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EX-31.2 - EX-31.2 - ARCBEST CORP /DE/arcb-20160930ex312f7b81d.htm
EX-32 - EX-32 - ARCBEST CORP /DE/arcb-20160930xex32.htm
EX-31.1 - EX-31.1 - ARCBEST CORP /DE/arcb-20160930ex311be26e5.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2016

 

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

 

For the transition period from                          to                         

 

Commission file number 000-19969

 

ARCBEST CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

(State or other jurisdiction of
incorporation or organization)

 

71-0673405

(I.R.S. Employer Identification No.)

 

3801 Old Greenwood Road

Fort Smith, Arkansas 72903

(479) 785-6000

(Address, including zip code, and telephone number, including

area code, of the registrant’s principal executive offices)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No

 

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

 

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

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

    

Outstanding at November 3, 2016

Common Stock, $0.01 par value

 

25,622,506 shares

 

 

 

 

 


 

ARCBEST CORPORATION

 

INDEX

 

 

 

 

 

 

    

    

Page

 

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets — September 30, 2016 and December 31, 2015

 

 

 

 

 

 

Consolidated Statements of Operations — For the Three and Nine Months Ended September 30, 2016 and 2015

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income — For the Three and Nine Months Ended September 30, 2016 and 2015

 

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity — For the Nine Months Ended September 30, 2016

 

 

 

 

 

 

Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2016 and 2015

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

 

Item 2. 

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

 

30 

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

51 

 

 

 

 

Item 4. 

Controls and Procedures

 

51 

 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

52 

 

 

 

 

Item 1A. 

Risk Factors

 

52 

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

52 

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

52 

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

52 

 

 

 

 

Item 5. 

Other Information

 

52 

 

 

 

 

Item 6. 

Exhibits

 

53 

 

 

 

 

SIGNATURES 

 

54 

 

 

 

 


 

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30

 

December 31

 

 

    

2016

    

2015

 

 

 

(Unaudited)

 

 

 

 

 

 

(in thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

130,395

 

$

164,973

 

Short-term investments

 

 

59,346

 

 

61,597

 

Restricted cash

 

 

962

 

 

1,384

 

Accounts receivable, less allowances (2016 – $5,118; 2015 – $4,825)

 

 

256,316

 

 

236,097

 

Other accounts receivable, less allowances (2016 – $830; 2015 – $1,029)

 

 

8,927

 

 

6,718

 

Prepaid expenses

 

 

19,622

 

 

20,801

 

Deferred income taxes

 

 

39,097

 

 

38,443

 

Prepaid and refundable income taxes

 

 

13,934

 

 

18,134

 

Other

 

 

4,275

 

 

3,936

 

TOTAL CURRENT ASSETS

 

 

532,874

 

 

552,083

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

Land and structures

 

 

296,324

 

 

273,839

 

Revenue equipment

 

 

738,350

 

 

699,844

 

Service, office, and other equipment

 

 

156,536

 

 

145,286

 

Software

 

 

134,312

 

 

127,010

 

Leasehold improvements

 

 

27,040

 

 

25,419

 

 

 

 

1,352,562

 

 

1,271,398

 

Less allowances for depreciation and amortization

 

 

822,623

 

 

788,351

 

PROPERTY, PLANT AND EQUIPMENT, net

 

 

529,939

 

 

483,047

 

GOODWILL

 

 

110,487

 

 

96,465

 

INTANGIBLE ASSETS, net

 

 

82,068

 

 

76,787

 

OTHER LONG-TERM ASSETS

 

 

65,500

 

 

54,527

 

TOTAL ASSETS

 

$

1,320,868

 

$

1,262,909

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

149,971

 

$

130,869

 

Income taxes payable

 

 

 —

 

 

91

 

Accrued expenses

 

 

187,822

 

 

188,727

 

Current portion of long-term debt

 

 

61,251

 

 

44,910

 

TOTAL CURRENT LIABILITIES

 

 

399,044

 

 

364,597

 

LONG-TERM DEBT, less current portion

 

 

