UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with the registrant’s Annual Stockholders’ Meeting to be held April 26, 2024, are incorporated by reference in Part III of this Form 10-K.
ARCBEST CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, included or incorporated by reference in this Annual Report on Form 10-K, including, but not limited to, those in Item 1 (Business), Item 1A (Risk Factors), Item 3 (Legal Proceedings), and Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), are forward-looking statements. 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:
● | the effects of a widespread outbreak of an illness or disease 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, including, but not limited to, acts of war or terrorism, or military conflicts; |
● | data privacy breaches, cybersecurity incidents, and/or failures of our information systems, including disruptions or failures of services essential to our operations or upon which our information technology platforms rely; |
● | interruption or failure of third-party software or information technology systems or licenses; |
● | untimely or ineffective development and implementation of, or failure to realize the potential benefits associated with, new or enhanced technology or processes, including our customer pilot offering of Vaux; |
● | the loss or reduction of business from large customers or an overall reduction in our customer base; |
● | the timing and performance of growth initiatives and the ability to manage our cost structure; |
● | the cost, integration, and performance of any recent or future acquisitions and the inability to realize the anticipated benefits of the acquisition within the expected time period or at all; |
● | unsolicited takeover proposals, proxy contests, and other proposals/actions by activist investors; |
● | maintaining our corporate reputation and intellectual property rights; |
● | nationwide or global disruption in the supply chain resulting in increased volatility in freight volumes; |
● | competitive initiatives and pricing pressures; |
● | increased prices for and decreased availability of equipment, including 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 upskill 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; |
● | litigation or claims asserted against us; |
● | governmental regulations; |
● | environmental laws and regulations, including emissions-control regulations; |
● | default on covenants of financing arrangements and the availability and terms of future financing arrangements; |
● | our ability to generate sufficient cash from operations to support significant ongoing capital expenditure requirements and other business initiatives; |
● | self-insurance claims, insurance premium costs, and loss of our ability to self-insure; |
● | potential impairment of long-lived assets and goodwill and intangible assets; |
● | general economic conditions and related shifts in market demand that impact the performance and needs of industries we serve and/or limit our customers’ access to adequate financial resources; |
● | increasing costs due to inflation and higher interest rates; |
● | seasonal fluctuations, adverse weather conditions, natural disasters, and climate change; and |
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● | other financial, operational, and legal risks and uncertainties detailed from time to time in ArcBest Corporation’s public filings with the Securities and Exchange Commission (“SEC”). |
For additional information regarding known material factors that could cause our actual results to differ from those expressed in these forward-looking statements, please see Item 1A (Risk Factors). All forward-looking statements included or incorporated by reference in this Annual Report on Form 10-K and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
ITEM 1.BUSINESS
ArcBest Corporation
ArcBest Corporation™ (together with its subsidiaries, the “Company,” “ArcBest,” “we,” “us,” and “our”) is a multibillion-dollar integrated logistics company that leverages technology and a full suite of solutions to meet our customers’ supply chain needs. With the ability to optimize, connect and deliver across various modes of transportation, we serve as a single logistics resource. This integrated approach, combined with our technology, expertise, and scale, helps ensure our customers have the right solutions and capacity to meet their constantly changing needs.
We started over a century ago as a local Arkansas freight hauler. Today, we are a logistics powerhouse with global reach and 15,000 employees across 250 campuses and service centers. This is the result of organic growth, strategic acquisitions, visionary leadership, and resilient people who are driven to always find a way to get the job done. We are a trusted advisor to some of the world’s biggest and most recognizable brands. Our customers are at the center of our strategy. We listen, thoughtfully analyze how our processes, services, and technologies impact their business, and customize solutions that align with their goals. Our long history of innovation enriches these deep customer relationships. With a meaningful investment in strategic initiatives aimed at transformation and a strong emphasis on disruptive technology and advanced analytics, we enable more sustainable supply chains and deliver intelligent solutions that meet our customers’ needs. In pursuit of our mission to connect and positively impact the world through solving logistics challenges, and aligned with our values-driven culture, we are also focused on conducting business in a way that helps create a safer, more sustainable, and inclusive company and world.
United as ArcBest, we offer a variety of ground, air, and ocean transportation solutions, including our less-than-truckload (“LTL”) carrier – ABF Freight®, our truckload brokerage provider – MoLo®, and our ground expedite fleet – Panther Premium Logistics® (“Panther”). Through our managed transportation solutions, we partner with customers to create and execute logistics strategies that increase operational efficiencies, reduce costs, and give customers better insights into their supply chains. We also offer household goods moving through U-Pack®. Our technology and innovations team, ArcBest Technologies, provides custom-built solutions, leading-edge technology, and advanced analytics that help support our customers and optimize supply chains.
