaries, the “Company,” “we,” “us,” and “our”) provides a comprehensive suite of freight transportation and integrated logistics services to deliver innovative solutions. Our operations are conducted through our three reportable operating segments: Asset-Based, which consists of ABF Freight System, Inc. and certain other subsidiaries (“ABF Freight”); ArcBest, our asset-light logistics operation; and FleetNet. The ArcBest and the FleetNet reportable segments combined represent our Asset-Light operations. References to the Company, including “we,” “us,” and “our,” in this Quarterly Report on Form 10-Q are primarily to the Company and its subsidiaries on a consolidated basis.
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 results could differ from those estimates.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describesis provided to assist readers in understanding our financial performance during the periods presented and significant trends which may impact our future performance, including the principal factors affecting our results of operations, liquidity and capital resources, and critical accounting policies. This discussion should be read in conjunction with the accompanying quarterly unaudited consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Our 20192020 Annual Report on Form 10-K includes additional information about significant accounting policies, practices, and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties to which our financial and operating results are subject.
COVID-19
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a global pandemic. Efforts to control the spread of COVID-19 led governments and other authorities to impose restrictions which resulted in business closures and disrupted global supply chains. In the United States, most states placed restrictions on business operations and issued stay-at-home orders for residents beginning in late March and early April. Although many of these restrictions were eased or lifted throughout the country during May and June, COVID-19 continues to spread, business operations remain challenged, and high unemployment rates persist. On June 8, 2020, the National Bureau of Economic Research declared that a recession began in the United States in February 2020. Based on the estimate released by the Bureau of Economic Analysis (the “BEA”) on September 30, 2020, the U.S. gross domestic product (the “GDP”) decreased at an annual rate of 31.4% in the second quarter of 2020. This sharp decline in the GDP represents the lowest quarter since the U.S. government began tracking this measure in 1947 and illustrates the difficulty of the economic environment during second quarter 2020. However, according to the advance estimate released by the BEA on October 29, 2020, GDP increased at an annual rate of 33.1% in third quarter 2020. We are encouraged by this record growth in GDP and other recent economic measures, including the Institute for Supply Management (ISM) Purchasing Managers’ Index (“PMI”) and the Industrial Production Index issued by the Federal Reserve, which are leading indicators for economic activity in the freight transportation and logistics industry. The Industrial Production Index increased at an annual rate of 39.8% for third quarter 2020, recovering more than half of its February to April 2020 decline. PMI was 59.3% for October 2020, reflecting continued economic recovery in the manufacturing sector in October and the sixth consecutive month of growth in the overall economy, compared to 48.5% in October 2019.
Business Impact
The COVID-19 pandemic and the measures taken to prevent its spread began to impact our business during late March 2020. The negative impact on demand for our services accelerated as the COVID-19 pandemic continued to disrupt businesses and the economy during the second quarter of 2020. Consolidated revenues declined 6.5% for the nine months ended September 30, 2020, compared to the same period of 2019, primarily due to the negative impact of the COVID-19 pandemic on demand for our services during the second quarter of 2020. For the nine months ended September 30, 2020, our Asset-Based daily tonnage levels decreased 2.9% and shipments per day for our ArcBest segment decreased 11.1%,
28
compared to the same prior-year period, primarily due to significant declines in our shipment and tonnage levels during second quarter 2020 related to the impact of the COVID-19 pandemic. The extent of the continued effect of the COVID-19 pandemic on our business results depends on future developments, including the severity and duration of the pandemic and its overall impact on the economy. During third quarter 2020, our consolidated revenues increased 0.9% compared to third quarter 2019, and increased 26.7% compared to the second quarter of 2020. Our third quarter 2020 results reflect the positive impact of an improving marketplace as business levels improved compared to third quarter 2019 and sequentially over second quarter 2020.
Our consolidated net income totaled $29.4 million, or $1.11 per diluted share, and $47.2 million, or $1.79 per diluted share, for the three and nine months ended September 30, 2020, respectively, compared to $16.3 million, or $0.62 per diluted share, and $45.5 million, or $1.72 per diluted share, for the three and nine months ended September 30, 2019, respectively. Year-over-year improvement in our net income and earnings per share was achieved during this challenging business environment because of the dedication of our employees and prudent business decisions, including the cost savings measures we implemented at the beginning of second quarter 2020, as further discussed in the following Business Response section.
October 2020 Business Update
The revenue improvements we experienced in third quarter 2020 continued during October 2020. Compared to the same prior-year period, Asset-Based billed revenue increased approximately 9% on a per-day basis, primarily due to higher tonnage levels. In addition, revenue per day for our ArcBest segment (ArcBest Asset-Light operations, excluding FleetNet) increased approximately 31%, primarily due to higher revenue per shipment. Our October 2020 results are further discussed in the October business updates within the Asset-Based Segment Results and Asset-Light Results sections.
Business Response
Business Continuity & Our Employees and Customers
We are continuing the business continuity processes we implemented in March 2020 which focused on maintaining customer service levels while emphasizing the health, welfare, and safety of our employees and our customers. These processes include employee communication on proper hand washing, social distancing, mask wearing, and glove removal; increased cleaning and disinfecting measures; providing masks and gloves to employees; reduced nonessential travel and in-person meetings, including meetings with customers; remote work arrangements for many personnel; health screening questionnaires for personnel working onsite; health screening procedures for critical customer visitors; and promotion of social distancing to every extent possible, including between employees and with customers, as recommended by the Centers for Disease Control and Prevention.
Financial Stability
As previously announced, in anticipation of lower business levels and the potential for cash flow disruption, we took actions in late March and early April 2020 to preserve cash and lower costs to mitigate the operating and financial impact of the COVID-19 pandemic.
On March 26, 2020, we drew down the $180.0 million remaining available borrowing capacity under the initial maximum credit amount of our revolving credit facility and borrowed $45.0 million under our accounts receivable securitization program. These borrowings were a proactive measure to supplement our already strong cash and short-term investments position and preserve financial flexibility in consideration of general economic and financial market uncertainty resulting from the COVID-19 outbreak. Due to improvement in our consolidated net cash position, stabilized customer account payment trends, and improved business levels, we repaid these borrowings during third quarter 2020. Additionally, we repaid the remaining outstanding balance of $40.0 million under our accounts receivable securitization program in September 2020. Our consolidated cash, cash equivalents, and short-term investments totaled $351.1 million at September 30, 2020. These amounts, net of debt, increased to a $59.1 million net cash position at September 30, 2020, compared to a $41.1 million net cash position at June 30, 2020, primarily reflecting positive earnings.
We lowered our planned capital expenditures for the current year by 30%, including a reduction in revenue equipment purchases of $18.0 million. Total net capital expenditures for 2020 are expected to be in a range of $90 million to $95 million and depreciation and amortization for the year is estimated to be approximately $110 million.
29
In April 2020, we implemented cost reduction actions which included a 15% reduction in the salaries of officers and nonunion employees and similar compensation adjustments for hourly nonunion employees; a 15% reduction in fees paid to members and committee chairpersons of ArcBest’s Board of Directors; implementation of a hiring freeze; suspension of the employer match on our nonunion 401(k) plan; and reduction of advertising, training, travel, and other costs to better align with current business levels. These compensation reductions lowered consolidated operating expenses by approximately $15 million in second quarter 2020, versus second quarter 2019. As a result of the positive sequential trends in our business levels through July 2020, we reversed these cost reductions beginning in the third quarter of 2020, including officer and nonunion employee salaries, the employer match on our nonunion 401(k) plan, and fees for our Board of Directors.
Throughout the second and third quarters of 2020, we also utilized real-time, technology-enabling data to make operational changes in our Asset-Based network, including workforce reductions to better align resources with business levels. We are continually evaluating these operational changes and adjusting to current and anticipated business levels. These operational changes, and the cost reductions we made in the second quarter, contributed to our positive financial results for the three and nine months ended September 30, 2020. As business levels have improved, certain operational resources have been added back to the Asset-Based network, and they will continue to be carefully managed to available business. However, our efforts to manage our operational costs may not directly correspond to significant changes in business levels and there can be no assurance that the impact of the COVID-19 pandemic will not have an adverse effect on our operating results in future periods.
Fourth Quarter 2020 Update
We attribute our success during 2020 to the dedication and adaptability of our workforce and the ArcBest culture that unites our people behind a set of shared values. We recognize the sacrifices our employees have made during 2020, both personally and financially, to serve our customers through the pandemic and find a way to solve their changing needs. We have continued to re-evaluate our cost savings actions related to the pandemic as the economic recovery has progressed and our financial results have become more certain. In early November 2020, we announced that the Company will be providing one-time discretionary payments in fourth quarter 2020 to nonunion personnel for the previously discussed 15% wage reduction incurred by our nonunion exempt employees during the second quarter of 2020 and to provide a bonus to nonunion hourly employees whose hours were reduced during the same time period. We anticipate the expense related to these incentives to approximate $11 million, of which we recognized expense of $7 million in third quarter 2020 based on the probability of the payments occurring in fourth quarter 2020.
Risk Factors
As previously disclosed in our Current Report on Form 8-K filed on April 7, 2020, in light of the COVID-19 pandemic, we supplemented our risk factors with the following risk factor:
The widespread outbreak of an illness or any other communicable disease, including the effects of pandemics, or
any other public health crisis, as well as regulatory measures implemented in response to such events, could adversely affect our business, results of operations, financial condition, and cash flows.
As previously disclosed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, we also supplemented our risk factors with the new risk factor set forth below:
We, or the third parties upon which we depend to provide services for us, may be adversely affected by external
events from which our business continuity plans may not adequately protect us.
Our new risk factors are fully described in Part II, Item 1A of this Quarterly Report on Form 10-Q. These risk factors should be read in conjunction with the risk factors within “Item 1A. Risk Factors” in our 2019 Annual Report on Form 10-K, including our description of risks related to economic conditions and uncertainties, within the risk factor titled “Our business is cyclical in nature, and we are subject to general economic factors and instability in financial and credit markets that are largely beyond our control, any of which could adversely affect our business, financial condition, and results of operations.”
30
Accounting Estimates
In accordance with generally accepted accounting principles, we use projected financial information to determine certain accounting estimates and the values of certain assets included in our consolidated financial statements. As of September 30, 2020, we evaluated our goodwill, intangible assets, operating assets, and deferred tax assets for indicators of impairment and challenged our accounting estimates considering the current economic conditions. Certain of these assessments are discussed in the paragraphs below. Given the uncertainties regarding the economic environment and the future impact of the COVID-19 pandemic on our business, there can be no assurance that our estimates and assumptions made for purposes of impairment evaluations and accounting estimates will prove to be accurate.
Goodwill and Intangible Asset Impairment Consideration
We have assessed impairment indicators to determine if our asset balances, including goodwill and intangible assets which totaled $144.3 million at September 30, 2020, should be written down based on currently available information. While future impacts of COVID-19 and the economic environment are difficult to forecast, we expect to generate cash flows subsequent to September 30, 2020 which would continue to support the fair value in excess of carrying value for our reporting units and indefinite-life intangible assets. We have determined there have not been any indicators of impairment that would, more likely than not, reduce the fair value of our reporting units or trade name intangible asset below their carrying values and that would require interim tests of impairment. Due to the impact of COVID-19 on business and freight levels, we considered several factors to determine if it was more likely than not that impairment of these assets existed as of September 30, 2020. In making this analysis, management considered current and forecasted business levels and estimated future cash flows over several years. Management’s assumptions include a continuing economic recovery through the remainder of 2020 and into 2021. Based on our analysis, we determined it was more likely than not that goodwill and indefinite-lived intangible assets were not impaired as of September 30, 2020.
As of September 30, 2020, we believe the values of the intangible assets and goodwill as reported in our consolidated financial statements are appropriate; however, we will continually monitor performance measures and events for any significant changes in impairment indicators. Significant declines in business levels or other changes in cash flow assumptions, including the impact of the COVID-19 pandemic, or other factors that negatively impact the fair value of the operations of our reporting units could result in future impairment and a resulting non-cash write-off of a significant portion of the goodwill and indefinite-lived intangible assets of our ArcBest segment, which would have an adverse effect on our financial condition and operating results.
Allowances on Accounts Receivable
As further described in the Critical Accounting Policies section, we estimate our allowance for credit losses on accounts receivable based on historical trends, factors surrounding the credit risk of specific customers, and forecasts of future economic conditions. We continually update the data we use to ensure that these estimates reflect the most recent trends, factors, forecasts, and other information available; however, actual write-offs or adjustments could differ from our allowance estimates due to a number of factors, including changes in the overall economic environment or factors and risks surrounding a particular customer, both of which have a higher degree of uncertainty at this time due to the impact of the COVID-19 pandemic.
31
Results of Operations
Consolidated Results
| | | | | | | | | | | | | | | | | | | | | | | ||||
| | Three Months Ended | | Nine Months Ended |
| | Three Months Ended | | Six Months Ended |
| ||||||||||||||||
| | September 30 | | September 30 | | | June 30 | | June 30 | | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
| | (in thousands, except per share data) |
| | (in thousands, except per share data) |
| ||||||||||||||||||||
REVENUES | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset-Based | | $ | 561,856 | | $ | 565,621 | | $ | 1,537,639 | | $ | 1,631,348 | | | $ | 652,832 | | $ | 460,070 | | $ | 1,209,124 | | $ | 975,783 | |
| | | | | | | | | | | | | | | | | | | | | | | | | ||
ArcBest | |
| 217,294 | |
| 199,758 | |
| 533,536 | |
| 554,135 | | |
| 270,748 | |
| 151,467 | |
| 523,084 | |
| 316,242 | |
FleetNet | |
| 50,545 | |
| 53,976 | |
| 149,424 | |
| 158,957 | | |
| 59,547 | |
| 46,440 | |
| 118,710 | |
| 98,879 | |
Total Asset-Light | | | 267,839 | | | 253,734 | | | 682,960 | | | 713,092 | | | | 330,295 | | | 197,907 | | | 641,794 | | | 415,121 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other and eliminations | |
| (34,715) | |
| (31,792) | |
| (96,850) | |
| (73,548) | | |
| (34,154) | |
| (30,607) | |
| (72,732) | |
| (62,135) | |
Total consolidated revenues | | $ | 794,980 | | $ | 787,563 | | $ | 2,123,749 | | $ | 2,270,892 | | | $ | 948,973 | | $ | 627,370 | | $ | 1,778,186 | | $ | 1,328,769 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
OPERATING INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset-Based | | $ | 36,646 | | $ | 31,722 | | $ | 70,922 | | $ | 81,515 | | | $ | 63,911 | | $ | 21,036 | | $ | 93,966 | | $ | 34,276 | |
| | | | | | | | | | | | | | | | | | | | | | | | | ||
ArcBest | |
| 4,831 | |
| 2,452 | |
| 4,725 | | | 6,304 | | |
| 15,127 | |
| 1,303 | |
| 23,392 | | | (106) | |
FleetNet | |
| 987 | |
| 1,171 | |
| 2,809 | | | 3,685 | | |
| 1,138 | |
| 782 | |
| 2,161 | | | 1,822 | |
Total Asset-Light | | | 5,818 | | | 3,623 | | | 7,534 | | | 9,989 | | | | 16,265 | | | 2,085 | | | 25,553 | | | 1,716 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other and eliminations | |
| (2,682) | |
| (4,137) | |
| (10,430) | | | (16,505) | | |
| (5,877) | |
| (2,696) | |
| (13,029) | | | (7,748) | |
Total consolidated operating income | | $ | 39,782 | | $ | 31,208 | | $ | 68,026 | | $ | 74,999 | | | $ | 74,299 | | $ | 20,425 | | $ | 106,490 | | $ | 28,244 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME | | $ | 29,404 | | $ | 16,270 | | $ | 47,186 | | $ | 45,534 | | | $ | 60,981 | | $ | 15,880 | | $ | 84,342 | | $ | 17,782 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
DILUTED EARNINGS PER SHARE | | $ | 1.11 | | $ | 0.62 | | $ | 1.79 | | $ | 1.72 | | | $ | 2.27 | | $ | 0.61 | | $ | 3.13 | | $ | 0.68 | |
26
Our consolidated revenues, which totaled $795.0$949.0 million and $2,123.7$1,778.2 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, increased 0.9%51.3% and decreased 6.5%33.8%, respectively, compared to the same prior-year periods. The year-over-year increaserevenue growth was attributable to increased demand and higher pricing for shipping and logistics services in consolidated third quarter revenues reflects an improving economic environment. That improvement followedOur revenues during the significant decline in demand for our services due to the impact ofsix-month period ended June 30, 2020 were negatively impacted by the COVID-19 pandemic in second quarter 2020, which drovedisrupted businesses and the decrease in consolidated revenues for the nine months ended September 30, 2020, compared to the same prior-year period.economy. The year-over-year changes in consolidated revenues for the three and ninesix months ended SeptemberJune 30, 20202021 reflect a decreasean increase in our Asset-Based revenues of 0.7%41.9% and 5.7%23.9%, respectively, and an increase in revenues of our Asset-Light operations (representing the combined operations of our ArcBest and FleetNet segments) of 5.6% for third quarter 202066.9% and a decrease of 4.2% for the nine months ended September 30, 2020, compared to the same periods of 2019,54.6%, respectively. The increased elimination of revenue amounts reported in the “Other and eliminations” line of consolidated revenues for the three and ninesix months ended SeptemberJune 30, 2020,2021, compared to the same periodsperiod of 2019,2020, includes the impact of increased intersegment business levels among our operating segments, reflecting continued integration of our logistics services.