176,363

 

 

167,599

 

PENSION AND POSTRETIREMENT LIABILITIES

 

 

42,520

 

 

51,241

 

OTHER LONG-TERM LIABILITIES

 

 

15,159

 

 

12,689

 

DEFERRED INCOME TAXES

 

 

92,629

 

 

78,055

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2016: 28,122,385 shares; 2015: 27,938,319 shares

 

 

281

 

 

279

 

Additional paid-in capital

 

 

313,794

 

 

309,653

 

Retained earnings

 

 

387,646

 

 

376,827

 

Treasury stock, at cost, 2016: 2,499,879 shares; 2015: 2,080,187 shares

 

 

(78,129)

 

 

(70,535)

 

Accumulated other comprehensive loss

 

 

(28,439)

 

 

(27,496)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

595,153

 

 

588,728

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,320,868

 

$

1,262,909

 

 

 

 

 

 

See notes to consolidated financial statements.

3


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

Nine Months Ended 

 

 

 

September 30

 

September 30

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(Unaudited)

 

 

 

(in thousands, except share and per share data)

 

REVENUES

 

$

713,923

 

$

709,380

 

$

2,012,005

 

$

2,018,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

693,553

 

 

675,942

 

 

1,984,246

 

 

1,950,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

20,370

 

 

33,438

 

 

27,759

 

 

68,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (COSTS)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

390

 

 

378

 

 

1,178

 

 

882

 

Interest and other related financing costs

 

 

(1,296)

 

 

(1,157)

 

 

(3,774)

 

 

(3,183)

 

Other, net

 

 

1,091

 

 

(613)

 

 

2,028

 

 

(15)

 

TOTAL OTHER INCOME (COSTS)

 

 

185

 

 

(1,392)

 

 

(568)

 

 

(2,316)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

20,555

 

 

32,046

 

 

27,191

 

 

65,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX PROVISION

 

 

7,615

 

 

12,892

 

 

10,123

 

 

26,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

12,940

 

$

19,154

 

$

17,068

 

$

39,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.50

 

$

0.73

 

$

0.66

 

$

1.52

 

Diluted

 

$

0.49

 

$

0.72

 

$

0.64

 

$

1.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,724,550

 

 

26,009,344

 

 

25,779,166

 

 

26,033,467

 

Diluted

 

 

26,211,524

 

 

26,508,482

 

 

26,263,732

 

 

26,569,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.08

 

$

0.06

 

$

0.24

 

$

0.18

 

 

See notes to consolidated financial statements.

 

4


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

Nine Months Ended 

 

 

 

September 30

 

September 30

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

NET INCOME

 

$

12,940

 

$

19,154

 

$

17,068

 

$

39,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial gain (loss), net of tax of: (2016 – Three-month period $822, Nine-month period $2,637; 2015 – Three-month period $4,317, Nine-month period $3,968)

 

 

1,294

 

 

(6,780)

 

 

(4,141)

 

 

(6,232)

 

Pension settlement expense, net of tax of: (2016 – Three-month period $313, Nine-month period $882; 2015 – Three-month period $296, Nine-month period $964)

 

 

490

 

 

466

 

 

1,385

 

 

1,514

 

Amortization of unrecognized net periodic benefit costs, net of tax of: (2016 – Three-month period $496, Nine month period $1,410 ; 2015 – Three-month period $330, Nine-month period $1,126)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial loss

 

 

807

 

 

545

 

 

2,301

 

 

1,854

 

Prior service credit

 

 

(29)

 

 

(29)

 

 

(87)

 

 

(87)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap and foreign currency translation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized income (loss) on interest rate swap, net of tax of: (2016 – Three-month period $168, Nine month period $278; 2015 – Three-month period $312, Nine-month period $389)

 

 

262

 

 

(483)

 

 

(430)

 

 

(603)

 

Change in foreign currency translation, net of tax of: (2016 – Three-month period $127, Nine-month period $158; 2015 – Three-month period $225, Nine-month period $351)

 

 

(420)

 

 

(354)

 

 

29

 

 

(552)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

 

 

2,404

 

 

(6,635)

 

 

(943)

 

 

(4,106)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

 

$

15,344

 

$

12,519

 

$

16,125

 

$

35,760

 

 

See notes to consolidated financial statements.