Our operations are conducted through our two reportable operating segments, which are described in the Business Description section below:
● | Asset-Based, which consists of ABF Freight System, Inc. and certain other subsidiaries (“ABF Freight”), and |
● | Asset-Light, which includes MoLo Solutions, LLC (“MoLo”), Panther, and certain other subsidiaries. |
On February 28, 2023, we sold FleetNet America, Inc. (“FleetNet”), a wholly owned subsidiary and reportable operating segment of the Company. The sale of FleetNet® was a strategic shift for the Company as it exited the fleet roadside assistance and maintenance management business. Following the sale, Asset-Light represents the reportable operating segment previously named ArcBest, exclusive of the discontinued operations of FleetNet.
Vision and Values
“We’ll Find a Way” is our vision. It is a testament to what our customers say about us — that we’re the kind of company that partners with them to solve problems and make things happen. Our integrated logistics approach and innovative technology enable our vision, but it’s our people who ensure our customers’ solutions and capacity needs are met. Our people are at the heart of our success. They are fueled by the simple notion of finding a way to get the job done, no matter
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what. We support our employees by providing an exceptional workplace where people with diverse experiences, needs, and perspectives can grow and make a lasting impact.
We carry out our vision by exemplifying our corporate values:
● | Creativity – We create solutions. |
● | Integrity – We do the right thing. |
● | Collaboration – We work together. |
● | Growth – We grow our people and our business. |
● | Excellence – We exceed expectations. |
● | Wellness – We embrace total health. |
In 2023, we launched our ArcBest Values in Practice (“VIP”) awards, which aim to recognize teams that embody ArcBest’s core values in ways that positively impact our customers and each other. In November 2023, the VIP award recipients were announced following an assessment of nominations by our leaders.
Strategy
Our customer-led strategy is to produce long-term value with our creative problem solvers by growing informed, trusted, and innovative relationships with shippers and capacity providers and delivering a best-in-class experience efficiently through their desired channels.
We work to build long-term value for our customers, employees and shareholders by:
● | Expanding our revenue opportunities. We expand our revenue opportunities by deepening our existing customer and carrier relationships and securing new ones. We build connections that last for decades, and our customers assign a high degree of value to the capacity options, high level of service, and professionalism we provide. We increase these capacity options and enable high service levels by growing mutually beneficial relationships with our carrier partners and enhancing our capabilities through strategic acquisitions and organic investments. When customers talk about us, they say we solve their logistics and transportation challenges, we are a trusted provider and partner who understands them, and we make their jobs easier. |
● | Optimizing our cost structure. We are focused on profitable growth, which requires continually reviewing our costs and investment decisions. Our technology infrastructure enables business processes, insight, and analytics that allow us to optimize our cost structure, driving improved cost efficiency in our business. We continue to invest in technology to transform our business and enhance the customer experience. |
● | Building a resilient business. Over our 100+ year history, we have evolved tremendously and are now a global, integrated logistics leader. We have differentiated ourselves from our competition with our ability to offer full-service logistics solutions with a wide variety of fulfillment options, which can include our own assets. This more balanced mix of revenue better reflects our customers’ spending on these services, and it drives long-term financial sustainability for us by making our business less capital-intensive relative to our size and by reducing volatility in our business performance through varying cycles, events, and environments. |
Business Description
ArcBest is a growth-oriented, digitally-enabled integrated logistics company that delivers reliable, innovative solutions — meeting our customers’ critical supply chain needs and helping keep the global supply chain moving. We offer LTL freight transportation through the ABF Freight network; truckload freight transportation, including brokerage services offered through MoLo; specialized transportation and premium logistics services, including ground expedite solutions through the Panther brand and household goods moving services under the U-Pack brand; and managed transportation solutions. ArcBest Technologies provides leading-edge technologies that help support our customers and optimize supply chains. From Fortune 100 companies to small businesses, our customers trust ArcBest for their transportation and logistics needs.
With a relentless focus on customer needs and unique access to assured transportation capacity, which includes more than 40,000 owned and operated assets, we create solutions for even the most complex and demanding supply chains. We strive to help customers solve their logistics challenges by efficiently providing a best-in-class experience with easy access to our integrated solutions.
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For the year ended December 31, 2023, no single customer accounted for more than 2% of our consolidated revenues, and the ten largest customers, on a combined basis, accounted for approximately 11% of our consolidated revenues. The Company was incorporated in Delaware in 1966 and is headquartered in Fort Smith, Arkansas.
Asset-Based Segment
Our Asset-Based segment provides LTL services through ABF Freight’s motor carrier operations. Asset-Based revenues accounted for approximately 63% of our total revenues before other revenues and intercompany eliminations in 2023. For the year ended December 31, 2023, no single customer accounted for more than 4% of revenues in the Asset-Based segment, and the segment’s ten largest customers, on a combined basis, accounted for approximately 14% of its revenues. Note O to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K contains additional segment financial information, including revenues and operating income for the years ended December 31, 2023, 2022, and 2021.