TheOur Asset-Based revenue declines reflect a decreaseimprovement reflects an increase in billed revenue per hundredweight, including fuel surcharges, of 1.8%15.4% and 3.3%12.4% for the three and ninesix months ended SeptemberJune 30, 2020, respectively,2021, compared to the same periods of 2019,2020, with an increaseper-day increases in tonnage per day of 1.2%22.7% and 11.7%, respectively, and shipments of 13.5% and 7.8%, respectively, for the three and six months ended SeptemberJune 30, 2020 and a decrease in tonnage per day of 2.9% for the nine months ended September 30, 2020,2021, compared to the same prior-year periods. The increase in revenues of our Asset-Light operations for the three and six months ended SeptemberJune 30, 20202021 primarily reflects higherincreases in revenue per shipment of 32.9% and 29.5%, respectively, and shipments per day of 39.0% and 30.4%, respectively, for the ArcBest segment, partially offset by the impact of lower FleetNet service events, compared to the same period of 2019. The decrease2020. An increase in revenues of our Asset-Light operationsroadside and maintenance service event volumes and higher revenue per event for the nine months ended September 30, 2020 primarily reflects lower shipments for the ArcBest segment and lower FleetNet service events, comparedalso contributed to the same prior-year period.year-over-year revenue improvement. On a combined basis, the Asset-Light operating segments generated approximately 32%34% and 31%35% of our total revenues before other revenues and intercompany eliminations for the three and ninesix months ended SeptemberJune 30, 2020, respectively.
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For the three2021, respectively, and nine months ended September 30, 2020, consolidated operating income totaled $39.8 million and $68.0 million, compared to $31.2 million and $75.0 million, respectively,30% for the same periods of 2019. In addition2020.
Consolidated operating income totaled $74.3 million and $106.5 million for the three and six months ended June 30, 2021, respectively, compared to $20.4 million and $28.2 million for the same periods of 2020. The $53.9 million and $78.3 million increase in consolidated operating income for the three and six months ended June 30, 2021, respectively, is primarily due to the results of our operating segments (further described within the Asset-Based Segment Results and the Asset-Light Results sections of MD&A), the. The year-over-year comparisons of consolidated operating resultsincome were also impacted by investments in innovative technology, asitems described in the following paragraphs, including cost reduction actions taken in second quarter 2020, costs forrelated to investments in innovative technology, a gain on the sale of a subsidiary, certain nonunion performance-based incentive plans, certain other nonunion fringe benefits, and, expenses accrued for discretionary nonunion wagethe six-month period, gains on the sales of property and incentive payments (previously discussed in the Fourth Quarter 2020 Update toequipment.
The comparisons of our COVID-19 Business Response within the General Section of MD&A). Forconsolidated operating income for the three and ninesix months ended SeptemberJune 30, 2020, compared2021 to the same prior-year periods are impacted by numerous actions we implemented, primarily in the second quarter of 2019, expenses for certain nonunion performance-based incentive plans increased $8.5 million and $7.1 million, respectively. An additional $7 million was accrued during the three months ended September 30, 2020, relatedin response to the previously disclosed discretionaryCOVID-19 pandemic in anticipation of lower business levels. In April 2020, we implemented cost reduction actions which included a 15% reduction in the salaries of officers and nonunion wageemployees and incentive payments which are probablesimilar compensation adjustments for hourly nonunion employees; a 15% reduction in fees paid to members and committee chairpersons of beingArcBest’s Board of Directors; implementation of a hiring freeze; suspension of the employer match on our nonunion 401(k) plan; and reduction of advertising, training, travel, and other costs to better align with current business levels. These compensation reductions lowered consolidated operating expenses by approximately $15 million in second quarter 2020. We also made workforce reductions in fourthour Asset-Based network to better align resources with business levels during second quarter 2020. We reversed our cost reductions beginning in the third quarter of 2020, including officer and nonunion employee salaries, the employer match on our nonunion 401(k) plan, and fees for our Board of Directors.
Innovative technology costs related to the freight handling pilot test program at ABF Freight impacted consolidated results by $6.0$7.4 million (pre-tax), or $4.6$5.6 million (after-tax) and $0.17$0.21 per diluted share, for thirdsecond quarter 2020,2021, compared to $4.7 million (pre-tax), or $3.6 million (after-tax) and $0.14 per diluted share, for thirdsecond quarter 2019.2020. For the ninesix months ended SeptemberJune 30, 2020,2021, these costs impacted consolidated results by $15.3$14.3 million (pre-tax), or $11.8$10.9 million (after-tax) and $0.45$0.40 per diluted share, compared to $11.1$9.3 million (pre-tax), or $8.5$7.2 million (after-tax) and $0.32$0.27 per diluted share, for the same period of 2019.2020. The freight handling pilot test program at ABF Freight is discussed in the Asset-Based Operating ExpensesIncome section of Asset-Based Segment Results within Asset-Based Operations.
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Consolidated operating results for the three and six months ended June 30, 2021 also benefited from the sale of a portion of our ArcBest segment’s moving labor services business in second quarter 2021 which resulted in a gain of $6.9 million (pre-tax), or $5.4 million (after-tax) and $0.20 per diluted share.
For the three and six months ended June 30, 2021, compared to the same periods of 2020, expenses for certain nonunion performance-based incentive plans, including long-term incentive plans impacted by shareholder returns relative to peers, increased $14.0 million and $22.5 million, respectively. Nonunion healthcare expenses increased $3.4 million and $4.5 million for the three and six months ended June 30, 2020, respectively, versus the same prior-year periods. For the six months ended June 30, 2021, consolidated operating income also benefited from gains on the sale of property and equipment, which increased $5.3 million compared to the same period of 2020.
The loss reported in the “Other and eliminations” line, which totaled $2.7$5.9 million and $10.4$13.0 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to $4.1$2.7 million and $16.5$7.7 million respectively, for the same periods of 2019,2020, includes expenses related to investments to develop and design various ArcBest technology and innovations as well as expenses related to shared services for the delivery of comprehensive transportation and logistics services to ArcBest’s customers. The $1.4$3.2 million and $6.1$5.3 million decreasesincrease in the loss reported in “Other and eliminations” for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, primarily reflects higher expenses compared to the same periods of 2019, reflect lower technology costs2020, due to the previously discussed cost reductions during the second quarter of 2020 in response to the COVID-19 pandemic and reducedincreases in shared service operatingpersonnel expenses as we continuedrelated to manage these costs throughhigher business levels in the pandemic.2021 periods compared to the weaker economic environment experienced in the prior-year periods. We expect the loss reported in “Other and eliminations” for fourththird quarter 2020and full-year 2021 to approximate $3$5 million and to be approximately $13$24 million, for full year 2020.respectively.
In addition to the above items, consolidated net income and earnings per share were impacted by nonunion defined benefit pension expense in 2019, including settlement and termination expense, and changes in the cash surrender value of variable life insurance policies, bothtax benefits from the vesting of which are reported below the operating income lineshare-based compensation awards, and other changes in the consolidated statementseffective tax rate as described within the Income Taxes section of operations.MD&A. A portion of our variable life insurance policies have investments, through separate accounts, in equity and fixed income securities and, therefore, are subject to market volatility. Changes in the cash surrender value of life insurance policies, which are reported below the operating income line in the consolidated statements of operations, increased net income by $1.5$1.2 million, or $0.06$0.05 per diluted share, and $0.3$2.5 million, or $0.01$0.09 per diluted share, for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to an increase in net income of $0.6$2.6 million, or $0.02$0.10 per diluted share, and $2.7a decrease of $1.2 million, or $0.10$0.05 per diluted share, respectively, for the same prior-year periods. Consolidated after-tax pension expense, including settlement and termination expense, recognized forThe vesting of restricted stock units, which primarily occurs in the nonunion definedsecond quarter of each year, resulted in a tax benefit pension plan totaled $6.0of $6.8 million, or $0.23$0.25 per diluted share, and $7.7$6.9 million, or $0.29$0.26 per diluted share, for the three and ninesix months ended SeptemberJune 30, 2019,2021, respectively, with no comparablecompared to tax expense of $0.7 million, or $0.03 per diluted share, for the three and nine months ended September 30, 2020, as terminationeach of the nonunion defined benefit pension plan was completed assame periods of December 31, 2019. (For further discussion of settlement charges and termination expense related to the nonunion defined benefit pension plan for the three and nine months ended September 30, 2019, see Note G to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.)2020.
Consolidated Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)
We report our financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures and ratios, such as Adjusted EBITDA, utilized for internal analysis provide analysts, investors, and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Accordingly, using these measures improves comparability in analyzing our performance because it removes the impact of items from operating results that, in management's opinion, do not reflect our core operating performance. Management uses Adjusted EBITDA as a key
33
measure of performance and for business planning. The measure is particularly meaningful for analysis of our operating performance, because it excludes amortization of acquired intangibles and software of the Asset-Light businesses, which are significant expenses resulting from strategic decisions rather than core daily operations. Additionally, Adjusted EBITDA is a primary component of the financial covenants contained in our Third Amended and Restated Credit Agreement (see Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). Other companies may calculate Adjusted EBITDA differently; therefore, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results. Adjusted EBITDA should not be construed as a better measurement than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.
28
Consolidated Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | Three Months Ended | | Six Months Ended |
| ||||||||||||||||
| | September 30 | | September 30 | | | June 30 | | June 30 | | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
| | (in thousands) |
| | (in thousands) |
| ||||||||||||||||||||
Net income | | $ | 29,404 | | $ | 16,270 | | $ | 47,186 | | $ | 45,534 | | | $ | 60,981 | | $ | 15,880 | | $ | 84,342 | | $ | 17,782 | |
Interest and other related financing costs | |
| 2,860 | |
| 2,900 | |
| 9,185 | |
| 8,593 | | |
| 2,274 | |
| 3,378 | |
| 4,702 | |
| 6,325 | |
Income tax provision | |
| 9,774 | |
| 7,072 | |
| 15,111 | |
| 17,964 | | |
| 12,477 | |
| 4,854 | |
| 20,463 | |
| 5,337 | |
Depreciation and amortization | |
| 30,032 | |
| 29,361 | |
| 88,131 | |
| 83,332 | | |
| 30,282 | |
| 29,086 | |
| 60,636 | |
| 58,099 | |
Amortization of share-based compensation | |
| 2,885 | |
| 2,409 | |
| 7,956 | |
| 7,268 | | |
| 3,324 | |
| 2,890 | |
| 5,678 | |
| 5,071 | |
Amortization of net actuarial (gains) losses of benefit plans and pension settlement expense, including termination expense(1) | |
| (148) | |
| 6,800 | |
| (352) | |
| 9,140 | | |||||||||||||
Amortization of net actuarial gains of benefit plans and pension settlement expense(1) | |
| (134) | |
| (148) | |
| (269) | |
| (204) | | |||||||||||||
Consolidated Adjusted EBITDA | | $ | 74,807 | | $ | 64,812 | | $ | 167,217 | | $ | 171,831 | | | $ | 109,204 | | $ | 55,940 | | $ | 175,552 | | $ | 92,410 | |
(1) | The |
Asset-Based Operations
Asset-Based Segment Overview
The Asset-Based segment consists of ABF Freight System, Inc., a wholly owned subsidiary of ArcBest Corporation, and certain other subsidiaries (“ABF Freight”). Our Asset-Based operations are affected by general economic conditions, as well as a number of other competitive factors that are more fully described in Item 1 (Business) and in Item 1A (Risk Factors) of Part I of our 20192020 Annual Report on Form 10-K. The key indicators necessary to understand the operating results of our Asset-Based segment, which are more fully described in the Asset-Based Segment Overview within the Asset-Based Operations section of Results of Operations in Item 7 (MD&A) of Part II of our 20192020 Annual Report on Form 10-K, are outlined below. These key indicators are used by management to evaluate segment operating performance and measure the effectiveness of strategic initiatives in the results of our Asset-Based segment. We quantify certain key indicators using key operating statistics which are important measures in analyzing segment operating results from period to period. These statistics are defined within the key indicators below and referred to throughout the discussion of the results of our Asset-Based segment:
● | Overall customer demand for Asset-Based transportation services, including the impact of economic factors. |
● | Volume of transportation services provided and processed through our network which influences operating leverage as the level of tonnage and number of shipments vary, primarily measured by: |
Pounds or Tonnage – total weight of shipments processed during the period in U.S. pounds or U.S. tons.
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Pounds per day or Tonnage per day (average daily shipment weight) – pounds or tonnage divided by the number of workdays in the period.
Shipments per day – total number of shipments moving through the Asset-Based freight network during the period divided by the number of workdays in the period.
Pounds per shipment (weight per shipment) – total pounds divided by the number of shipments during the period.
Average length of haul (miles) – total miles driven divided by the total number ofbetween origin and destination service centers for all shipments (including shipments moved with purchased transportation) during the period.period, with miles weighted based on the size of shipments.
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● | Prices obtained for services, including fuel surcharges, primarily measured by: |
Billed revenue per hundredweight, including fuel surcharges (yield) – revenue per every 100 pounds of shipment weight, including surcharges related to fuel, systematically calculated as shipments are processed in the Asset-Based freight network. Revenue for undelivered freight is deferred for financial statement purposes in accordance with the Company’s revenue recognition policy. Billed revenue used for calculating revenue per hundredweight measurements is not adjusted for the portion of revenue deferred for financial statement purposes.
● | Ability to manage cost structure, primarily in the area of salaries, wages, and benefits (“labor”), with the total cost structure primarily measured by: |
Operating ratio – the percent of operating expenses to revenue levels.