 

5


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

    

Paid-In

 

Retained

 

Treasury Stock

    

Comprehensive

 

Total

 

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Loss

    

Equity

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

Balance at December 31, 2015

 

27,938

 

$

279

 

$

309,653

 

$

376,827

 

2,080

 

$

(70,535)

 

$

(27,496)

 

$

588,728

 

Net income

 

 

 

 

 

 

 

 

 

 

17,068

 

 

 

 

 

 

 

 

 

 

17,068

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(943)

 

 

(943)

 

Issuance of common stock under share-based compensation plans

 

184

 

 

2

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

 

Tax effect of share-based compensation plans

 

 

 

 

 

 

 

(2,008)

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,008)

 

Share-based compensation expense

 

 

 

 

 

 

 

6,151

 

 

 

 

 

 

 

 

 

 

 

 

 

6,151

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

420

 

 

(7,594)

 

 

 

 

 

(7,594)

 

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

(6,249)

 

 

 

 

 

 

 

 

 

 

(6,249)

 

Balance at September 30, 2016

 

28,122

 

$

281

 

$

313,794

 

$

387,646

 

2,500

 

$

(78,129)

 

$

(28,439)

 

$

595,153

 

 

See notes to consolidated financial statements.

 

6


 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended 

 

 

 

September 30

 

 

    

2016

    

2015

 

 

 

(Unaudited)

 

 

 

(in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

 

$

17,068

 

$

39,866

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

73,633

 

 

65,142

 

Amortization of intangibles

 

 

3,059

 

 

3,079

 

Pension settlement expense

 

 

2,267

 

 

2,478

 

Share-based compensation expense

 

 

6,151

 

 

6,343

 

Provision for losses on accounts receivable

 

 

787

 

 

941

 

Deferred income tax provision (benefit)

 

 

14,199

 

 

(7,862)

 

Gain on sale of property and equipment

 

 

(2,581)

 

 

(1,691)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

(18,906)

 

 

(14,881)

 

Prepaid expenses

 

 

1,108

 

 

2,353

 

Other assets

 

 

(3,655)

 

 

505

 

Income taxes

 

 

2,583

 

 

14,295

 

Accounts payable, accrued expenses, and other liabilities

 

 

(7,786)

 

 

9,006

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

87,927

 

 

119,574

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net of financings

 

 

(45,774)

 

 

(53,644)

 

Proceeds from sale of property and equipment

 

 

7,296

 

 

4,115

 

Purchases of short-term investments

 

 

(51,760)

 

 

(48,868)

 

Proceeds from sale of short-term investments

 

 

54,027

 

 

25,347

 

Business acquisitions, net of cash acquired

 

 

(24,805)

 

 

(5,239)

 

Capitalization of internally developed software

 

 

(7,660)

 

 

(6,155)

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(68,676)

 

 

(84,444)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Borrowings under credit facilities

 

 

 —

 

 

70,000

 

Borrowings under accounts receivable securitization program

 

 

 —

 

 

35,000

 

Payments on long-term debt

 

 

(36,579)

 

 

(92,136)

 

Net change in book overdrafts

 

 

(3,829)

 

 

2,179

 

Net change in restricted cash

 

 

422

 

 

(1)

 

Deferred financing costs

 

 

 —

 

 

(824)

 

Payment of common stock dividends

 

 

(6,249)

 

 

(4,740)

 

Purchases of treasury stock

 

 

(7,594)

 

 

(10,004)

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(53,829)

 

 

(526)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(34,578)

 

 

34,604

 

Cash and cash equivalents at beginning of period

 

 

164,973

 

 

157,042

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

130,395

 

$

191,646

 

 

 

 

 

 

 

 

 

NONCASH INVESTING ACTIVITIES

 

 

 

 

 

 

 

Equipment financed

 

$

61,684

 

$

51,009

 

Accruals for equipment received

 

$

9,391

 

$

7,150

 

 

 

See notes to consolidated financial statements.