Our Asset-Based carrier, ABF Freight, has been in continuous service since 1923. ABF Freight System, Inc. is the successor to Arkansas Motor Freight, a business formed in 1935 that was the successor to a local transfer and storage carrier established in 1923. ABF Freight expanded operations through several strategic acquisitions and organic growth and is now one of North America’s largest LTL motor carriers, providing direct service to more than 98% of U.S. cities with a population of 30,000 or more. ABF Freight offers interstate and intrastate services to approximately 51,000 communities in all 50 states, Canada, and Puerto Rico through 240 service centers. ABF Freight also provides motor carrier freight transportation services to customers in Mexico through arrangements with trucking companies in that country.
Our Asset-Based segment offers transportation of general commodities through standard, time-critical, and guaranteed LTL services. General commodities include all freight except hazardous waste, dangerous explosives, commodities of exceptionally high value, commodities in bulk, and those requiring special equipment. Shipments of general commodities differ from shipments of bulk raw materials, commonly transported by railroad, truckload tank car, pipeline, and water carrier. General commodities transported by our Asset-Based operations include, among other things, food, textiles, apparel, furniture, appliances, chemicals, non-bulk petroleum products, rubber, plastics, metal and metal products, wood, glass, automotive parts, machinery, and miscellaneous manufactured products.
The LTL transportation industry, which requires networks of local pickup and delivery service centers combined with larger distribution facilities, is significantly more infrastructure-intensive than truckload operations and, as such, has higher barriers to entry. Costs associated with an expansive LTL network, including investments in or costs associated with real estate and labor costs related to local pickup, delivery, and cross-docking of shipments, are primarily fixed unless service levels are significantly changed.
Labor costs, which amounted to 48.1% of Asset-Based revenues for 2023, are the largest component of the segment’s operating expenses. As of December 2023, approximately 82% of the Asset-Based segment’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “2023 ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”), which was ratified on June 30, 2023, by a majority of ABF Freight’s IBT member employees. A majority of the 2023 ABF NMFA supplements also passed. The remaining supplements were ratified on July 7, 2023. The 2023 ABF NMFA was implemented on July 16, 2023, effective retroactive to July 1, 2023, and will remain in effect through June 30, 2028. The major economic provisions of the 2023 ABF NMFA include wage rate or per mile increases in each year of the contract, with the initial increase effective retroactive to July 1, 2023; profit-sharing bonuses upon the Asset-Based segment’s achievement of certain annual operating ratios for any full calendar year under the contract; an additional paid holiday; two additional paid sick days; and a new non-CDL employee classification. The 2023 ABF NMFA and the related supplemental agreements also provide for annual contribution rate increases to multiemployer health and welfare and pension plans maintained for the benefit of ABF Freight’s employees who are members of the IBT. Under the 2023 ABF NMFA, the contractual wage and benefits top hourly rates are estimated to increase approximately 4.2% on a compounded annual basis through the end of the agreement, with potential profit-sharing bonuses representing additional costs under the 2023 ABF NMFA. While a profit-sharing bonus was not applicable in 2023 during the partial calendar year of the 2018 and 2023 agreements, ABF Freight paid its qualified union-represented employees the 3% maximum bonus amount provided in the prior 2018 ABF NMFA as a result of the operating ratio achieved in 2022, representing payment of the bonus in all four eligible years under the prior labor contract.
ABF Freight contributes to multiemployer pension and health and welfare plans, which have been established pursuant to the Labor Management Relations Act of 1947 (the “Taft-Hartley Act”), to provide benefits for its contractual employees.
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Amendments to the Employee Retirement Income Security Act of 1974 (“ERISA”), pursuant to the Multiemployer Pension Plan Amendments Act of 1980 (the “MPPA Act”), substantially expanded the potential liabilities of employers who participate in multiemployer pension plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer pension plan and the members of such employer’s controlled group are jointly and severally liable for their share of the plan’s unfunded vested benefits in the event the employer ceases to have an obligation to contribute to the plan or substantially reduces its contributions to the plan (i.e., in the event of a complete or partial withdrawal from the multiemployer pension plans). ABF Freight’s funding obligations to the multiemployer pension plans to which it contributes are intended to satisfy the requirements imposed by the Pension Protection Act of 2006 (the “PPA”), which was permanently extended by the Multiemployer Pension Reform Act of 2014 (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Through the term of its current collective bargaining agreement, ABF Freight’s multiemployer pension plan contribution obligations generally will be satisfied by making the specified contributions when due. However, we cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees. See Note K to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more specific disclosures regarding the multiemployer pension plans to which ABF Freight contributes, and discussion of legislation impacting funding for multiemployer pension plans.
ABF Freight operates in a highly competitive industry comprised primarily of nonunion motor carriers. Nonunion competitors have a lower fringe benefit cost structure and less stringent labor work rules, and certain carriers also have lower wage rates for their freight-handling and driving personnel. ABF Freight has continued to address the effect of the wage and benefit cost structure on its operating results with the IBT. Under the 2023 ABF NMFA, ABF Freight continues to pay some of the highest benefit contribution rates in the industry and through this contract, ABF Freight is allowed to implement location-specific wage increases in areas where hiring has been challenging. Due to the joint and several liability of multiemployer plans, a portion of ABF Freight’s multiemployer plan contributions are used to fund benefits for individuals whom ABF Freight never employed.