We also quantify certain key operating statistics which are used by management to evaluate productivity of operations within the Asset-Based freight network and to measure the effectiveness of strategic initiatives to manage the segment’s cost structure from period to period. These measures are defined below and further discussed in the Asset-Based Operating Expenses section within Asset-Based Segment Results:
● | Shipments per DSY hour – total shipments (including shipments handled by purchased transportation agents) divided by dock, street, and yard (“DSY”) |
● | Pounds per mile – total pounds divided by total miles driven during the period (including pounds and miles moved with purchased transportation). This metric is used to measure labor efficiency of linehaul operations, although |
Other companies within our industry may present different key performance indicators or operating statistics, or they may calculate their measures differently; therefore, our key performance indicators or operating statistics may not be comparable to similarly titled measures of other companies. Key performance indicators or operating statistics should be viewed in addition to, and not as an alternative for, our reported results. Our key performance indicators or operating statistics should not be construed as better measurements of our results than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.
As of September 2020,June 2021, approximately 82% of our Asset-Based segment’s employees were covered under the ABF National Master Freight Agreement (the “2018 ABF NMFA”), the collective bargaining agreement with the International Brotherhood of Teamsters (the “IBT”), which will remain in effect through June 30, 2023. Under the 2018 ABF NMFA, the contractual wage and benefits costs, including the ratification bonuses and vacation restoration, are estimated to increase approximately 2.0% on a compounded annual basis through the end of the agreement. Profit-sharing bonuses based on the Asset-Based segment’s annual operating ratios for any full calendar year under the contract represent an additional increase in costs under the 2018 ABF NMFA. The contractual wage rate under the 2018 ABF NMFA increased
1.7% effective July 1, 2021, and the average health, welfare, and pension benefit contribution rate is expected to increase
approximately 2.5% effective primarily on August 1, 2021.
3530
Asset-Based Segment Results
The following table sets forth a summary of operating expenses and operating income as a percentage of revenue for the Asset-Based segment:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| Nine Months Ended |
| | | Three Months Ended |
| Six Months Ended |
| | ||||||||
| | September 30 | �� | September 30 | | | | June 30 | | June 30 | | | ||||||||
|
| 2020 |
| 2019 | | 2020 | | 2019 | | |
| 2021 |
| 2020 | | 2021 | | 2020 |
| |
Asset-Based Operating Expenses (Operating Ratio) | | | | | | | | | | | | | | | | | | | | |
Salaries, wages, and benefits |
| 51.2 | % | 52.4 | % | 53.3 | % | 53.6 | % | |
| 46.3 | % | 54.1 | % | 48.6 | % | 54.6 | % | |
Fuel, supplies, and expenses |
| 8.9 | | 11.6 | | 10.2 | | 12.0 | | |
| 9.9 | | 9.9 | | 10.4 | | 11.0 | | |
Operating taxes and licenses |
| 2.2 | | 2.3 | | 2.4 | | 2.3 | | |
| 1.9 | | 2.5 | | 2.0 | | 2.5 | | |
Insurance |
| 1.5 | | 1.4 | | 1.6 | | 1.4 | | |
| 1.4 | | 1.8 | | 1.5 | | 1.6 | | |
Communications and utilities |
| 0.8 | | 0.9 | | 0.9 | | 0.9 | | |
| 0.7 | | 1.0 | | 0.8 | | 0.9 | | |
Depreciation and amortization |
| 4.3 | | 4.2 | | 4.6 | | 4.0 | | |
| 3.6 | | 5.1 | | 3.9 | | 4.8 | | |
Rents and purchased transportation |
| 12.4 | | 10.8 | | 11.2 | | 10.2 | | |
| 14.6 | | 10.0 | | 14.1 | | 10.4 | | |
Shared services |
| 10.8 | | 9.9 | | 10.1 | | 9.9 | | |
| 10.6 | | 9.9 | | 10.4 | | 9.7 | | |
Gain on sale of property and equipment |
| — | | — | | (0.2) | | (0.1) | | |
| — | | (0.2) | | (0.7) | | (0.3) | | |
Innovative technology costs(1) | | 1.1 | | 0.8 | | 1.0 | | 0.6 | | | | 1.2 | | 1.0 | | 1.2 | | 1.0 | | |
Other |
| 0.3 | | 0.1 | | 0.3 | | 0.2 | | |
| — | | 0.3 | | — | | 0.3 | | |
|
| 93.5 | % | 94.4 | % | 95.4 | % | 95.0 | % | |
| 90.2 | % | 95.4 | % | 92.2 | % | 96.5 | % | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | ||||||||||
Asset-Based Operating Income |
| 6.5 | % | 5.6 | % | 4.6 | % | 5.0 | % | |
| 9.8 | % | 4.6 | % | 7.8 | % | 3.5 | % | |
(1) | Represents costs associated with the freight handling pilot test program at ABF Freight. |
The following table provides a comparison of key operating statistics for the Asset-Based segment, as previously defined in the Asset-Based Overview:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended |
| | | Three Months Ended | | | Six Months Ended |
| | ||||||||||||||||||||||||
| | September 30 | | | September 30 | | | | June 30 | | | June 30 | | | ||||||||||||||||||||||||
|
| 2020 |
| 2019 |
| % Change |
| | 2020 |
| 2019 |
| % Change |
| |
| 2021 |
| 2020 |
| % Change |
| | 2021 |
| 2020 |
| % Change |
| | ||||||||
Workdays(1) |
| | 64.0 |
| | 63.5 | | | |
| | 191.5 |
| | 190.0 | | | | |
| | 63.5 |
| | 63.5 | | | |
| | 126.5 |
| | 127.5 | | | | |
Billed revenue per hundredweight, including fuel surcharges | | $ | 35.69 | | $ | 36.35 |
| (1.8) | % | | $ | 34.21 | | $ | 35.38 |
| (3.3) | % | | | $ | 38.87 | | $ | 33.69 |
| 15.4 | % | | $ | 37.54 | | $ | 33.41 |
| 12.4 | % | |
Pounds | |
| 1,584,516,960 | |
| 1,552,739,025 |
| 2.0 | % | |
| 4,523,837,559 | |
| 4,622,532,207 |
| (2.1) | % | | |
| 1,701,634,637 | |
| 1,386,384,302 |
| 22.7 | % | |
| 3,258,464,543 | |
| 2,939,320,599 |
| 10.9 | % | |
Pounds per day | |
| 24,758,078 | |
| 24,452,583 |
| 1.2 | % | |
| 23,623,173 | |
| 24,329,117 |
| (2.9) | % | | |
| 26,797,396 | |
| 21,832,824 |
| 22.7 | % | |
| 25,758,613 | |
| 23,053,495 |
| 11.7 | % | |
Shipments per day | |
| 19,421 | |
| 20,027 |
| (3.0) | % | |
| 18,535 | |
| 19,762 |
| (6.2) | % | | |
| 19,713 | |
| 17,372 |
| 13.5 | % | |
| 19,504 | |
| 18,090 |
| 7.8 | % | |
Shipments per DSY hour | |
| 0.457 | ��� |
| 0.440 |
| 3.9 | % | |
| 0.453 | |
| 0.437 |
| 3.7 | % | | |
| 0.450 | |
| 0.463 |
| (2.8) | % | |
| 0.452 | |
| 0.450 |
| 0.4 | % | |
Pounds per shipment | |
| 1,275 | |
| 1,221 |
| 4.4 | % | |
| 1,275 | |
| 1,231 |
| 3.6 | % | | |
| 1,359 | |
| 1,257 |
| 8.1 | % | |
| 1,321 | |
| 1,274 |
| 3.7 | % | |
Pounds per mile | |
| 19.23 | |
| 18.73 |
| 2.7 | % | |
| 19.74 | |
| 19.21 |
| 2.8 | % | | |
| 19.09 | |
| 20.19 |
| (5.4) | % | |
| 19.14 | |
| 20.02 |
| (4.4) | % | |
Average length of haul (miles) | | | 1,096 | | | 1,040 | | 5.4 | % | | | 1,074 | | | 1,035 | | 3.8 | % | | | | 1,107 | | | 1,084 | | 2.1 | % | | | 1,099 | | | 1,062 | | 3.5 | % | |
(1) | Workdays represent the number of operating days during the period after adjusting for holidays and weekends. |
Asset-Based Revenues
Asset-Based segment revenues for the three and ninesix months ended SeptemberJune 30, 20202021 totaled $561.9$652.8 million and $1,537.6$1,209.1 million, respectively, compared to $565.6$460.1 million and $1,631.3$975.8 million, respectively, for the same periods of 2019. Billed revenue (as described2020. The increase in the Asset-Based Segment Overview) decreased 0.6% and 6.1% on a per-day basisrevenues for the three and ninesix months ended SeptemberJune 30, 2020, respectively,2021 reflects improvement in business levels compared to the same prior-year periods. For the three months ended September 30, 2020, the decreasesignificant reduction in billed revenue reflects a 1.8% decrease in total billed revenue per hundredweight, including fuel surcharges, partially offset by a 1.2% increase in tonnage per day, compared to the same period of 2019. For the nine months ended September 30, 2020, the decrease in billed revenue reflects a 3.3% decrease in
36
total billed revenue per hundredweight, including fuel surcharges, and a 2.9% decrease in tonnage per day, compared to the same period of 2019. Asset-Based revenues for the nine months ended September 30, 2020 were negatively impacted by reduced demand for the segment’s servicesexperienced in second quarter 2020 as a result of the COVID-19 pandemic. Billed revenue (as described in the Asset-Based Segment Overview) increased 41.6% and 25.6% on a per-day basis for the three and six months ended June 30, 2021, respectively, compared to the same prior-year periods. For the three and six months ended June 30, 2021, the increase in billed revenue reflects a 22.7% and 11.7% increase in tonnage
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per day, respectively, and a 15.4% and 12.4% increase in total billed revenue per hundredweight, including fuel surcharges, respectively, compared to the same periods of 2020. The number of workdays was greater by one-half daythe same in thirdsecond quarter 20202021 and greaterfewer by one and one-half daysday in the first nine monthshalf of 2020,2021, versus the same periods of 2019.2020.
On aTonnage per day increased 22.7% and 11.7% for the three and six months ended June 30, 2021, respectively, compared to the same prior-year periods, due to increases in weight per shipment on higher daily shipment levels. The year-over-year basis, the 1.2% increase in tonnage per day for the three months ended SeptemberJune 30, 2020, compared to2021 reflects double-digit percentage increases in both LTL-rated and truckload-rated tonnage per day. For the same period of 2019,six months ended June 30, 2021, tonnage growth reflects a mid-single-digitdouble-digit percentage increase in LTL-rated tonnage per day, partially offset by a double-digitlow-single-digit percentage decrease in truckload-rated spot shipmentsshipment tonnage moving in the Asset-Based network. The 2.9% decrease in tonnage per day for the nine months ended September 30, 2020, compared to the same prior-year period, reflects a low-single-digit percentage decline in LTL-rated tonnage and a mid-single-digit decline in truckload-rated spot shipments moving in the Asset-Based network. For the nine months ended September 30, 2020, the tonnage comparison with the previous year was negatively impacted by the COVID-19 pandemic which disrupted customers’ shipping patterns beginning in late March 2020 and reduced demand throughout second quarter 2020, before returning to more comparative year-over-year tonnage levels in third quarter 2020. Total shipments decreased 3.0%increased 13.5% and 6.2%7.8% on a per-day basis for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periods of 2019. Lower shipment levels for the three and nine months ended September 30, 2020, and lower tonnage levels for the nine months ended September 30, 2020 wereprimarily driven by a declineincreases in traditional, published LTL-rated shipments. These decreases were partially offset by the positive impacts of technology-driven initiatives implemented in the latter part of 2019 designed to fill available Asset-Based equipment capacity with transactional LTL-rated shipments. These larger-sized LTL-rated shipments contributed toreflecting strong customer demand. Larger-sized LTL-rated shipments, including an increase in pieces per shipment, impacted the 7.4% and 4.0% increasesgrowth in LTL-ratedtotal weight per shipment for the three and ninesix months ended SeptemberJune 30, 2020,2021. Truckload-rated tonnage was positively impacted by strong demand for U-Pack household goods moving services in the three- and six-month periods ended June 30, 2021. The total truckload-rated tonnage metrics for the three and six month periods compared to the same prior-year periods were impacted by reductions in spot-quoted shipments.
The 15.4% and 12.4% increase in total billed revenue per hundredweight, including fuel surcharges, for the three and six months ended June 30, 2021, respectively, compared to the same periods of 2019.
The 1.8%2020, was primarily due to a strong pricing environment and 3.3% decreaseschanges in freight profile and business mix to optimize revenue on shipments in the Asset-Based network. A higher mix of LTL-rated shipments and an increase in U-Pack business, as well as a longer average length of haul and higher fuel surcharge revenues associated with increased fuel prices, positively impacted the total billed revenue per hundredweight measure for the three and ninesix months ended SeptemberJune 30, 2020, respectively,2021, compared to the same periods of 2019, were dueprior-year periods. On-going yield management initiatives, including a general rate increase, also contributed to lower fuel surcharge revenues and changesthe year-over-year improvement in freight mix and shipment profile reflecting the impact of heavier-weighted transactional shipments and the COVID-19 pandemic on the freight environment.billed revenue per hundredweight. Excluding the impact of transactional shipments and fuel surcharges, the increase in billed revenue per hundredweight on our traditional LTL-rated freight was in the mid-single digits and high-single digits for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same prior-year periods. Prices on accounts subject to deferred pricing agreements and annually negotiated contracts which were renewed during the three and ninesix months ended SeptemberJune 30, 20202021 increased approximately 2.5%6.7% and 3.4%6.1%, respectively.respectively, compared to the same periods of 2020. Pricing on contractual business reflected lowerhigher than historical average increases primarily due to disruptiontight market capacity and increased customer business levels related to the COVID-19 pandemic. A rational pricing environment continued in the marketplace.levels. The Asset-Based segment implemented nominal general rate increases on its LTL base rate tariffs of 5.95% and 5.9% effective January 25, 2021 and February 24, 2020, and February 4, 2019,respectively, although the rate changes vary by lane and shipment characteristics.
The Asset-Based segment’s average nominal fuel surcharge rate for the three and ninesix months ended SeptemberJune 30, 2020 decreased2021 increased approximately 350440 and 270220 basis points, respectively, fromcompared to the same periods in 2019.of 2020. During periods of changing diesel fuel prices, the fuel surcharge and associated direct diesel fuel costs also vary by different degrees. Depending upon the rates of these changes and the impact on costs in other fuel- and energy-related areas, operating margins could be impacted. Whether fuel prices fluctuate or remain constant, operating results may be adversely affected if competitive pressures limit our ability to recover fuel surcharges. In periods of declining fuel prices, fuel surcharge percentages also decrease, which negatively impacts the total billed revenue per hundredweight measure and, consequently, revenues. The revenue decline may be disproportionate to the change in our fuel costs. The segment’s operating results will continue to be impacted by further changes in fuel prices and the related fuel surcharges.
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Asset-Based Operating Income
The Asset-Based segment generated operating income of $36.6$63.9 million and $70.9$94.0 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to $31.7$21.0 million and $81.5$34.3 million for the same periods of 2020. The Asset-Based segment’s operating ratio improved by 5.2 and 4.3 percentage points for the three and six months ended June 30, 2021, respectively, compared to the same prior-year periods, reflecting the increased revenues and management of operating resources to higher shipment levels. Operating income for the six months ended June 30, 2021 was also positively impacted by the sale of an unutilized property which contributed to the $8.6 million of total gains on the sale of property and equipment, compared to $3.3 million in the same prior-year period.