 

 

7


 

Table of Contents

ARCBEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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

 

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

 

ABF Freight represented approximately 70% of the Company’s total revenues before other revenues and intercompany eliminations for the nine months ended September 30, 2016. As of September 2016, approximately 77% of ABF Freight’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”), which extends through March 31, 2018. The ABF NMFA included a 7% wage rate reduction upon the November 3, 2013 implementation date, followed by wage rate increases of 2% on July 1 in each of the next three years, which began in 2014, and a 2.5% increase on July 1, 2017; a one-week reduction in annual compensated vacation effective for employee anniversary dates on or after April 1, 2013; the option to expand the use of purchased transportation; and increased flexibility in labor work rules. The ABF NMFA and the related supplemental agreements provide for continued contributions to various multiemployer health, welfare, and pension plans maintained for the benefit of ABF Freight’s employees who are members of the IBT. The estimated net effect of the November 3, 2013 wage rate reduction and the benefit rate increase which was applied retroactively to August 1, 2013 was an initial reduction of approximately 4% to the combined total contractual wage and benefit rate under the ABF NMFA. Following the initial reduction, the combined contractual wage and benefit contribution rate under the ABF NMFA is estimated to increase approximately 2.5% on a compounded annual basis throughout the contract period which extends through March 31, 2018.

 

On September 2, 2016, ABF Logistics acquired Logistics & Distribution Services, LLC (“LDS”), a private logistics and distribution company, in a transaction valued at $25.0 million (subject to post-closing adjustments), reflecting net cash consideration of $17.0 million paid at closing and an additional $8.0 million of contingent consideration to be paid over the next two years upon the achievement of certain financial targets. On December 1, 2015, ABF Logistics acquired Bear Transportation Services, L.P. (“Bear”), a private, non-asset truckload brokerage firm, for net cash consideration of $24.4 million (subject to post-closing adjustments). On January 2, 2015, ABF Logistics acquired Smart Lines Transportation Group, LLC, a privately-owned truckload brokerage firm, for net cash consideration of $5.2 million. As these acquired businesses are not significant to the Company’s consolidated operating results and financial condition, pro forma financial information and the purchase price allocations of acquired assets and liabilities have not been presented. The results of the acquired operations subsequent to the acquisition dates have been included in the accompanying consolidated financial statements. The Company is in the process of making a final determination of the value of acquired assets and liabilities for the LDS and Bear transactions and the provisional measurements are subject to change during the measurement periods.

 

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

 

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts may differ from those estimates.

 

Accounting Policies

 

The Company’s accounting policies are described in Note B to the audited financial statements included in the Company’s 2015 Annual Report on Form 10-K. The following policy became effective for the Company during the three months ended September 30, 2016.

 

Contingent Consideration: The Company records the estimated fair value of contingent consideration at the acquisition date as part of the purchase price consideration for an acquisition. The fair value of the contingent consideration liability was determined by assessing Level 3 inputs with a discounted cash flow approach using various probability-weighted scenarios. As of September 30, 2016, the fair value of the outstanding contingent consideration of $6.8 million related to the acquisition of LDS was recorded in accrued expenses and other long-term liabilities, based on when expected payouts become due, and the $8.0 million held in escrow for the contingent consideration at the acquisition date was recorded in other long-term assets. The liability for contingent consideration is remeasured at each quarterly reporting period and any change in fair value as a result of the recurring assessments is recognized in operating income.

 

Adopted Accounting Pronouncements

 

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

 

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

 

Accounting Pronouncements Not Yet Adopted

 

ASC Topic 740 was amended with the addition of Balance Sheet Classification of Deferred Taxes. The amendment is effective for the Company beginning January 1, 2017. The update will result in all deferred tax assets and liabilities being classified as noncurrent in the consolidated balance sheets.