Asset-Light Segment
Our Asset-Light segment is 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. By leveraging technology and third-party service providers, our Asset-Light team provides various logistics services without significant investment in revenue equipment or real estate. Asset-Light financial results previously included the ArcBest segment and FleetNet. In our discussion below, Asset-Light represents the reportable operating segment previously named ArcBest, exclusive of the discontinued operations of FleetNet, which sold on February 28, 2023, as previously discussed in the ArcBest Corporation section of Business.
For the year ended December 31, 2023, the revenues of our Asset-Light segment have decreased to approximately 37% of our total revenues before other revenues and intercompany eliminations, versus 42% for 2022, reflecting a softer market, which began in the second half of 2022. For the year ended December 31, 2023, no single customer accounted for more than 2% of the Asset-Light segment’s revenues, and the segment’s ten largest customers, on a combined basis, accounted for approximately 13% of its revenues. Note O to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K contains additional segment financial information, including revenues and operating income for the years ended December 31, 2023, 2022, and 2021.
Our Asset-Light segment originated with the formation of ABF Logistics in July 2013, when we aligned the sales and operations functions of our organically developed logistics businesses. We have continued to strategically invest in Asset-Light to ensure we are positioned to serve the changing marketplace and meet our customers’ expanding needs by providing a comprehensive suite of transportation and logistics services. The Asset-Light segment includes the ground expedite services of Panther; our truckload and dedicated operations, including the truckload brokerage services of MoLo; household goods moving services under the U-Pack brand, for which the majority of the moves are provided with our Asset-Based operations; and our managed transportation solutions. Under our enhanced market approach to offer customers a single source of integrated logistics solutions, the service offerings of the Asset-Light segment have become more integrated. Management’s operating decisions are focused on the Asset-Light segment’s combined operations rather than individual service offerings within the segment’s operations.
Truckload and Dedicated
Our truckload and dedicated services provide third-party transportation brokerage services by sourcing various capacity solutions, including dry van over-the-road, temperature-controlled and refrigerated, flatbed, intermodal or container
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shipping, and specialized equipment, coupled with an owned fleet of trailers, strong technology, and carrier- and customer-based Web tools. Through our truckload and dedicated services, we offer a growing network of more than 105,000 approved contract carriers, with service to all 50 states, Canada, and Mexico. Additional value is created for customers through seamless access to the ABF Freight network.
Expedite
Leveraging our best-in-class Panther fleet, we offer expedite freight transportation services to commercial and government customers. We also offer premium logistics services that involve the rapid deployment of highly specialized equipment to meet precise linehaul requirements, such as temperature control, hazardous materials, geofencing (routing a shipment across a mandatory, defined route with satellite monitoring and automated alerts concerning any deviation from the route), specialized government cargo, security services, and life sciences. Through these services, ArcBest solves the toughest shipping and logistics challenges customers face through a global network of owner-operators and contract carriers.
We rely on third-party carriers for most of the network capacity for our expedite operations, including owner-operators, ground linehaul providers, cartage agents, and other transportation asset providers. We choose carriers based on how well they can meet our customers’ needs in terms of price, technology capabilities, geographic coverage, and service quality. Third-party-owned vehicles are driven by independent contract drivers and drivers engaged directly by independent owners of multiple pieces of equipment, commonly referred to as fleet owners. Our expedite operations own a fleet of trailers, the communication devices used by its owner-operators, and certain highly specialized equipment, primarily temperature-controlled and temperature-validated trailers, to meet the service requirements of certain customers.
Managed Transportation
Through our managed transportation solutions, we partner with customers to create and execute a logistics strategy designed to increase operational efficiencies, reduce costs, and give our customers better insight into their supply chains. ArcBest seeks to offer value by identifying specific challenges relating to customers’ supply chain needs and providing customized solutions utilizing technology, both internally to manage our business processes and externally to provide shipment and inventory visibility to our customers. Additional value is created for customers through seamless access to the ABF Freight network, the Panther fleet, the MoLo truckload brokerage operation, and our dedicated truckload division, offering strategic supply chain solutions with unique access to assured capacity.
International
Our international shipping and logistics services provide global ocean and air shipping solutions by partnering with ocean shipping lines and air freight carriers worldwide, as well as cross-border shipping and ground transportation to and from ports. As a non-vessel operating common carrier, we provide less-than-container load and full container load service, offering ocean transport to approximately 90% of the total ocean international market to and from the United States. We also offer warehousing and distribution services to and from major global ports to streamline our customers’ ocean shipping processes.
Moving
Our moving services offer flexibility and convenience for how people move through targeted service offerings for the “do-it-yourself” consumer. We offer these targeted services at competitive prices that reflect the additional value customers find in our convenient, reliable moving service offerings. Industry-leading technology, customer-friendly interfaces, and supply chain solutions are combined to provide a wide range of options customized to meet unique customer needs.