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Innovative technology costs related to the freight handling pilot test program at ABF Freight impacted operating results of the Asset-Based segment by $7.5 million and $14.4 million for the three and six months ended June 30, 2021, respectively, compared to $4.8 million and $9.3 million, respectively, for the same periods of 2019.2020. The pilot, which began in early 2019, is in the early stages in a limited number of locations. While ArcBest believes the pilot has potential to provide safer and improved freight handling, a number of factors will be involved in determining proof of concept and there can be no assurances that pilot testing will be successful or expand beyond current testing locations. We anticipate innovative technology costs associated with the pilot to impact our Asset-Based segment operating ratio improvedexpenses by 0.9 percentage points for the three months ended September 30, 2020,approximately $7.5 million in third quarter 2021, compared to the same prior-year period, reflecting cost management relative to slightly lower revenue levels. The Asset-Based segment operating ratio increased by 0.4 percentage points for the nine months ended September 30, 2020, over the same prior-year period. The decline$6.2 million in operating results for the nine months ended September 30, 2020, compared to the same prior-year period, primarily reflects the previously discussed significant decrease in revenues, partially offset by the cost reduction initiatives and operational changes in the Asset-Based network implemented in April 2020, as previously discussed in our COVID-19 Business Response within the General Section of MD&A.third quarter 2020.
The segment’s operating ratio was also impacted by changes in operating expenses as discussed in the following paragraphs.
Asset-Based Operating Expenses
Labor costs, which are reported in operating expenses as salaries, wages, and benefits, amounted to 51.2%46.3% and 53.3%48.6% of Asset-Based segment revenues for the three-three and nine-monthsix-month period ended SeptemberJune 30, 2020,2021, respectively, compared to 52.4% and 53.6%54.1% 54.6%, respectively, for the same periods of 2019.2020. The improvementsdecreases in salaries, wages, and benefits as a percentage of revenue for the three and six months ended June 30, 2021, compared to the same prior-year periods, were partially offset by higher utilization of purchased transportation to meet customer demand for increased shipment levels. The improvement in salaries, wages, and benefits as a percentage of revenue was also influenced by the effect of lowerhigher revenues including fuel surcharges, as a portion of operating costs are fixed in nature and increasedecrease as a percent of revenue with decreasesincreases in revenue levels. Salaries, wages, and benefits decreased $9.1increased $53.4 million and $53.6$55.2 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periods of 2019. The decrease in labor costs for the third quarter of 2020, primarily reflect the impact of managing labor hours to lower shipment levels as discussed in the following paragraph. For the nine-month period ended September 30, 2020, the lower labor costs primarily reflect wage and workforce reductions in responsedue to the negative impact of COVID-19 onincrease in business levelslevels. The increase in second quarter 2020. Labor costs for the three and nine months ended September 30, 2020expense also benefited from operational changes in our Asset-Based network(previously discussed in our COVID-19 Business Response within the General Section of MD&A). These decreases in labor costs were partially offset by expense accruals in third quarter 2020 for anticipated discretionary nonunion wage and incentive payments (previously discussed in the Fourth Quarter 2020 Update to our COVID-19 Business Response within the General Section of MD&A);reflects higher expense accruals for certain performance-based incentive plans, for which the timing of recognition was impacted by the COVID-19 pandemic effect on first-half 2020 results; and the year-over-year increases in contractual wage and benefit contribution rates under the 2018 ABF NMFA.NMFA, and higher nonunion wages and benefits versus the prior-year periods when cost reductions were in place in response to the COVID-19 pandemic, as previously discussed in the Consolidated Results section of MD&A. The contractual wage rate under the 2018 ABF NMFA increased 1.6% effective July 1, 2020, and the average health, welfare, and pension benefit contribution rate increased approximately 1.2%2.2% effective primarily on August 1, 2020.
Although theThe Asset-Based segment manages costs with shipment levels, portions of salaries, wages, and benefits are fixed in nature and the adjustments which would otherwise be necessary to align the labor cost structure throughout the system to corresponding tonnage andlevels; however, increased shipment levels, are limited asfreight profile changes, challenges with hiring an adequate number of personnel, and equipment capacity constraints pressured the segment strives to maintain customer service.efficiency of dock, street, and yard tasks during the second quarter of 2021. Shipments per DSY hour declined 2.8% for the second quarter of 2021, compared to second quarter 2020, primarily due to inefficiencies driven by equipment capacity constraints related to the business growth and the effect of handling a higher number of larger LTL-rated shipments, including an increase in pieces per shipment. For the six months ended June 30, 2021, shipments per DSY hour improved 3.9% and 3.7% and0.4% compared to the same period of 2020. While the Asset-Based segment has added employees to service the business growth, the segment had to supplement resources with increased utilization of higher-cost purchased transportation in certain locations to manage service levels. The decrease in pounds per mile increased 2.7%of 5.4% and 2.8%4.4% for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periodsperiod of 2019, reflecting efforts2020, was due to manage costs with shipment levels and the application of data-enabled technologies. A higher number of heavier transactional LTL-rated shipments duringmiles (including purchased transportation miles) incurred to service the three and nine months ended September 30, 2020 contributed to improved operational metrics in the Asset-Based network, compared to the same periods of 2019, as these transactional shipments typically require less handling and utilize available trailer space that would otherwise be moving empty. For the nine months ended September 30, 2020, productivity measures also benefited from the effect of customers expanding appointment windowsbusiness growth and the effectincrease in average length of less congested roadways as a result of restrictions onhaul resulting from intended changes in business operations and stay-at-home orders for residentsmix, which was compensated by an increase in many states during the second quarter of 2020.billed revenue per shipment.
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Fuel, supplies, and expenses as a percentage of revenue for the second quarter of 2021 was consistent with the second quarter of 2020. For the six months ended June 30, 2021, fuel, supplies, and expenses as a percentage of revenue decreased 2.7 and 1.80.6 percentage points, compared to the same period of 2020. The changes in fuel, supplies, and expenses as a percentage of revenue were influenced by the effect of higher revenues including fuel surcharges, as a portion of operating costs are fixed in nature and decrease as a percent of revenue with increases in revenue levels. Fuel, supplies, and expenses increased $19.0 million and $18.6 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periods in 2019,prior-year period, primarily due to lowerhigher fuel costs as the Asset-Based segment’s average fuel price per gallon (excluding taxes) decreasedincreased approximately 34%96% and 32%39% during the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periodsperiod of 2019. Fewer2020. More miles driven as a result of the declineincrease in business levels also contributed to the year-over-year decreasesincreases in fuel, supplies, and expenses. For the six months ended June 30, 2021, fuel, supplies, and expenses was also impacted by higher expenses associated with increased business levels and weather-related service center
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expenses resulting from severe winter storms in first quarter 2021, partially offset by lower costs related to repairs and maintenance on tractors and trailers.
Depreciation and amortization as a percentage of revenue increased 0.1decreased 1.5 and 0.60.9 percentage points for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same prior-year periods primarily due to higher costs of new revenue equipment purchases2020; however, depreciation and additional per unit costs related to electronic logging device (“ELD”) and other safety equipment enhancements.amortization expense was relatively consistent across the periods. The increasedecrease in depreciation and amortization as a percentage of revenue was also influenced by the effect of lowerhigher revenues, as a portion of theseoperating costs are fixed in nature and increasedecrease as a percent of revenue with decreasesincreases in revenue levels.
Rents and purchased transportation as a percentage of revenue increased 1.64.6 and 1.03.7 percentage points for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periods of 2019. Rents and purchased transportation increased2020, primarily due to increases inhigher utilization of rail, utilizationlocal delivery agents, and linehaul purchased transportation necessary to serve the needs of our customers’ needscustomers as freight demand increased inconsistently across the Asset-Based system during the third quarterfirst half of 2020.2021. For the three- and nine-monthsix-month periods ended SeptemberJune 30, 2020,2021, rail miles increased approximately 25%53% and 14%39%, respectively, compared to the same prior-year periods.
Shared services as a percentage of revenue increased 0.9 and 0.20.7 percentage points for each of the threethree- and nine monthssix-month periods ended SeptemberJune 30, 2020, respectively,2021, compared to the same periods of 2019. These costs increased $4.6 million for the three months ended September 30, 2020, comparedprimarily due to the same periodcost reductions that were in place during 2020 in response to the COVID-19 pandemic, as previously discussed in the Consolidated Results section of 2019, primarily due toMD&A. In addition, the increase in costs as a percentage of revenue reflects higher expense accruals for certain performance-based incentive plans, including long-term incentive plans impacted by shareholder returns relative to peers, for which the timing of recognition was impacted by the effect of the COVID-19 pandemic on operating results for the first half of 2020. For the nine months ended September 30, 2020, the changeThe business growth also resulted in higher shared services as a percentage of revenue was influenced by the effect of lower revenues, as these costs decreased $6.5 million, compared to the same prior year period, primarily due to reduced costs associated with lower business levels during the nine-month period as a result of the negative impact of the COVID-19 pandemic on demand for freight transportation services during the second quarter of 2020.
Innovative technology costs as a percentage of revenue increased 0.3 and 0.4 percentage pointsservice expense allocations for the three and ninesix months ended SeptemberJune 30, 2020, respectively,2021, compared to the same periods of 2019, primarily due to increased activity for the freight handling pilot test program at ABF Freight. ArcBest Technologies, our wholly owned subsidiary which is focused on the advancement of supply chain execution technologies, began a pilot test program (the “pilot”) in early 2019 to improve freight handling at ABF Freight. The pilot is in the early stages in a limited number of locations. ABF Freight has leased new facilities in the test pilot regions in Indiana and also at a new Kansas City distribution center location where operations commenced in late-third quarter 2020. While ArcBest believes the pilot has potential to provide safer and improved freight handling, a number of factors will be involved in determining proof of concept and there can be no assurances that pilot testing will be successful or expand beyond current testing locations. Innovative technology costs related to the freight handling pilot test program at ABF Freight impacted operating results of the Asset-Based segment by $6.2 million and $15.5 million for the three and nine months ended September 30, 2020, respectively, compared to $4.7 million and $9.2 million, respectively, for the same periods of 2019. We anticipate innovative technology costs associated with the pilot to impact our Asset-Based operating expenses by approximately $6 million in fourth quarter 2020, compared to $4.5 million in fourth quarter 2019.prior-year periods.
Asset-Based Segment — October 2020July 2021
The year-over-year improvements in our Asset-Based business levels that we experienced induring the third quarter 2020first half of 2021 continued during October 2020.July 2021 as the segment benefited from a strong pricing environment and increased customer business levels. Although statistics for October 2020July 2021 have not been finalized, preliminary Asset-Based billed revenues increased approximately 9%25% on a per-day basis in October 2020,July 2021, compared to October 2019,July 2020, reflecting an increase in average daily total tonnage of approximately 10%, partially offset by a decrease5% and an increase in total billed revenue per hundredweight, including fuel surcharges, of approximately 1%20%.
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Based on preliminary results, October 2020 LTL-rated tonnage increased by a double-digit percentage and truckload-rated spot shipments moving in the Asset-Based network increased by a mid-single-digit percentage, compared to the same prior-year period. Truckload-rated shipments for October 2020 reflect a higher volume of U-Pack business, compared to the same period of 2019, as demand for our household goods moving service, which is typically stronger in the second and third quarters of the year, was shifted later in the year due to disruption of the COVID-19 pandemic during second quarter 2020. Total shipments per day increased approximately 1%3% in October 2020,July 2021, compared to October 2019.July 2020. Total weight per shipment increased approximately 9%2% in October 2020,July 2021, with the weight per shipment on LTL-rated shipments up approximately 11%6%, versus the same prior-year period, reflecting the impact of a higher number of heavier transactional LTL-rated shipments and changes in account mix.period.
The decrease in total billed revenue per hundredweight for October 2020 reflects lower fuel surcharge revenues and freight mix changes. Althoughfirst quarter of each year generally has the pricing environment in October 2020 continues to be rational, a higher numberhighest operating ratio of heavier transactional LTL-rated shipments has a negative impact on yield metrics. Excluding fuel surchargesthe year, although other factors, including the current economic recovery, may influence quarterly comparisons. Current economic conditions and the impact of transactional shipments,Asset-Based segment’s pricing on traditional published LTL-rated business increased by a percentageapproach (which is described in the low-single digits compared to October 2019 andAsset-Based Segment Overview within the metric was pressured by changes in business mix. Asset-Based revenues for OctoberResults of Operations section of Item 7 (MD&A) of Part II of our 2020 compared to 2019, were negatively impacted by lower fuel surcharge revenue due to an approximate 390 basis point decline in the nominal fuel surcharge rate, while total fuel costs were also lower.
Current economic conditionsAnnual Report on Form 10-K) will continue to impact our Asset-Based segment’s tonnage levels and the prices it receives for its services and, as such, there can be no assurance that our Asset-Based segment will maintain or achieve improvements in its current operating results. Our efforts to manage operational costs in the Asset-Based network may not directly correspond to significant changes in business levels and there can be no assurance that the impact of the COVID-19 pandemic will not have an adverse effect on our operating results in future periods. Furthermore,The marketplace pricing environment has been positive and rational during our efforts to secure needed price increases; however, the competitive environment could limit the Asset-Based segment from securing adequate increases in base LTL freight rates and could limit the amount of fuel surcharge revenue recovered in future periods.
Asset-Light Operations
Asset-Light Overview
The ArcBest and FleetNet reportable segments, combined, represent our Asset-Light operations. Our Asset-Light operations are a key component of our strategy to offer customers a single source of integrated logistics solutions, designed to satisfy the complex supply chain and unique shipping requirements customers encounter.
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Our Asset-Light operations are affected by general economic conditions, as well as a number of other competitive factors that are more fully described in Item 1 (Business) and in Item 1A (Risk Factors) of Part I of our 20192020 Annual Report on Form 10-K. The key indicators necessary to understand our Asset-Light operating results are outlined below. These key indicators are used by management to evaluate segment operating performance and measure the effectiveness of strategic initiatives in the results of our Asset-Light segments. We quantify certain key indicators using key operating statistics which are important measures in analyzing segment operating results from period to period. These statistics are defined within the key indicators below and referred to throughout the discussion of the results of our Asset-Light operations:
● | Customer demand for logistics and premium transportation services combined with economic factors which influence the number of shipments or service events used to measure changes in business levels, primarily measured by: |
Shipments per day – total shipments (excluding managed transportation solutions as discussed below) divided by the number of working days during the period, compared to the same prior-year period, for the ArcBest segment.
Service events – roadside, preventative maintenance, or total service events during the period, compared to the same prior-year period, for the FleetNet segment.
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● | Prices obtained for services, primarily measured by: |
Revenue per shipment or event – total segment revenue divided by total segment shipments or events during the period (excluding managed transportation solutions for the ArcBest segment as discussed below), compared to the same prior-year period.
● | Availability of market capacity and cost of purchased transportation to fulfill customer shipments of the ArcBest segment, with a measure of purchased transportation cost expressed as: |
Purchased transportation costs as a percentage of revenue – the expense incurred for third-party transportation providers to haul or deliver freight during the period, divided by segment revenues for the period, expressed as a percentage.
● | Management of operating costs, primarily in the area of purchased transportation, with the total cost structure primarily measured by: |
Operating ratio – the percent of operating expenses to revenue levels.
Presentation and discussion of the key operating statistics of revenue per shipment and shipments per day for the ArcBest segment exclude statistical data of the managed transportation solutions transactions. Growth in managed transportation solutions has increased the number of shipments for these services to approximately one half of the ArcBest segment’s total shipments, while the business represents less than 20% of segment revenues for the three and ninesix months ended SeptemberJune 30, 2020.2021. Due to the nature of our managed transportation solutions which typically involve a larger number of shipments at a significantly lower revenue per shipment level than the segment’s other service offerings, inclusion of the managed transportation solutions data would result in key operating statistics which are not representative of the operating results of the segment as a whole. As such, the key operating statistics management uses to evaluate performance of the ArcBest segment exclude managed transportation services transactions.