 

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

 

ASC Topic 606, which amends the guidance in former ASC Topic 605, Revenue Recognition, provides a single comprehensive revenue recognition model for all contracts with customers and contains principles to apply to determine the measurement of revenue and timing of when it is recognized. The standard is effective for the Company on January 1, 2018. The Company is evaluating the impact of the new standard on the consolidated financial statements.

 

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An amendment to ASC Topic 230, Statement of Cash Flows, which provides classification guidance for certain cash payments and receipts presented in the statement of cash flows, is effective for the Company beginning January 1, 2018. The Company is currently assessing the impact this update will have on the consolidated financial statements.

 

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

 

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

 

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

 

 

NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Financial Instruments

 

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

 

 

 

 

 

 

 

 

 

 

    

September 30

    

December 31

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

Cash and cash equivalents

 

 

 

 

 

 

 

Cash deposits(1)

 

$

102,598

 

$

110,279

 

Variable rate demand notes(1)(2)

 

 

19,994

 

 

29,790

 

Money market funds(3)

 

 

7,803

 

 

24,904

 

Total cash and cash equivalents

 

$

130,395

 

$

164,973

 

 

 

 

 

 

 

 

 

Short-term investments

 

 

 

 

 

 

 

Certificates of deposit(1)

 

$

59,346

 

$

61,597

 

 

 

 

 

 

 

 

 

Restricted cash(4)

 

 

 

 

 

 

 

Cash deposits(1)

 

$

962

 

$

1,384

 

 


(1)

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

(2)

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

(3)

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

(4)

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

 

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

 

Concentrations of Credit Risk of Financial Instruments

The Company is potentially subject to concentrations of credit risk related to its cash, cash equivalents, and short-term investments. The Company reduces credit risk by maintaining its cash deposits primarily in FDIC-insured accounts and placing its unrestricted short-term investments primarily in FDIC-insured certificates of deposit. However, certain cash deposits and certificates of deposit may exceed federally insured limits. Cash and cash equivalents totaling $39.0 million and $69.9 million were not FDIC insured at September 30, 2016 and December 31, 2015, respectively.

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Fair Value Disclosure of Financial Instruments

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

 

·

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

·

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

·

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30

 

December 31

 

 

    

2016

    

2015

  

 

 

(in thousands)

 

 

 

 

Carrying

    

 

Fair

    

 

Carrying

    

 

Fair

 

 

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

Credit Facility(1)

 

$

70,000

 

$

70,000

 

$

70,000

 

$

70,000

 

Accounts receivable securitization borrowings(2)

 

 

35,000

 

 

35,000

 

 

35,000

 

 

35,000

 

Notes payable(3)

 

 

131,882

 

 

131,822

 

 

106,703

 

 

106,495

 

 

 

$

236,882

 

$

236,822

 

$

211,703

 

$

211,495

 

 


(1)

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

(2)

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

(3)

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

 

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Assets and Liabilities Measured at Fair Value on Recurring Basis

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices

    

Significant

    

Significant

 

 

    

 

 

 

In Active

 

Observable

 

Unobservable

 

 

 

 

 

 

Markets

 

Inputs

 

Inputs

 

 

 

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)(3)

 

$

7,803

 

$

7,803

 

$

 —

 

$

 —

 

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

 

 

2,072

 

 

2,072

 

 

 —

 

 

 —

 

 

 

$

9,875

 

$

9,875

 

$

 —

 

$

 —

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration(4)

 

$

6,775

 

$

 —

 

$

 —

 

$

6,775

 

Interest rate swap(5)

 

 

1,605

 

 

 —

 

 

1,605

 

 

 —

 

 

 

$

8,380

 

$

 —

 

$

1,605

 

$

6,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

Quoted Prices

    

Significant

    

Significant

 

 

    

 

 

 

In Active

 

Observable

 

Unobservable

 

 

 

 

 

 

Markets

 

Inputs

 

Inputs

 

 

 

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)(3)

 

$

24,904

 

$

24,904

 

$

 —

 

$

 —

 

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

 

 

2,127

 

 

2,127

 

 

 —