Other Logistics Services
We also provide other services to meet our customers’ logistics needs, such as final mile, time-critical, product launch, warehousing and distribution, retail logistics, supply chain optimization, brokered LTL, and trade show shipping services. Our Retail+ compliance solution is designed to help vendors better meet large retailers’ stringent shipping and delivery requirements by combining innovative software solutions with enhanced operations processes.
Competition, Pricing, and Industry Factors
Competition
Our Asset-Based segment actively competes for freight business with other national, regional, and local motor carriers and, to a lesser extent, with private carriage, domestic and international freight forwarders, railroads, and airlines. The segment competes most directly with nonunion and union LTL carriers, including FedEx Freight Corporation, the LTL reporting segment of FedEx Corporation; the LTL segment of Knight-Swift Transportation Holdings Inc.; Old Dominion
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Freight Line, Inc.; Saia, Inc.; the U.S. LTL operating segment of TFI International Inc.; and the North American LTL segment of XPO, Inc. The segment’s U-Pack business also competes with self-move businesses that offer moving and storage container services. Competition is based primarily on price, service, and availability of flexible shipping options to customers. The Asset-Based segment’s careful cargo handling, access to other ArcBest logistics solutions, and use of technology, both internally to manage its business processes and externally to provide shipment visibility to its customers, are examples of how we add value to our services.
Our Asset-Light segment operates in a very competitive asset-light logistics market that includes approximately 29,000 active brokerage authorities, as well as asset-based truckload carriers; logistics companies including large and small expedite carriers; foreign and U.S.-based non-vessel-operating common carriers; freight forwarders; internal shipping departments at companies that have substantial transportation requirements; smaller niche service providers; and a wide variety of other solution providers, including large integrated transportation companies as well as regional warehouse and transportation management firms. The segment competes most directly with logistics companies, including the North American Surface Transportation segment of C.H. Robinson Worldwide, Inc.; Covenant Logistics Group, Inc.; Hub Group, Inc.; the Integrated Capacity Solutions segment of J.B. Hunt Transport Services, Inc.; the Logistics segment of Knight-Swift Transportation Holdings Inc.; Landstar System, Inc.; the Truckload Brokerage service offering of RXO, Inc.; and the Freight segment of Uber Technologies, Inc. ArcBest’s moving services compete with truck rental, self-move, and van line service providers, and several emerging self-move competitors who offer moving and storage container service. Quality of service, technological capabilities, and industry expertise are critical differentiators among the competition. In particular, companies with advanced systems that offer optimized shipping solutions, reliable access to capacity, real-time visibility of shipments, verification of chain of custody procedures, and advanced security have significant operational advantages and create enhanced customer value.
Pricing
Approximately 20% of our Asset-Based business is subject to base LTL tariffs, which are affected by general rate increases, subject to individually negotiated discounts. Rates on the remaining Asset-Based business, including business priced in the spot market, are subject to individual pricing arrangements negotiated at various times throughout the year. Most of the business that is subject to negotiated pricing arrangements is associated with larger customer accounts with annually negotiated pricing arrangements. The remaining business is priced on an individual shipment basis considering each shipment’s unique profile, the value we provide to the customer, network capacity, and current market conditions.
We allow shippers with established accounts and without negotiated published rates to obtain competitive LTL rates for their shipping needs with ABF Freight’s reliable service and capacity options through a dynamic pricing option. This innovative pricing mechanism enables customers to instantly access LTL rates online, by phone, or through application programming interface (“API”) technology for shipments within the United States, Canadian cross-border, Mexico, and Puerto Rico. We can offer customers the best price on each shipment by leveraging available capacity within the ABF Freight network at the time of the quote. The market has been receptive to this dynamic pricing option for transactional LTL shipments, and the program has been beneficial in optimizing our business levels.
We also utilize a space-based pricing approach for shipments subject to LTL tariffs to better reflect freight shipping trends, including the overall growth and ongoing profile shift to bulkier shipments across the entire supply chain, the acceleration in e-commerce, and the unique requirements of many shipping and logistics solutions. We are experienced in handling complicated freight and offer logistics solutions that respond to the unique shipment characteristics of our customers’ various products and commodities. An increasing percentage of freight is taking up more space in trailers without a corresponding increase in weight. Space-based pricing involves the use of freight dimensions (length, width, and height) to determine applicable cubic minimum charges (“CMC”) that supplement weight-based metrics when appropriate. Traditional LTL pricing is generally weight-based, while our linehaul costs are generally space-based (i.e., costs are impacted by the volume of space required for each shipment). We believe space-based pricing better aligns our pricing mechanisms with the metrics affecting our resources and, therefore, our costs to provide logistics services. CMC is an additional pricing mechanism to better capture the value we provide in transporting these shipments.
Our Asset-Based and certain operations within our Asset-Light segment assess a fuel surcharge based on the index of national on-highway average diesel fuel prices published weekly by the U.S. Department of Energy. While the fuel surcharge is one of several components in our overall rate structure, the actual rate paid by customers is governed by market forces and the overall value of services provided to the customer.