Other companies within our industry may present different key performance indicators or they may calculate their key performance indicators differently; therefore, our key performance indicators may not be comparable to similarly titled measures of other companies. Key performance indicators should be viewed in addition to, and not as an alternative for, our reported results. Our key performance indicators should not be construed as better measurements of our results than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.
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Asset-Light Results
For the three and ninesix months ended SeptemberJune 30, 2020,2021, the combined revenues of our Asset-Light operations totaled $267.8$330.3 million and $683.0$641.8 million, respectively, compared to $253.7$197.9 million and $713.1$415.1 million, respectively, for the same periods of 2019.2020. The increase in revenues for the three and six months ended June 30, 2021 reflects improvement in business levels compared to the significant reduction in demand experienced in second quarter 2020 as a result of the COVID-19 pandemic. The combined revenues of our Asset-Light operating segments generated approximately 32%34% and 31%35% of our total revenues before other revenues and intercompany eliminations for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to approximately 31%30% for both the three and 30%six months ended June 30, 2020. Our Asset-Light combined operating income for the three and ninesix months ended SeptemberJune 30, 2019, respectively. Our Asset-Light results for the nine months ended September 30, 2020,2021 improved to $16.3 million and $25.6 million, respectively, compared to $2.1 million and $1.7 million, respectively, for the same prior-year period, reflectperiods, primarily reflecting improved demand and higher market prices resulting from tighter truckload market capacity. The year-over-year operating income improvement also benefited from a $6.9 million gain on the impactsale of reduced demand inthe labor services subsidiary within the segment’s moving business during the second quarter 2020 as a result of the COVID-19 pandemic.2021.
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ArcBest Segment
The following table sets forth a summary of operating expenses and operating income as a percentage of revenue for the ArcBest segment:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| Nine Months Ended | | | | Three Months Ended |
| Six Months Ended | | | ||||||||
| | September 30 | | September 30 | | | | June 30 | | June 30 | | | ||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | |
| 2021 |
| 2020 | | 2021 |
| 2020 |
| |
ArcBest Segment Operating Expenses (Operating Ratio) | | | | | | | | | | | | | | | | | | | | |
Purchased transportation |
| 83.4 | % | 82.4 | % | 83.1 | % | 81.6 | % | |
| 83.7 | % | 82.6 | % | 83.6 | % | 82.9 | % | |
Supplies and expenses |
| 1.3 | | 1.4 | | 1.3 | | 1.5 | | |
| 0.9 | | 1.3 | | 1.0 | | 1.3 | | |
Depreciation and amortization |
| 1.1 | | 1.3 | | 1.4 | | 1.6 | | |
| 0.9 | | 1.6 | | 0.9 | | 1.6 | | |
Shared services |
| 11.1 | | 12.5 | | 12.1 | | 12.9 | | |
| 10.7 | | 12.4 | | 10.5 | | 12.8 | | |
Gain on sale of subsidiaries(1) | | (2.6) | | — | | (1.3) | | — | | | ||||||||||
Other |
| 0.9 | | 1.2 | | 1.2 | | 1.3 | | |
| 0.8 | | 1.2 | | 0.8 | | 1.4 | | |
|
| 97.8 | % | 98.8 | % | 99.1 | % | 98.9 | % | |
| 94.4 | % | 99.1 | % | 95.5 | % | 100.0 | % | |
| | | | | | | | | | | | | | | | | | | | |
ArcBest Segment Operating Income |
| 2.2 | % | 1.2 | % | 0.9 | % | 1.1 | % | | ||||||||||
ArcBest Segment Operating Income (Loss) |
| 5.6 | % | 0.9 | % | 4.5 | % | — | % | |
(1) | Gain recognized for the three and six months ended June 30, 2021 relates to the sale of the labor services portion of the ArcBest segment’s moving business in May 2021. |
A comparison of key operating statistics for the ArcBest segment, as previously defined in the Asset-Light Overview section, is presented in the following table:
| | | | | | | | | | | ||
| Year Over Year % Change | | Year Over Year % Change | | ||||||||
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | ||||
| September 30, 2020 | | September 30, 2020 | | June 30, 2021 | | June 30, 2021 |
| ||||
| | | | | | | | | | | | |
Revenue per shipment | | 5.7% | | | 0.7% | | | 32.9% | | | 29.5% | |
| | | | | | | | | | | | |
Shipments per day | | (0.4%) | | | (11.1%) | | | 39.0% | | | 30.4% | |
ArcBest segment revenues totaled $217.3$270.7 million and $533.5$523.1 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to $199.8$151.5 million and to $554.1$316.2 million, respectively, for the same periods of 2019.2020. The 8.8% increase78.8% and 65.4% respective increases in third quarter 2020 revenues primarily reflect improved market demand compared to third quarter 2019,the same periods of 2020, which were negatively impacted by the COVID-19 pandemic. The revenue increases for the three and six months ended June 30, 2021, compared to the same periods of 2020, primarily reflects an increasereflect increases in revenue per shipment of 32.9% and 29.5%, respectively, associated with higher market prices resulting from tighter truckload capacity partially offset by slightly lower shipments per day. Higher demand for managed transportation and international services, as well as an additional one-half business day in the quarter, also contributed to the revenue increase for third quarter 2020, compared to third quarter 2019. The 3.7% decrease in revenues for the nine-month period ended September 30, 2020 was primarily due to the impact of the 11.1% reductionincreases in shipments per day (excluding managed transportation shipments) of 39.0% and 30.4%, reflecting the softer economic environment during the first quarterrespectively, due to strong customer
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demand. Customers’ growing need for comprehensive, managed logistics solutions and the impact of the COVID-19 pandemic on customer demand including closure of certain customers’ operations for a period of time during the second quarter of 2020. The segment’s revenue decline for the nine months ended September 30, 2020, comparednew account growth also contributed to the same period of 2019, was partially offset by higher demand for managed transportation services.
Our ArcBest segment business levels improved sequentially during each month of third quarter 2020. On a per-day basis, ArcBest segment revenues improved by 17.3%, 17.9%, and 2.0%year-over-year increases in July, August, and September 2020, respectively, over the previous month, reflecting monthly sequential improvements in daily shipment levels of 10.6% and 10.2% in July and August 2020, respectively, and relatively flat shipment levels in September 2020, compared to the previous month.revenues.
Operating income totaled $4.8$15.1 million and $4.7$23.4 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to $2.5operating income of $1.3 million and $6.3an operating loss of $0.1 million respectively, for the same periods of 2019,2020, respectively, with the improvement primarily reflecting the changesincreases in revenues. Increased customer shipping levels combined with limited equipment availability in the logistics marketplace positively impacted demand and pricing for premium ground expedite services in third quarter 2020for the three and six months ended June 30, 2021 and contributed to the segment’s operating income improvement, compared to third quarter 2019. For the ArcBest segment,prior-year periods. Operating results for the three and six months ended June 30, 2021 also benefited from a $6.9 million gain on the sale of a subsidiary within the segment’s moving business, as previously mentioned, which contributed 2.6 and 1.3 percentage points to the segment’s operating ratio for the three and six months ended June 30, 2021, respectively.
The segment’s purchased transportation costs increased by 1.0 and 1.5 percentage points as a percentage of revenue increased by 1.1 and 0.7 percentage points for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periods of 2019.2020. Due to changes in market conditions and freight mix, the prices paid for purchased transportation increased by a higher percentage than the prices we secured from
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customers, resulting in margin compression during the three-three and nine-month periodssix months ended SeptemberJune 30, 2020,2021, compared to the same periods of 2019.2020. Significant changes in market capacity, such as those experienced during 2020 and 2021, impact the cost of sourcing such capacity which may not correspond to the timing of revisions to customer pricing and our revenue per shipment.
As previously discussed in the Consolidated Results section of MD&A, prior-year operating expenses were lower due to corporate cost reductions in place during the second quarter of 2020, in response to the COVID-19 pandemic. As cost reductions were lifted, operating expenses returned to more normal levels, resulting in increases when comparing to prior-year periods. Operating results offor the ArcBest segment benefited from lower shared services coststhree and six months ended June 30, 2021 were also impacted by higher operating expenses due to lowerincreased business levels and corporate cost reductiongrowth initiatives, implementedincluding investments in Apriltechnology and increased wages and costs to manage higher shipment volumes. These higher expenses contributed to the $10.2 million and $14.6 million increase in shared service costs for the three and six months ended June 30, 2021, respectively, compared to the same prior-year periods. Shared service costs as a percentage of revenue decreased 1.7 and 2.3 percentage points for the three and six months ended June 30, 2021, respectively, compared to the same periods of 2020, due to the effect of higher revenues, as previously discusseda portion of these costs are fixed in our COVID-19 Business Response within the General Sectionnature and decrease as a percentage of MD&A.revenue with increases in revenue levels. Although the ArcBest segment manages costs with shipment levels, portions of operating expenses are fixed in nature and cost reductions can be limited as the segment strives to enhance capacity sources and maintain customer service.
ArcBest Segment – October 2020–July 2021
The year-over-year improvements in business levels that our ArcBest segment experienced throughoutbusiness levels during the third quarterfirst half of 20202021 continued during October 2020.July 2021. Although statistics for October 2020July 2021 have not been finalized, preliminary revenues of our ArcBest segment on a per-day basis in October 2020July 2021 were approximately 31%47% above the prior-year period, reflecting an increaseincreases in shipments per day and revenue per shipment, of approximately 17%, as the segment benefited from continued to benefit fromcustomer demand in an improving economic environment and higher market prices resulting from tighter truckload capacity, and an increase in shipments per day of approximately 11% (excluding managed transportation shipments). The October 2020 revenue comparison to the same prior-year month was also positively impacted by continued demand for managed transportation solutions. Purchased transportation expense represented approximately 84% of revenues in October 2020, compared to approximately 83% of revenues in October 2019. Purchased transportation rates have also increased due to tightened truckload capacity in the market resulting in overall margin compression for the ArcBest segment in October 2020, compared to October 2019.capacity. Current economic conditions will continue to impact business levels and purchased transportation costs of our ArcBest segment and, as such, there can be no assurance that the effect of the economic environment, including the impact of the COVID-19 pandemic, will not have an adverse effect on the operating results of our ArcBest segment in future periods.
FleetNet Segment
FleetNet’s revenues totaled $50.5$59.5 million and $149.4$118.7 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to $54.0$46.4 million and $159.0$98.9 million, respectively, for the same periods of 2019.2020. The 6.4%28.2% and 6.0% decreases20.1% increases in revenues for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to the same periods of 2019,2020, were driven by lower servicehigher event volumes primarily reflectingand increases in revenue per event for roadside and preventative maintenance services. FleetNet’s results reflect higher demand for its services compared to the same periods of 2020, which were impacted by a reduction in miles driven by customers as a result of the COVID-19 pandemic. The increase in roadside service event volumes was also impacted by a higher number of events from customers who experienced an increase in e-commerce business and, for the six-month period, severe winter weather during the first quarter of 2021.
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FleetNet’s operating income totaled $1.0$1.1 million and $2.8$2.2 million for the three and nine-month periodssix months ended SeptemberJune 30, 2020,2021, respectively, compared to $1.2$0.8 million and $3.7$1.8 million, respectively, for the same periods of 2019.2020, primarily reflecting the increases in revenues. FleetNet’s operating income margins were impacted by lowerfor the second quarter of 2021 benefited from increases in revenue per event which outpaced the increased costs to service events. For the six months ended June 30, 2021, the impact of higher revenue per event on maintenance services forFleetNet’s operating income margins was offset by the three and nine months ended September 30, 2020,effect of higher costs to service the increase in total events, compared to the same prior-year periods, and by the effectperiod of lower revenues as a portion of operating costs are fixed in nature and increase as a percent of revenue with decreases in revenue.2020.
Asset-Light Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)
We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP performance measures and ratios, such as Adjusted EBITDA, utilized for internal analysis provide analysts, investors, and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results, as well as important information regarding performance trends. The use of certain non-GAAP measures improves comparability in analyzing our performance because it removes the impact of items from operating results that, in management's opinion, do not reflect our core operating performance. Management uses Adjusted EBITDA as a key measure of performance and for business planning. The measure is particularly meaningful for analysis of our Asset-Light businesses, because it excludes amortization of acquired intangibles and software, which are significant expenses resulting from strategic decisions rather than core daily operations. Management also believes Adjusted EBITDA to be relevant and useful information, as EBITDA is a standard measure commonly reported and widely used by analysts, investors, and others to measure financial performance of asset-light businesses and the ability to service debt obligations. Other companies may calculate Adjusted EBITDA differently; therefore, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results. Adjusted EBITDA should not be construed as a better measurement than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.
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Asset-Light Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | ||||
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended | | ||||||||||||||||
| | September 30 | | September 30 | | | June 30 | | June 30 | | ||||||||||||||||
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| 2020 | | 2019 | | 2020 | | 2019 | |
| 2021 | | 2020 | | 2021 | | 2020 |
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| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||
ArcBest Segment | | | | | | | | | | | | | | | | | | | | | | | | | ||
Operating Income(1) | | $ | 4,831 | | $ | 2,452 | | $ | 4,725 | | $ | 6,304 | | |||||||||||||
Operating Income (Loss)(1) | | $ | 15,127 | | $ | 1,303 | | $ | 23,392 | | $ | (106) | | |||||||||||||
Depreciation and amortization(2) | | | 2,413 | | | 2,607 | | | 7,332 | | | 8,813 | | | | 2,366 | | | 2,449 | | | 4,752 | | | 4,919 | |
Adjusted EBITDA | | $ | 7,244 | | $ | 5,059 | | $ | 12,057 | | $ | 15,117 | | | $ | 17,493 | | $ | 3,752 | | $ | 28,144 | | $ | 4,813 | |
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FleetNet Segment | | | | | | | | | ||||||||||||||||||
Operating Income(1) | | $ | 987 | | $ | 1,171 | | $ | 2,809 | | $ | 3,685 | | | $ | 1,138 | | $ | 782 | | $ | 2,161 | | $ | 1,822 | |
Depreciation and amortization | | | 411 | | | 332 | | | 1,204 | | | 982 | | | | 413 | | | 402 | | | 828 | | | 793 | |
Adjusted EBITDA | | $ | 1,398 | | $ | 1,503 | | $ | 4,013 | | $ | 4,667 | | | $ | 1,551 | | $ | 1,184 | | $ | 2,989 | | $ | 2,615 | |
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Total Asset-Light | | | | | | | | | | | | | | | | | | | | | | | | | ||
Operating Income(1) | | $ | 5,818 | | $ | 3,623 | | $ | 7,534 | | $ | 9,989 | | | $ | 16,265 | | $ | 2,085 | | $ | 25,553 | | $ | 1,716 | |
Depreciation and amortization | | | 2,824 | | | 2,939 | | | 8,536 | | | 9,795 | | | | 2,779 | | | 2,851 | | | 5,580 | | | 5,712 | |
Adjusted EBITDA | | $ | 8,642 | | $ | 6,562 | | $ | 16,070 | | $ | 19,784 | | | $ | 19,044 | | $ | 4,936 | | $ | 31,133 | | $ | 7,428 | |
(1) | The calculation of Adjusted EBITDA as presented in this table begins with operating income (loss), as other income (costs), income taxes, and net income are reported at the consolidated level and not included in the operating segment financial information evaluated by management to make operating decisions. Consolidated Adjusted EBITDA is reconciled to consolidated net income in the Consolidated Results section of Results of Operations. |
(2) | For the ArcBest segment, includes amortization of acquired intangibles of |
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Current Economic Conditions
The COVID-19 pandemic negatively impacted the economy and challenged business operations and supply chains during 2020, which resulted in declines in our business levels and operating results primarily in the second quarter of 2020. Economic conditions continued to improve during the first half of 2021. During the first quarter of 2021, certain COVID-19 vaccines were approved by the U.S. Food and Drug Administration for emergency use and a roll-out process began to provide the vaccines to qualified individuals. Vaccinations and other health and safety measures implemented in response to the pandemic slowed the spread of COVID-19 in many geographical areas and lessened the severity of COVID-related restrictions throughout portions of the United States. However, the Delta variant, a highly contagious coronavirus strain which was first identified in India in December 2020, spread to the United States in March 2021 and is now the dominant variant of the virus. Cases have been rising in the United States since early July, especially in certain geographic regions. In late-July 2021, the Centers for Disease Control and Prevention updated their guidance to recommend fully vaccinated people (along with unvaccinated people) should wear masks indoors in public in areas of substantial or high transmission of COVID-19. The recent surge in the Delta variant has increased the uncertainty of the future impact of the COVID-19 pandemic on the economy and business operations.