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Industry Factors
According to management’s estimates, and market studies by Armstrong & Associates, Inc. and the U.S. Department of Commerce during 2023, the total market potential in the industry segments we serve is approximately $494 billion. The LTL industry has significant barriers to entry and is highly competitive, as previously discussed in “Asset-Based Segment” within this Business section. Our Asset-Light market share represents a small portion of the total market, which evidences the significant growth opportunity for us in this segment, a growth position already strengthened with the addition of MoLo in November 2021. More sophisticated supply chain practices are required as supply chains expand and become more complex, product and service needs continue to evolve, and companies look for solutions to their logistics challenges and lower-cost supply chain alternatives.
The transportation industry is subject to numerous laws, rules, and regulations, as further discussed below within “Environmental and Other Government Regulations,” and carriers are required to obtain and maintain various licenses and permits, some of which are difficult to obtain. The trucking industry faces rising costs of compliance with government regulations on safety, equipment design and maintenance, driver utilization, climate-related impact, and fuel economy, as well as increasing costs in certain areas that are not industry-specific, including health care and retirement benefits. Higher compliance costs will continue to impair the competitiveness of smaller carriers in the logistics market, which may lead to tighter capacity or consolidation within certain sectors. In addition, disruptions from unexpected events such as natural disasters, geopolitical conflicts and, in prior years, the COVID-19 pandemic have resulted in further utilization of expedited shipping and premium logistics services and have caused companies to focus on risk management within their supply chains.
Seasonality
Our reportable operating segments are impacted by seasonal fluctuations that affect tonnage, shipment levels, and demand for our services, which in turn may impact our revenues and operating results. Inclement weather conditions can adversely affect freight shipments and operating costs of our Asset-Based and Asset-Light segments. Shipments may decline during winter months because of post-holiday slowdowns and during summer months due to plant shutdowns affecting automotive and manufacturing customers of our Asset-Light segment; however, weather or other disruptive events can result in higher short-term demand for our expedite services depending on the impact to customers’ supply chains.
Historically, the second and third calendar quarters of each year usually have the highest tonnage and shipment levels. In contrast, 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, the impact of yield initiatives; and external events or conditions may influence quarterly business levels. Our yield initiatives, along with increased technology-driven intelligence and visibility with respect to demand, have allowed for shipment optimization in non-peak times, reducing our susceptibility to seasonal fluctuations in recent years, including during the years ended December 31, 2023, 2022, and 2021.
Technology
As a multibillion-dollar integrated logistics company focused on making it easier for our customers to do business, ArcBest is building the future of logistics. Rooted in a strong history of innovation, technology is a pillar of our strategy — it differentiates us in the marketplace and allows us to continuously evolve. Most of the technology applications used at ArcBest have been developed internally by our ArcBest Technologies team and are tailored specifically for customers, capacity suppliers and internal business processing needs. Our teams of highly engaged and creative technology, analytics and innovation professionals are proactive surveyors of emerging technology — constantly analyzing and creating intelligent solutions that deliver value and drive the supply chain industry forward. Through implementing custom-built solutions and leading-edge technologies, we help our customers successfully navigate the complex logistics landscape so they can use their supply chain as their competitive advantage.
ArcBest internal product owners, architects, developers, data scientists, and others who deeply understand the transportation and logistics industry and our strategy and execution models, supplemented by expert external contractor services, work together to rapidly deliver superior solutions throughout our organization for customers and carrier capacity.
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Directly addressing our customers’ supply chain challenges is a natural extension of our mission. We work to build efficiencies and sustainable best practices within our own business and the supply chain as a whole. We have made additional technology investments to improve both customer experience and carrier capacity experience while continuing to optimize costs. Some examples of these investments include:
● | We launched our customer offering of VauxTM – our innovative suite of hardware and software, which modernizes how freight is loaded, unloaded and transferred in warehouse and dock operations. This advanced technology utilizes patented handling equipment, software, and a patented process to load and unload trailers more rapidly and safely. In February 2024, we announced the next step in our Vaux suite – Vaux Smart AutonomyTM, which combines autonomous mobile robot forklifts and reach trucks, intelligent software, and remote teleoperation capability to autonomously handle materials movement within warehouses, distribution centers, and manufacturing facilities, while being monitored by humans. |
● | Investment in a 235,000-square-foot innovation warehouse where our robotics engineers, mechanical engineers, fabricators, research and development analysts, software engineers, and data scientists test technology in an environment that mirrors our customers’ facilities, enabling us to create transformational solutions that address their most critical needs. |
● | Our $25 million investment in Phantom Auto, a human-centered remote operation software provider. This investment centers around remote-operated forklifts and was developed to create overall intralogistics strategies in customer locations and help our customers build efficiencies in their own warehouses and distribution centers. |
● | Creation and implementation of a sustainability dashboard as part of our work to collect, analyze, and report Scope 1 (direct) and Scope 2 (indirect) emissions. This dashboard can filter emissions by type, equipment, location, and timeframe, giving us a holistic approach to measuring emissions and enabling us to benchmark performance, identify areas of improvement, and monitor progress. |
● | Implementation of ArcBest Virtual Agent (AVA), which uses artificial intelligence (“AI”) to quickly schedule shipment pickups, supply tracking information, and address other questions through email, phone, and web chat. |
● | Implementation of cognitive technologies to improve customer service and optimize our operations, including in the Asset-Light segment, where we are developing machine-learning cognitive technologies that use natural language processing and computer vision embedded in our applications used by our employees that learn from past interactions and predict customer needs before the customer makes a request — simplifying workflows and driving better decision-making. |
● | We implemented our City Route Optimization technology at our service centers during 2023, which has successfully improved efficiencies and lowered costs addressing the environmental impact of our fuel emissions in our city pickup and delivery operations through the use of algorithms created using AI and historical data. We are now focusing on enhancing technology through additional optimizations. |
● | Enhancement of a capacity sourcing tool that optimizes the utilization of internal equipment capacity while reducing the time it takes to secure external equipment capacity to better meet customer requirements. |
Typically, freight transportation customers communicate their freight needs, on a shipment-by-shipment basis, by using telephone, email, web, mobile applications, electronic data interchange (“EDI”), or API. In the Asset-Light segment, the information about each shipment is entered into an operating system that facilitates the selection of a contracted carrier or carriers based on the carrier’s service capability, equipment availability, freight rates, and other relevant factors. Once the carrier is selected, the cost for the transportation has been agreed upon, and the carrier has committed to providing the transportation, we are in contact with the carrier through numerous means of communication (e.g., mobile apps, satellite tracking, electronic logging device (“ELD”), and other communication units on the vehicles) to continually update the position of equipment to meet customers’ requirements to track the status of the shipment from origin to delivery. The various tracking methods automatically update our fully integrated internal software and provide customers real-time electronic updates.
We make information readily accessible to our customers through various electronic pricing, billing, and tracking services, including mobile-responsive websites that allow customers to access information about their shipments, request shipment pickup, and utilize various other digital tools. Online functions tailored to the services requested by customers include bill of lading generation, pickup planning, customer-specific price quotations, proactive tracking, customized email notification, logistics reporting, dynamic rerouting, and other connectivity tools. This technology allows customers to directly incorporate data from our systems into their websites, transportation management systems, or other information systems using EDI standards and secure API. As a result, our customers can provide shipping information and support directly to their own customers.
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ArcBest has an Innovation Ambassador Program to encourage new, transformative ideas. This program includes a team of employees from across the organization who work closely with executive leadership to identify opportunities for disruptive innovation within our company and to evaluate potential external innovation partners. Additionally, during 2023, ArcBest Technologies sponsored its fourth annual Imagine competition, allowing teams to collaborate and work on innovative ideas related to technology and business systems innovation. The 2023 competition asked teams of employees across the organization to collaborate and work on innovative ideas to improve our ability to meet the needs of our customers and enhance the customer experience.
Insurance
Generally, claims exposure in the freight transportation and logistics industry consists of workers’ compensation, third-party casualty liability, and cargo loss and damage. We are effectively self-insured for $2.0 million of each workers’ compensation loss. For each third-party general liability loss, we are generally self-insured for $2.0 million. We are also self-insured for each cargo loss up to a $0.3 million deductible for our Asset-Based segment and a $0.1 million deductible for the majority of our Asset-Light segment, with a $3.0 million retention limit for each auto accident or loss and a 50/50 quota share on $2.0 million in excess of the $3.0 million retention limit on auto losses. We are self-insured for each cargo loss up to a $10 thousand deductible for the truckload service of our Asset-Light segment. We maintain insurance that we believe is adequate to cover losses in excess of such self-insured amounts or deductibles. However, we cannot provide assurance that our insurance coverage will provide adequate protection under all circumstances or against all potential losses. We have experienced situations where excess insurance carriers have become insolvent or are not willing to write liability coverage for brokerage liability. We pay assessments and fees to state guaranty funds in states where we have workers’ compensation self-insurance authority. In some of these states, depending on the specific state’s rules, the guaranty funds may pay excess claims if the insurer cannot pay due to insolvency. However, there can be no certainty of the solvency of individual state guaranty funds.
We have been able to obtain what we believe to be adequate insurance coverage for 2024 and are not aware of any matters which would significantly impair our ability to obtain adequate insurance coverage at market rates for our operations in the foreseeable future. A material increase in the frequency or severity of accidents, cargo claims, or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on our cost of insurance and results of operations.
We also maintain property and cyber insurance which 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 may 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 or geopolitical conflict.
Environmental and Other Government Regulations
Various international, federal, state and local agencies exercise broad regulatory powers over the transportation industry, generally governing such activities as operations of and authorization to engage in motor carrier freight transportation, operations of non-vessel-operating common carriers, operations of ocean freight forwarders and ocean transportation intermediaries, indirect air carriage, safety, contract compliance, insurance and bonding requirements, tariff and trade policies, customs, import and export, food safety, employment practices, licensing and registration, taxation, environmental matters, data privacy and security, and financial reporting. Compliance with future modifications to the regulations impacting the transportation industry may impact our operating practices and costs, which could have a material adverse impact on our financial condition, results of operations, and cash flows. Other carriers would be similarly affected by changes in industry regulations; therefore, the impact of such changes on our competitive position cannot be determined.