We are encouraged by the growth in the U.S. real gross domestic product (the “real GDP”) since the second quarter of 2020, when the National Bureau of Economic Research declared that a recession began in the United States in February 2020, and the improvements in other recent economic measures, including the Institute for Supply Management (ISM) Purchasing Managers’ Index (“PMI”) and the Industrial Production Index issued by the Federal Reserve. According to the advance estimate released by the Bureau of Economic Analysis on July 29, 2021, real GDP increased at an annual rate of 6.5% for second quarter 2021. The Industrial Production Index, while still below pre-pandemic levels, increased at an annual rate of 5.5% for second quarter 2021. PMI, which is a leading indicator for demand in the freight transportation and logistics industry, was 59.5% for July 2021, compared to 53.7% for July 2020 and 41.5% in April 2020, which was the lowest monthly PMI during the pandemic. The improvement in PMI reflects continued economic expansion in the manufacturing sector and growth in the overall economy. Manufacturing and trade inventory levels remain well below the range we consider optimal for businesses which is considered a positive for freight demand; although there can be no assurance that the economic environment, including the impact of the COVID-19 pandemic, will be favorable for our freight services in future periods.
Given the currentuncertainties regarding the economic conditionsenvironment and the potential continued impact of the COVID-19 pandemic on our business in future periods, there can be no assurance that our estimates and assumptions regarding the pricing environment and economic conditions, which are made for purposes of impairment tests related to operating assets and deferred tax assets, will prove to be accurate. Extended periods of economic disruption and resulting declines in industrial production and manufacturing and consumer spending could negatively impact demand for our services and have an adverse effect on our results of operations, financial condition, and cash flows. Significant declines in business levels or other changes in cash flow assumptions or other factors that negatively impact the fair value of the operations of our reporting units could result in impairment and a resulting non-cash write-off of a significant portion of the goodwill and intangible assets of our ArcBest segment, which would have an adverse effect on our financial condition and operating results.
Effects of Inflation
Along with changesMost of our expenses are affected by inflation, which generally results in the economic environment,increased operating costs. As such, there can be no assurances of the potential impact of inflationary conditions on our business. Generally, inflationary increases in labor, and fuel costs, and other operating expenses as they relate to our Asset-Based operations have historically been mostly offset through price increases and fuel surcharges. In periods of increasing fuel prices, the effect of higher associated fuel surcharges on the overall price to the customer influences our ability to obtain increases in base freight rates. In addition, certain nonstandard arrangements with some of our customers have limited the amount of fuel surcharge recovered. The timing and extent of base price increases on our Asset-Based revenues may not correspond with contractual increases in wage rates and other inflationary increases in cost elements and, as a result, could adversely impact our operating results.
Generally, inflationary increases in labor and operating costs regarding our Asset-Light operations have historically been offset through price increases. The pricing environment, however, generally becomes more competitive during economic
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downturns, which may, as it has in the past, affect the ability to obtain price increases from customers both during and following such periods.
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In addition, partlysuppliers’ and manufacturers’ operations during the COVID-19 pandemic as well as strong demand in recent quarters have limited the availability and production of certain revenue equipment and certain other equipment used in our business operations. Consequently, prices for these items have also increased. Partly as a result of inflationary pressures, our revenue equipment (tractors and trailers) havehas been and will very likely continue to be replaced at higher per unit costs, which could result in higher depreciation charges on a per-unit basis. We consider these costs in setting our pricing policies, although the overall freight rate structure is governed by market forces based on value provided to the customer. The Asset-Based segment’s ability to fully offset inflationary and contractual cost increases can be challenging during periods of recessionary and uncertain economic conditions.
In addition to general effects of inflation, the motor carrier freight transportation industry faces rising costs related to insurance claims and coverage and compliance with government regulations on safety, equipment design and maintenance, driver utilization, emissions, and fuel economy.
Environmental and Legal Matters
We are subject to federal, state, and local environmental laws and regulations relating to, among other things: emissions control, transportation or handling of hazardous materials, underground and aboveground storage tanks, stormwater pollution prevention, contingency planning for spills of petroleum products, and disposal of waste oil. We may transport or arrange for the transportation of hazardous materials and explosives, and we operate in industrial areas where truck service centers and other industrial activities are located and where groundwater or other forms of environmental contamination could occur. See Note K to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of the environmental matters to which we are subject and the reserves we currently have recorded in our consolidated financial statements for amounts related to such matters.subject.
We are involved in various legal actions, the majority of which arise in the ordinary course of business. We maintain liability insurance against certain risks arising out of the normal course of our business, subject to certain self-insured retention limits. We routinely establish and review the adequacy of reserves for estimated legal, environmental, and self-insurance exposures. While management believes that amounts accrued in the consolidated financial statements are adequate, estimates of these liabilities may change as circumstances develop. Considering amounts recorded, routine legal matters are not expected to have a material adverse effect on our financial condition, results of operations, or cash flows. See Note K to our consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of legal matters in which we are currently involved.
Information Technology and Cybersecurity
We depend on the proper functioning, availability, and security of our information systems, including communications, data processing, financial, and operating systems, as well as proprietary software programs that are integral to the efficient operation of our business. CybersecurityAny significant failure or other disruption in our critical information systems, including ransomware attacks and other cybersecurity attacks and other cyber incidents that impact the availability, reliability, speed, accuracy, or other proper functioning of these systems or that result in proprietary information or sensitive or confidential data, including personal information of customers, employees and others, being compromised could have a significant impact on our operations. Any new or enhanced technology that we may develop and implement may also be subject to cybersecurity attacks and may be more prone to related incidents. We also utilize certain software applications provided by third parties; provide underlying data to third parties; grant access to certain of our systems to third parties who provide certain outsourced administrative functions or other services; and increasingly store and transmit data with our customers and third parties by means of connected information technology systems, any of which may increase the risk of a cybersecurity incident. Although we strive to carefully select our third-party vendors, we do not control their actions and any problems caused by or impacting these third parties, including cyber attacks and security breaches at a vendor, could result in claims, litigation, losses, and/or liabilities and materially adversely affect our ability to provide service to our customers and otherwise conduct our business.
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Our information technology systems are protected through physical and software safeguards as well as backup systems considered appropriate by management. However, itthese systems are vulnerable to interruption by adverse weather conditions or natural disasters, power loss, telecommunications failures, terrorist attacks, internet failures, computer viruses, and other events beyond our control. It is not practicable to protect against the possibility of power loss, telecommunications failures,these events or cybersecurity attacks and other cyber events in every potential circumstance that may arise. To mitigate the potential for such occurrences at our primary data center, we have implemented various systems, including redundant telecommunication facilities; replication of critical data to an offsite location; a fire suppression system to protect our on-site data center; and electrical power protection and generation facilities. We also have a catastrophic disaster recovery plan and alternate processing capability available for our critical data processes in the event of a catastrophe that renders one of our data centers unusable. In effortsresponse to protect the health of our employees and comply with social distancing guidelines implemented due tosafety risks posed by the COVID-19 pandemic and in an effort to mitigate the spread of COVID-19, we transitioned a significant portion of our office personnel to remote work arrangements during 2020, and many of ourthese employees are still working remotely, which may create increased vulnerabilityincrease our exposure to cybersecurity incidents.risks, including an increased demand for information technology resources, an increased risk of phishing, and an increased risk of other cybersecurity attacks. We continue to implement strong physical and cybersecurity measures in an attempt to safeguard our systems in order to serve our operational needs in a remote working environment and to provide uninterrupted service to our customers.
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Our property and cyber insurance would offset losses up to certain coverage limits in the event of a catastrophe or certain cyber incidents, including certain business interruption events related to these incidents; however, losses arising from a catastrophe or significant cyber incident would likely exceed our insurance coverage and could have a material adverse impact on our results of operations and financial condition. We do not have insurance coverage specific to losses resulting from a pandemic. A significant disruption in our information technology systems or a significant cybersecurity incident, including denial of service, system failure, security breach, intentional or inadvertent acts by employees or vendors with access to our systems or data, disruption by malware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, cause errors or delays in financial reporting, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event.
We have experienced incidents involving attempted denial of service attacks, malware attacks, and other events intended to disrupt information systems, wrongfully obtain valuable information, or cause other types of malicious events that could have resulted in harm to our business. To our knowledge, the various protections we have employed have been effective to date in identifying these types of events at a point when the impact on our business could be minimized. We must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. We have made and continue to make significant financial investments in technologies and processes to mitigate these risks. We also provide employee awareness training around phishing, malware, and other cyber risks. Despite our efforts, due to the increasing sophistication of cyber criminals and the development of new techniques for attack, we may be unable to anticipate or promptly detect, or implement adequate protective or remedial measures against, the activities of perpetrators of cyber attacks. Management is not aware of any cybersecurity incident that has had a material effect on our operations, although there can be no assurances that a cyber incident that could have a material impact to our operations could not occur.
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Liquidity and Capital Resources
Our primary sources of liquidity are cash, cash equivalents, and short-term investments, cash generated by operations, and borrowing capacity under our revolving credit facility or accounts receivable securitization program.
Cash Flow and Short-Term Investments
Components of cash and cash equivalents and short-term investments were as follows:
| | | | | | | | | | | | |
| September 30 | | December 31 |
| June 30 | | December 31 |
| ||||
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| ||||
| (in thousands) |
| (in thousands) |
| ||||||||
Cash and cash equivalents(1) | $ | 267,645 | | $ | 201,909 | | $ | 362,619 | | $ | 303,954 | |
Short-term investments(2) |
| 83,411 | |
| 116,579 | |
| 59,967 | |
| 65,408 | |
Total(3) | $ | 351,056 | | $ | 318,488 | | $ | 422,586 | | $ | 369,362 | |
(1) | Cash equivalents consist of money market funds and variable rate demand notes. |
(2) | Short-term investments consist of certificates of deposit and, at December 31, 2020, U.S. Treasury securities. |
(3) | Cash, variable rate demand notes, and certificates of deposit are recorded at cost plus accrued interest, which approximates fair value. Money market funds are recorded at fair value based on quoted prices. U.S. Treasury securities are recorded at amortized cost plus accrued interest. At |
Cash, cash equivalents, and short-term investments increased $32.6$53.2 million from December 31, 20192020 to SeptemberJune 30, 2020.2021. During the nine-monthsix-month period ended SeptemberJune 30, 2020,2021, cash on hand and cash provided by operations was used to repay $84.6$54.6 million of long-term debt (net of borrowings(including $20.0 million repaid on our financing arrangements of $225.0 million)the Credit Facility); fund $11.2$14.5 million of capital expenditures, net of proceeds from asset sales (and an additional $53.0$8.1 million of certain Asset-Based revenue equipment was financed with notes payable); fund $9.6$9.5 million of internally developed software; purchase $8.1 million of treasury stock; and pay dividends of $6.1$4.1 million on common stock; and purchase $5.7 million of treasury stock.
Cash provided by operating activities duringThe comparisons of our consolidated cash flows and liquidity for the ninesix months ended SeptemberJune 30, 2020 was $151.3 million compared to $138.0 million in the same prior-year period. Net income increased $1.7 million for the nine months ended September 30, 2020, compared2021 to the same period of 2019. Excluding the increase2020 are impacted by actions we implemented during 2020 in net income, cash provided by operating activities increased $11.6 million for the nine months ended September 30, 2020, comparedresponse to the same period
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of 2019, primarily due to changes in cash flows for operating assets and liabilities. DueCOVID-19 pandemic. In addition to the improvement in business levels in recent months ascost reductions previously describeddiscussed in the Consolidated Results of Operations section of MD&A, accounts receivable balances increasedthe following actions should be considered when analyzing our year-over-year cash flows and liquidity for the ninesix months ended SeptemberJune 30, 2020, compared to a decrease in accounts receivable for the same period of 2019. In addition, accounts payable and accrued expenses increased for the nine months ended September 30, 2020, compared to the same period of 2019, due to the increased business activity and the impact of higher accruals in the 2020 period for certain performance-based incentive plans. Cash provided by operating activities included federal, state, and foreign income tax payments, net of refunds of federal and state income taxes, of $8.8 million for the nine months ended September 30, 2020, compared to federal, state, and foreign income tax payments, net of refunds of state income taxes, of $11.6 million for the nine months ended September 30, 2019.
Financing Arrangements
We have a revolving credit facility (the “Credit Facility”) under our Third Amended and Restated Credit Agreement (the “Credit Agreement”) that has an initial maximum credit amount of $250.0 million, of which $70.0 million was outstanding as of December 31, 2019. We have the option to request additional revolving commitments or incremental term loans thereunder of up to $125.0 million, subject to certain additional conditions as provided in the Credit Agreement. Our accounts receivable securitization program allows for cash proceeds of $125.0 million to be provided under the program and has an accordion feature allowing us to request additional borrowings up to $25.0 million, subject to certain conditions. As of December 31, 2019, we had $40.0 million outstanding under our accounts receivable securitization program. In2021. On March 26, 2020, we drew down the $180.0 million remaining available borrowing capacity under the initial maximum credit amount of our revolving credit facility (the “Credit Facility”) under our Third Amended and Restated Credit FacilityAgreement and borrowed an additional $45.0 million under our accounts receivable securitization program. These borrowings were a proactive measure to increase our cash position and preserve financial flexibility in consideration of general economic and financial market uncertainty and the potential for cash flow disruption resulting from the COVID-19 outbreak. These funds supplemented our already strong cash and short-term investments position and were repaid during third quarter 2020. We experienced stabilizationalso lowered our planned capital expenditures for 2020 by 30%, including a reduction in revenue equipment purchases of customer account payment trends$18.0 million.
Cash provided by operating activities during the six months ended June 30, 2021 was $145.9 million compared to $82.1 million in the same prior-year period. Net income increased $66.6 million for the six months ended June 30, 2021, compared to the same period of 2020. The increase in net income includes a $6.9 million gain on the sale of the labor services subsidiary of the ArcBest segment’s moving business during second quarter 2021 and a $4.8 million increase in gains on the sale of property and equipment for the six months ended June 30, 2021, compared to the same period of 2020, positive Adjusted EBITDAprimarily related to the sale of an unutilized property in the secondAsset-Based segment. Changes in operating assets and third quartersliabilities contributed $9.7 million to the increase in cash provided by operating activities during the six months ended June 30, 2021, compared to the same period of 2020,2020. The increases in accounts payable and improvements inaccrued expenses for the six months ended June 30, 2021 which were primarily due to the impact of higher business levels, compared to the decreases in third quarter 2020. Based on these factors and our projections of operating results andaccounts for the same prior-year period, resulted in higher cash flows from operationsoperations. These cash flows were partially offset by the business-driven increase in accounts receivable for the remainder of 2020, we repaid the $180.0 million drawdown on our Credit Facility and the $85.0 million of borrowings outstanding under oursix months ended June 30, 2021, versus a decrease in accounts receivable securitization program duringfor the third quartersame period of 2020. Cash provided by operating activities also reflected federal
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and state income tax payments, net of refunds, of $15.2 million for the six months ended June 30, 2021, compared to state and foreign income tax payments, net of refunds of federal and state income taxes, of $1.9 million for the six months ended June 30, 2020.
On May 4, 2020,Financing Arrangements
In June 2021, we extended the term of our $50.0 million notional amount interest rate swap agreement from June 30, 2022 to October 1, 2024. We will receive floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 0.43% beginning on June 30, 2022 throughout the remaining term of the agreement. From June 30, 2022 to October 1, 2024, the extended interest rate swap agreement will effectively convert $50.0repaid $20.0 million of borrowings under our Credit Facility from variable-rate interest to fixed-rate interest with a per annum rateFacility. We had available borrowing capacity of 1.56% based on$199.4 million under the margininitial maximum credit amount of ourthe Credit Facility, as of SeptemberJune 30, 2020.2021.
We amended and restated our accounts receivable securitization program in June 2021. The amendment extended the maturity date of this program from October 1, 2021 to July 1, 2024, decreased the amount of available cash proceeds under the facility from $125.0 million to $50.0 million, and increased the amount of additional borrowings we may request under the accordion feature of the program from $25.0 million to $100.0 million, subject to certain conditions. As of June 30, 2021, our available borrowing capacity under the accounts receivable securitization program was $39.9 million, as reduced for standby letters of credit issued under the program.
Our financing arrangements are further discussed in Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Contractual Obligations
We have purchase obligations, consisting of authorizations to purchase and binding agreements with vendors, relating to revenue equipment used in our Asset-Based operations, other equipment, facility improvements, software, certain service contracts, and other items for which amounts were not accrued in the consolidated balance sheet as of SeptemberJune 30, 2020.2021. These purchase obligations totaled $41.6$138.3 million as of SeptemberJune 30, 2020,2021, with $32.1$131.9 million estimated to be paid within the next year, $8.1$6.1 million estimated to be paid in the following two-year period, and $1.4$0.3 million to be paid within five years, provided that vendors complete their commitments to us. As of SeptemberJune 30, 2020,2021, the amount of our purchase obligations has increased $7.9$93.7 million from December 31, 2019,2020, primarily related to revenue equipment, real estate projects, and technology advancements which are included in our 20202021 capital expenditure plan.
As of SeptemberJune 30, 2020,2021, contractual obligations for operating lease liabilities, primarily related to our Asset-Based service centers, totaled $130.9$127.7 million, including imputed interest. The scheduled maturities of our operating lease liabilities as of SeptemberJune 30, 20202021 are disclosed in Note E to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Our contractual obligations related to our notes payable, which provide financing for revenue equipment and software purchases, totaled $234.2$196.3 million, including interest, as of SeptemberJune 30, 2020, an increase2021, for a decrease of $6.3$29.1 million from December 31, 2019.2020. The scheduled maturities of our long-term debt obligations as of SeptemberJune 30, 20202021 are disclosed in Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no other material changes in the contractual obligations disclosed in our 20192020 Annual Report on Form 10-K during the ninesix months ended SeptemberJune 30, 2020.2021.
As previously announced, our recent actions to preserve cash and lower costs to mitigate the financial impact of the COVID-19 pandemic on our business include a reduction of our 2020 capital expenditure plan by approximately 30%, including a reduction in revenue equipment purchases of $18.0 million. Our total capital expenditures for 2020,2021, including amounts financed, are now estimated to range from $90$160.0 million to $95$170.0 million, net of asset sales. These 2020sales, reflecting a $10.0 million increase from our previously disclosed range related to planned real estate investments in the second half of 2021. Our estimated net capital expenditures for 2021 include revenue equipment purchases of $64.0$100.0 million, primarily for our Asset-Based operations. The remainder of 20202021 expected capital expenditures include real estate projects, costs of other facilitydock equipment upgrades and handling equipmentenhancements for our Asset-Based operations, including forklifts, and technology investments across the enterprise. We have the flexibility to adjust certain planned 20202021 capital expenditures as business levels dictate. Depreciation and amortization expense, excluding amortization of intangibles, is estimated to be approximately $110in the range of $115.0 million to $120.0 million in 2020.2021. The amortization of intangible assets is estimated to be approximately $4.0 million in 2021. As we continue to make investments to provide assured capacity solutions to our customers, we expect to increase our revenue equipment purchases in 2022 by an estimated $50.0 million to $60.0 million from 2021 projected levels, and we preliminarily expect to increase our annualized capital expenditures above historical levels by an estimated $50.0 million to $75.0 million to upgrade and expand our Asset-Based service centers.
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ABF Freight System, Inc. and certain other subsidiaries reported in our Asset-Based operating segment contribute to multiemployer health, welfare, and pension plans based generally on the time worked by their contractual employees, as specified in the collective bargaining agreement and other supporting supplemental agreements (see Note G to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).
Other Liquidity Information
TheGeneral economic conditions, including the effects of the COVID-19 pandemic has been disruptive to businesses, the economy, and the financial markets, and uncertainty remains about the severity and duration of its impact. The effects of COVID-19 on the health of our employees and the economy,in future periods, along with competitive market factors and the related impact on our business, primarily tonnage and shipment levels and the pricing that we receive for our services in future periods, could affect our ability to generate cash from operations and maintain cash, cash equivalents, and short-term investments on hand as operating costs increase. Our Credit Facility and our accounts receivable securitization program provide available sources of liquidity with flexible borrowing and payment options. We had available borrowing capacity under our Credit Facility and our accounts receivable securitization program of $180.0$199.4 million and $113.3$39.9 million, respectively, at SeptemberJune 30, 2020.2021. We believe these agreements provide borrowing capacity options necessary for growth of our businesses. We believe existing cash, cash equivalents, short-term investments, cash generated by operations, and amounts available under our Credit Facility or our accounts receivable securitization program will be sufficient to finance our operating expenses, fund our ongoing investments in technology, and repay amounts due under our financing arrangements. Notes payable, finance leases, and other secured financing may also be used to fund capital expenditures, provided that such arrangements are available and the terms are acceptable to us.
On October 30, 2020,July 27, 2021, our Board of Directors declared a dividend of $0.08 per share to stockholders of record as of November 13, 2020.August 11, 2021. We expect to continue to pay quarterly dividends on our common stock in the foreseeable future, although there can be no assurances in this regard since future dividends will be at the discretion of the Board of Directors and are dependent upon our future earnings, capital requirements, and financial condition; contractual restrictions applying to the payment of dividends under our Credit Agreement; and other factors.
We have a program in place to repurchase our common stock in the open market or in privately negotiated transactions. The program has no expiration date but may be terminated at any time at the Board of Directors’ discretion. Repurchases may be made using cash reserves or other available sources. During the ninesix months ended SeptemberJune 30, 2020,2021, we purchased 227,460126,289 shares of our common stock for an aggregate cost of $5.7$8.1 million, leaving $7.5$41.9 million available for repurchase under the current buyback program.
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Financial Instruments
We have not historically entered into financial instruments for trading purposes, nor have we historically engaged in a program for fuel price hedging. No such instruments were outstanding as of SeptemberJune 30, 2020.2021. We have an interest rate swap agreement in place which is discussed in Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Balance Sheet Changes
Accounts Receivable
Accounts receivable increased $41.2$39.6 million from December 31, 20192020 to SeptemberJune 30, 2020,2021, reflecting higher business levels in September 2020June 2021 compared to December 2019.
Operating Right of Use Assets and Operating Lease Liabilities
The increase in operating right of use assets of $44.1 million and the increase in operating lease liabilities, including current portion, of $44.4 million from December 31, 2019 to September 30, 2020, are primarily due to new leases and lease renewals during the nine months ended September 30, 2020.
Accounts Payable
Accounts payable increased $27.6$33.2 million from December 31, 20192020 to SeptemberJune 30, 2020,2021, primarily due to increased business levels in September 2020June 2021 compared to December 2019.2020.
Accrued Expenses
Accrued expenses increased $16.9$13.4 million from December 31, 20192020 to SeptemberJune 30, 2020,2021, primarily due to accruals for certain performance-based incentive plans and contributions to our defined contribution plan, and higher accruals for wagesthe timing effect on wage and vacation dueaccruals at June 30, 2021, compared to timing. These increases were partially offset by lower accrued balances related to workers’ compensation and third-party casualty insurance at September 30, 2020 versus December 31, 2019, primarily due to net payments in excess of claims activity for the nine months ended September 30, 2020.
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Long-term Debt
The $31.6$46.5 million decrease in long-term debt, including current portion, from December 31, 20192020 to SeptemberJune 30, 20202021 is primarily due to the $20.0 million repayment in thirdof borrowings under our Credit Facility during second quarter 2020 of2021 and payments on note payables during the $40.0 million balance of our accounts receivable securitization program, which was outstanding as of December 31, 2019.six months ended June 30, 2021.
Off-Balance Sheet Arrangements
At SeptemberJune 30, 2020,2021, our off-balance sheet arrangements for purchase obligations totaled $41.6$138.3 million, as previously discussed in the Contractual Obligations section of Liquidity and Capital Resources.
We have no investments, loans, or any other known contractual arrangements with unconsolidated special-purpose entities, variable interest entities, or financial partnerships and have no outstanding loans with executive officers or directors.
Income Taxes
Our effective tax rate was 24.9%17.0% and 24.3%19.5% for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, compared to 30.3%23.4% and 28.3%23.1%, respectively, for the same periods of 2019.2020. The federal statutory tax rate is 21.0%, and the average state tax rate, net of the associated federal deduction, is approximately 5%. However, various factors and significant changes in nondeductible expenses, such as cash surrender value of life insurance and the settlement of share-based payment awards primarily vesting in the second quarter, may cause the full-year 20202021 tax rate to vary significantly from the statutory rate.
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Reconciliation between the effective income tax rate, as computed on income before income taxes, and the statutory federal income tax rate is presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | Nine Months Ended |
| | | Three Months Ended |
| | Six Months Ended |
| | ||||||||||||||||||||||||||||||||||||
| | September 30 | | | September 30 | | | | June 30 | | | June 30 | | | ||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| | ||||||||||||||||||||||||
| | (in thousands, except percentages) | | | | (in thousands, except percentages) | | |||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income tax provision at the statutory federal rate | | $ | 8,227 | | 21.0 | % | | $ | 4,902 | | 21.0 | % | | $ | 13,082 | | 21.0 | % | | $ | 13,335 | | 21.0 | % | | | $ | 15,426 | | 21.0 | % | | $ | 4,354 | | 21.0 | % | | $ | 22,009 | | 21.0 | % | | $ | 4,855 | | 21.0 | % | |
Federal income tax effects of: | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Alternative fuel credit | |
| (257) | | (0.7) | % | |
| — | | — | % | |
| (955) | | (1.5) | % | |
| — | | — | % | | |
| — | | — | % | |
| (247) | | (1.2) | % | |
| — | | — | % | |
| (698) | | (3.0) | % | |
Nondeductible expenses and other | |
| 550 | | 1.5 | % | |
| 342 | | 1.4 | % | |
| 930 | | 1.5 | % | |
| 1,178 | | 1.9 | % | | |
| 1,012 | | 1.4 | % | |
| (24) | | (0.1) | % | |
| 1,493 | | 1.4 | % | |
| 380 | | 1.6 | % | |
Increase (decrease) in valuation allowances | |
| 88 | | 0.2 | % | |
| (26) | | (0.1) | % | |
| 323 | | 0.5 | % | |
| (26) | | — | % | | |||||||||||||||||||||||||
Increase in valuation allowances | |
| 35 | | — | % | |
| 41 | | 0.2 | % | |
| 127 | | 0.1 | % | |
| 235 | | 1.0 | % | | |||||||||||||||||||||||||
Decrease in uncertain tax positions(1) | | | — | | — | % | | | — | | — | % | | | (933) | | (1.5) | | | | — | | — | | | | | — | | — | % | | | — | | — | % | | | — | | — | % | | | (933) | | (4.0) | % | |
Tax expense from vested RSUs | |
| (138) | | (0.4) | % | |
| 56 | | 0.2 | % | |
| 541 | | 0.9 | % | |
| 464 | | 0.7 | % | | |||||||||||||||||||||||||
Tax expense (benefit) from vested RSUs | |
| (6,796) | | (9.2) | % | |
| 659 | | 3.1 | % | |
| (6,931) | | (6.6) | % | |
| 679 | | 3.0 | % | | |||||||||||||||||||||||||
Federal research and development tax credits | | | (62) | | (0.2) | % | | | — | | — | % | | | (505) | | (0.8) | % | | | — | | — | % | | | | (125) | | (0.2) | % | | | (193) | | (0.9) | % | | | (253) | | (0.2) | % | | | (443) | | (1.9) | % | |
Nonunion pension termination expense(2) | | | — | | — | % | | | 1,040 | | 4.5 | % | | | — | | — | % | | | 1,040 | | 1.6 | % | | |||||||||||||||||||||||||
Life insurance proceeds and changes in cash surrender value | | | (316) | | (0.8) | % | | | (117) | | (0.4) | % | | | (54) | | (0.1) | % | | | (570) | | (0.9) | % | | | | (262) | | (0.4) | % | | | (537) | | (2.6) | % | | | (528) | | (0.5) | % | | | 262 | | 1.1 | % | |
Federal income tax provision | | $ | 8,092 | | 20.6 | % | | $ | 6,197 | | 26.6 | % | | $ | 12,429 | | 20.0 | % | | $ | 15,421 | | 24.3 | % | | | $ | 9,290 | | 12.6 | % | | $ | 4,053 | | 19.5 | % | | $ | 15,917 | | 15.2 | % | | $ | 4,337 | | 18.8 | % | |
State income tax provision | |
| 1,682 | | 4.3 | % | |
| 875 | | 3.7 | % | |
| 2,682 | | 4.3 | % | |
| 2,543 | | 4.0 | % | | |
| 3,187 | | 4.4 | % | |
| 801 | | 3.9 | % | |
| 4,546 | | 4.3 | % | |
| 1,000 | | 4.3 | % | |
Total provision for income taxes | | $ | 9,774 | | 24.9 | % | | $ | 7,072 | | 30.3 | % | | $ | 15,111 | | 24.3 | % | | $ | 17,964 | | 28.3 | % | | | $ | 12,477 | | 17.0 | % | | $ | 4,854 | | 23.4 | % | | $ | 20,463 | | 19.5 | % | | $ | 5,337 | | 23.1 | % | |
(1) | The statute of limitations expired in the first quarter of 2020 for the federal tax refund for which the reserve for uncertain tax positions was established in 2018. |
At SeptemberJune 30, 2020,2021, we had $60.7$58.5 million of net deferred tax liabilities after valuation allowances. We evaluated the need for a valuation allowance for deferred tax assets at SeptemberJune 30, 20202021 by considering the future reversal of existing taxable temporary differences, future taxable income, and available tax planning strategies. Valuation allowances for deferred tax assets totaled $1.0$1.4 million and $0.7$1.3 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively. As of SeptemberJune 30, 2020,2021, deferred tax liabilities which will reverse in future years exceeded deferred tax assets.
Financial reporting income may differ significantly from taxable income because of items such as revenue recognition, accelerated depreciation for tax purposes, and a significant number of liabilities such as vacation pay, workers’
45
compensation, and other liabilities, which, for tax purposes, are generally deductible only when paid. For the ninethree months ended SeptemberJune 30, 20202021 and 2019, financial reporting income exceeded2020, income determined under income tax law.law exceeded financial reporting income.
During the ninesix months ended SeptemberJune 30, 2020,2021, we made federal state, and foreignstate tax payments of $9.2$15.3 million, and received refunds of $0.4less than $0.1 million of federal and state income taxes that were paid in prior years. Management does not expect the cash outlays for income taxes will materially exceed reported income tax expense for the foreseeable future.
Critical Accounting Policies
The accounting policies that are “critical,” or the most important, to understand our financial condition and results of operations and that require management to make the most difficult judgments are described in our 20192020 Annual Report on Form 10-K. The following policy hasThere have been updatedno updates to our critical accounting policies during the ninesix months ended SeptemberJune 30, 2020 for the adoption of an accounting standard update.
Receivables Allowance
On January 1, 2020, we adopted ASC Topic 326, Financial Instruments – Credit Losses, (“ASC Topic 326”), which replaces the incurred loss methodology model with an expected loss methodology that is referred to as the current expected
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credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables and other receivables. We maintain allowances for credit losses (formerly known as the allowance for doubtful accounts) and revenue adjustments on our trade receivables.
We estimate our allowance for credit losses based on historical trends, factors surrounding the credit risk of specific customers, and forecasts of future economic conditions. In order to gather information regarding these trends and factors, we perform ongoing credit evaluations of our customers, an analysis of accounts receivable aging by business segment, and an analysis of future economic conditions at period end. The allowance for revenue adjustments represents an estimate of potential adjustments associated with recognized revenue based upon historical trends and current information regarding trends and business changes. Actual write-offs or adjustments could differ from the allowance estimates due to a number of factors, including future changes in the forecasted economic environment or new factors and risks surrounding a particular customer. We continually update the history we use to make these estimates so as to reflect the most recent trends, factors, forecasts, and other information available. Management believes this methodology to be reliable in estimating the allowances for credit losses and revenue adjustments (collectively our receivable allowance). Accounts receivable are written off against the allowance for credit losses and revenue adjustments when accounts are turned over to a collection agency or when the accounts are determined to be uncollectible.
Accounting Pronouncements Not Yet Adopted
New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of financial statements. Accounting pronouncements which have been issued but are not yet effective for our financial statements are disclosed in Note A to our consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.2021. Management believes that there is no new accounting guidance issued but not yet effective that will impact our critical accounting policies.
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Forward-Looking Statements
Certain statements and information in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “foresee,” “intend,” “may,” “plan,” “predict,” “project,” “scheduled,” “should,” “would,” and similar expressions and the negatives of such terms are intended to identify forward-looking statements. These statements are based on management’s beliefs, assumptions, and expectations based on currently available information, are not guarantees of future performance, and involve certain risks and uncertainties (some of which are beyond our control). Although we believe that the expectations reflected in these forward-looking statements are reasonable as and when made, we cannot provide assurance that our expectations will prove to be correct. Actual outcomes and results could materially differ from what is expressed, implied, or forecasted in these statements due to a number of factors, including, but not limited to: widespread outbreak of an illness or disease, including the COVID-19 pandemic and its effects, or any other public health crisis, as well as regulatory measures implemented in response to such events; external events which may adversely affect us or the third parties who provide services for us, for which our business continuity plans may not adequately prepare us; a failure of our information systems, including disruptions or failures of services essential to our operations or upon which our information technology platforms rely, data breach, and/or cybersecurity incidents; the ability to maintaininterruption or failure of third-party software or information technology systems or licenses; widespread outbreak of an illness or any other communicable disease and the effects of pandemics, including the COVID-19 pandemic, or any other public health crisis; regulatory measures that may be implemented in response to widespread illness, including the COVID-19 pandemic; ineffectiveness of our business continuity plans to meet our operational needs in the event of adverse external events or conditions; untimely or ineffective development and implementation of, or failure to realize potential benefits associated with, new or enhanced technology or processes, including the pilot test program at ABF Freight, and any write-offs associated therewith;Freight; the loss or reduction of business from large customers; competitive initiatives and pricing pressures; general economic conditions and related shifts in market demand, including the impact of and uncertainties related to the COVID-19 pandemic, that impact the performance and needs of industries we serve and/or limit our customers’ access to adequate financial resources; the ability to manage our cost structure, and the timing and performance of growth initiatives; maintaining our corporate reputation and intellectual property rights; competitive initiatives and pricing pressures; increased prices for and decreased availability of new revenue equipment, decreases in value of used revenue equipment, and higher costs of equipment-related operating expenses such as maintenance, fuel, and related taxes; availability of fuel, the effect of volatility in fuel prices and the associated changes in fuel surcharges on securing increases in base freight rates, and the inability to collect fuel surcharges; relationships with employees, including unions, and our ability to attract, retain, and develop employees; unfavorable terms of, or the inability to reach agreement on, future collective bargaining agreements or a workforce stoppage by our employees covered under ABF Freight’s collective bargaining agreement; union employee wages and benefits, including changes in required contributions to multiemployer plans; availability and cost of reliable third-party services; our ability to secure independent owner operators and/or operational or regulatory issues related to our use of their services; availability and cost of reliable third-party services; availability of fuel, the effect of volatility in fuel prices and the associated changes in fuel surcharges on securing increases in base freight rates, and the inability to collect fuel surcharges;litigation or claims asserted against us; governmental regulations; environmental laws and regulations, including emissions-control regulations; union employee wages and benefits, including changes in required contributions to multiemployer plans; litigation or claims asserted against us; the loss of key employees or the inability to execute succession planning strategies; maintaining our intellectual property rights, brand, and corporate reputation; default on covenants of financing arrangements and the availability and terms of future financing arrangements; timing and amount of capital expenditures; self-insurance claims and insurance premium costs; increased prices for and decreased availability of new revenue equipment, decreases in value of used revenue equipment, and higher costs of equipment-related operating expenses such as maintenance, fuel, and related taxes; potential impairment of goodwill and intangible assets; general economic conditions and related shifts in market demand that impact the cost, integration,performance and performanceneeds of any recent industries we serve and/or future acquisitions;limit our customers’ access to adequate financial resources; seasonal fluctuations and adverse weather conditions; regulatory, economic, and other risks arising from our international business; acts of terrorism or war, or the impact of antiterrorism and safety measures; and other financial, operational, and legal risks and uncertainties detailed from time to time in ArcBest’sArcBest Corporation’s public filings with the Securities and Exchange Commission (“SEC”(the “SEC”).
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For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financing arrangements are discussed in Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. These financing arrangements include a revolving credit facility (the “Credit Facility”) under our Third Amended and Restated Credit Agreement (the “Credit Agreement”) that has an initial maximum credit amount of $250.0 million and an accounts receivable securitization program that allows for initial cash proceeds of $125.0 million to be provided under the program. As of December 31, 2019, we had outstanding borrowings of $70.0 million under our Credit Facility and $40.0 million under our accounts receivable securitization program. In March 2020, we drew down the $180.0 million remaining available borrowing capacity under the initial maximum credit amount of our Credit Facility and borrowed an additional $45.0 million under our accounts receivable securitization program. These borrowings were a proactive measure to increase our cash position and preserve financial flexibility in consideration of general economic and financial market uncertainty and the potential for cash flow disruption resulting from the COVID-19 outbreak.Due to improvement in our consolidated net cash position, stabilized customer account payment trends, and improved business levels, we repaid the $180.0 million drawdown on our Credit Facility and the $85.0 million of borrowings outstanding under our accounts receivable securitization program during the third quarter of 2020. As of September 30, 2020, we had available borrowing capacity under the initial maximum credit amounts of the Credit Facility and the accounts receivable securitization program of $180.0 million and $113.3 million, respectively. Our financing arrangements are discussed in Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
As disclosed in Part II, Item 7A of our 2019 Annual Report on Form 10-K, we are subject to interest rate risk due to variable interest rates on the borrowings under our credit agreements. We did not modify our Credit Facility, accounts receivable securitization program, or interest rate swap agreement during the three and nine months ended September 30, 2020 and, therefore, we are subject to the interest rate risk due to the variable interest rates on the borrowings under our credit agreements as of September 30, 2020 as disclosed in Part II, Item 7A of our 2019 Annual Report on Form 10-K. On May 4, 2020, we extended the term of our $50.0 million notional amount interest rate swap agreement from June 30, 2022 to October 1, 2024. We will receive floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 0.43% beginning on June 30, 2022 throughout the remaining term of the agreement. From June 30, 2022 to October 1, 2024, the extended interest rate swap agreement will effectively convert $50.0 million of borrowings under our Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 1.56% based on the margin of our Credit Facility as of September 30, 2020.
Risks associated with the continuedfuture economic impacts of the COVID-19 pandemic remain uncertain. Further discussion related to current economic conditions and the impact of the COVID-19 pandemic on our business and our response to the pandemic can be found in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q.
In additionJune 2021, we repaid $20.0 million of borrowings under our Credit Facility. We had available borrowing capacity of $199.4 million under the initial maximum credit amount of the Credit Facility, as of June 30, 2021.
In June 2021, we amended and restated our accounts receivable securitization program to decrease the risk factors disclosed in Part I, Item 2initial maximum credit amount of the program from $125.0 million to $50.0 million and to increase the additional borrowing we may request under an accordion feature of the program from $25.0 million to $100.0 million, subject to certain conditions. The maturity date of the accounts receivable securitization program was extended to July 1, 2024. As of June 30, 2021, we did not have any current principal borrowings under the accounts receivable securitization program and our 2019 Annual Report on Form 10-K, we have supplemented our risk factorsavailable borrowing capacity, as discussed in Part II, Item 1Areduced for standby letters of this Quarterly Report on Form 10-Q.credit issued under the program, was $39.9 million.
Since December 31, 2019,2020, there have been no other significant changes in the Company’s market risks as reported in the Company’s 20192020 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was performed with the participation of the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 2020.2021.
ThereDuring the quarter ended June 30, 2021, the Company implemented a new human capital management (“HCM”) system which replaced the current payroll systems and certain components of the human resource systems. Certain processes and procedures were changed as a result of the HCM system implementation, which resulted in changes to the Company’s internal controls over financial reporting. The Company has implemented additional controls to mitigate internal control risks and performed testing to ensure data integrity. Other than these changes related to the HCM system implementation, no changes in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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PART II.
OTHER INFORMATION
ARCBEST CORPORATION
ITEM 1. LEGAL PROCEEDINGS
For information related to the Company’s legal proceedings, see Note K, Legal Proceedings, Environmental Matters, and Other Events under Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
The Company’s risk factors are fully described in the Company’s 20192020 Annual Report on Form 10-K.In consideration of No material changes to the COVID-19 pandemic, ArcBest is supplementing theCompany’s risk factors set forth under “Item 1A. Risk Factors” inhave occurred since the Company’s 2019Company filed its 2020 Annual Report on Form 10-K with the risk factors set forth below. These risk factors should be read in conjunction with the risk factors in the Company’s 2019 Annual Report on Form 10-K.
The widespread outbreak of an illness or any other communicable disease, including the effects of pandemics, or any other public health crisis, as well as regulatory measures implemented in response to such events, could adversely affect our business, results of operations, financial condition, and cash flows.
Our business has been and may continue to be negatively impacted the COVID-19 pandemic, and could be negatively impacted by the widespread outbreak of another illness, communicable disease, or public health crisis. Measures intended to prevent the spread of a health epidemic could also have an adverse effect on our business. The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide and created significant volatility and disruption to financial markets. Efforts to control the spread of COVID-19 have led governments and other authorities to impose restrictions which have resulted in business closures and disrupted supply chains worldwide. The COVID-19 pandemic and measures taken to prevent its spread have negatively impacted demand for our services, and thus our shipment and tonnage levels, and could continue to further negatively impact our business. We are continuing to monitor developments involving our workforce, customers, and third-party service providers. The extent of the continued impact of the COVID-19 pandemic on our business is uncertain and will depend on future developments, including the duration and severity of the pandemic and government restrictions imposed in response to the pandemic. Extended periods of economic disruption and resulting declines in industrial production and manufacturing, consumer spending, and demand for our services, as well as the ability of our customers and other business partners to fulfill their obligations, could have a material adverse effect on our results of operations, financial condition, and cash flows.
We, or the third parties upon which we depend to provide services for us, may be adversely affected by external events from which our business continuity plans may not adequately protect us.
The occurrence of severe weather, natural disasters, health epidemics, acts of war or terrorism, and other adverse external events or conditions that impact us or the operations of third parties upon which we rely to provide services for us have the potential to significantly impact our ability to conduct business. Although we have business continuity plans in place, including an emergency succession plan, there is no guarantee that our plans can be successfully implemented. Additionally, even if we were to successfully implement our continuity plans, we may incur substantial expenses and there is no guarantee that our business, financial conditions, and results of operations will not be materially impacted.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)Recent sales of unregistered securities.
None.
(b)Use of proceeds from registered securities.
None.
(c)Purchases of equity securities by the issuer and affiliated purchasers.
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Total Number of | | Maximum |
| | | | | | Total Number of | | Maximum |
| |||
| | | | | | | Shares Purchased | | Approximate Dollar |
| | | | | | Shares Purchased | | Approximate Dollar |
| |||
| | Total Number | | Average | | as Part of Publicly | | Value of Shares that |
| | Total Number | | Average | | as Part of Publicly | | Value of Shares that |
| ||||
| | of Shares | | Price Paid | | Announced | | May Yet Be Purchased |
| | of Shares | | Price Paid | | Announced | | May Yet Be Purchased |
| ||||
|
| Purchased |
| Per Share(1) |
| Program |
| Under the Program (2) |
|
| Purchased |
| Per Share(1) |
| Program |
| Under the Program(2) |
| ||||
| | (in thousands, except share and per share data) |
| | (in thousands, except share and per share data) |
| ||||||||||||||||
7/1/2020-7/30/2020 |
| — |
| $ | — |
| — |
| $ | 10,034 | | |||||||||||
8/1/2020-8/31/2020 |
| 27,604 | |
| 31.81 |
| 27,604 |
| $ | 9,156 | | |||||||||||
9/1/2020-9/30/2020 |
| 49,856 | |
| 32.62 |
| 49,856 |
| $ | 7,530 | | |||||||||||
4/1/2021-4/30/2021 |
| — |
| $ | — |
| — |
| $ | 48,999 | | |||||||||||
5/1/2021-5/31/2021 |
| 10,475 | |
| 77.07 |
| 10,475 |
| $ | 48,192 | | |||||||||||
6/1/2021-6/30/2021 |
| 100,891 | |
| 62.36 |
| 100,891 |
| $ | 41,900 | | |||||||||||
Total |
| 77,460 |
| $ | 32.33 |
| 77,460 | | | | |
| 111,366 |
| $ | 63.74 |
| 111,366 | | | | |
(1) | Represents the weighted-average price paid per common share including commission. |
(2) | In January 2003, the Company’s Board of Directors authorized a $25.0 million common stock repurchase program. The Board of Directors authorized an additional $50.0 million to the current program in July 2005. In October 2015, and again in January 2021, the Board of Directors extended the share repurchase program, making a total of $50.0 million available for purchases. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
5549
ITEM 6. EXHIBITS
The following exhibits are filed or furnished with this report or are incorporated by reference to previously filed material:
Exhibit |
|
|
No. | | |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
3.3 | | |
| | |
3.4 | | |
| | |
10.1# | | |
| | |
10.2# | | |
| | |
10.3 | | |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32** | | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS* | | XBRL Instance Document – the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
| | |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document |
| | |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104* | | The Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document. |
# Designates a compensation plan or arrangement for directors or executive officers.
* Filed herewith.
** Furnished herewith.
5650
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| |
| ARCBEST CORPORATION |
| (Registrant) |
| |
Date: | /s/ Judy R. McReynolds |
| Judy R. McReynolds |
| Chairman, President and Chief Executive Officer |
| and Principal Executive Officer |
| |
| |
Date: | /s/ David R. Cobb |
| David R. Cobb |
| Vice President — Chief Financial Officer |
| and Principal Financial Officer |
5751