Environmental Regulations
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.
In August 2016, the U.S. Environmental Protection Agency (the “EPA”) and the National Highway Traffic Safety Administration (the “NHTSA”) jointly finalized a national program establishing a second phase of greenhouse gas
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(“GHG”) emissions (“EPA/NHTSA Phase 2”), through their authorities under the Clean Air Act, as amended, imposing new fuel efficiency standards for medium- and heavy-duty vehicles and engines, such as those operated by our Asset-Based segment, for model years 2021-2027 and also instituting fuel efficiency improvement technology requirements for trailer model years 2018-2027. In April 2023, the EPA announced a proposal for a third phase of the GHG emissions (“EPA/NHTSA Phase 3”), which includes more stringent standards to reduce GHG emissions from heavy-duty vehicles beginning with model year 2027 beyond the current standards applicable under the EPA/NHTSA Phase 2. Similarly, the EPA proposed more ambitious emissions reduction standards for light- and medium-duty vehicles starting with model year 2027 in April 2023.
In September 2019, the state of California signed legislation which directs the California Air Resources Board (the “CARB”) and other state agencies to develop and implement a comprehensive inspection and maintenance program for heavy-duty vehicles. A number of states have individually enacted, and California and certain other states may continue to enact, legislation relating to engine emissions, trailer regulations, fuel economy, and/or fuel formulation, such as regulations enacted by the CARB. This legislation, now known as the Clean Truck Check Program, combines periodic vehicle testing requirements with other emissions monitoring techniques, in an effort to provide significant reductions in pollution necessary to achieve federal air quality mandates in California. The program requirements also include annual reporting in the newly created Clean Truck Check database for self-propelled vehicles registered for on-road use, along with annual per vehicle compliance fees beginning in 2023. At the present time, management believes that these regulations could result in significant net additional overall costs should the technologies developed for tractors, as required in the EPA/NHTSA Phase 2 rulemaking, prove not to be as cost-effective as forecasted by the EPA and the NHTSA.
In October 2023, the state of California signed legislation under the Climate Corporate Data Accountability Act requiring reporting of direct and indirect greenhouse gas emissions starting in 2026 and 2027 for U.S. companies with annual revenues of $1 billion or more doing business in the state of California and under the Climate-Related Financial Risk Act requiring companies generating $500 million or more in total annual revenue doing business in the state of California to report financial risks related to climate change and related plans for risk mitigation. The U.S. government through the Securities and Exchange Commission’s proposed corporate climate disclosure rules and President Biden’s proposed disclosure rules for federal contractors is considering broader reporting requirements, although neither have been finalized.
In November 2018, the EPA launched the “Cleaner Trucks Initiative” (the “CTI”) which includes plans for future rulemaking to reduce nitrogen oxide emissions. In January 2020, the EPA published an Advanced Notice of Proposed Rulemaking to solicit pre-proposal comments on the CTI. One planned feature of the initiative is to coordinate emissions standards nationwide in an effort to make compliance easier for the industry by preventing a further patchwork of state and local emissions regulations. In August 2021, the EPA announced the “Clean Truck Plan,” a series of rulemakings over the next three years, the first of which was proposed in March 2022, to set new emissions standards to reduce nitrogen oxide emissions from heavy-duty vehicles beginning with model year 2027. The passage of the Inflation Reduction Act of 2022 in August 2022 also seeks to update GHG standards.
While fuel consumption and emissions may be reduced under the new standards, emission-related regulatory actions have historically resulted in increased costs of revenue equipment, diesel fuel, and equipment maintenance, and future legislation, if enacted, could result in increases in these and other costs for which the amounts cannot be determined at this time. The future of “cap and trade” programs or measures is unknown, and the potential costs of such programs or similar future legislative or regulatory measures are uncertain. We are unable to determine with any certainty the effects of any future climate change legislation beyond the currently enacted regulations, and there can be no assurance that more restrictive regulations than those previously described will not be enacted either federally or locally.
At certain facilities of our Asset-Based operations, we store fuel and oil in underground and aboveground tanks for use in tractors and trucks. Maintenance of our tanks is regulated by the EPA and, in most cases, by state agencies. Management believes we are in substantial compliance with all such regulations. The underground storage tanks are required to have leak detection systems, and we are not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on our operating results. Notwithstanding current compliance, including under a consent decree with the EPA, as discussed below, we are subject to on-going environmental remediation obligations concerning historical underground storage tank releases, for which the resolutions are not expected to have a material adverse effect on our financial condition, results of operations, or cash flows.
Certain of our Asset-Based service center facilities operate with no exposure certifications or stormwater permits under the federal Clean Water Act (the “CWA”), as amended. The no-exposure certification and stormwater permits may require
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periodic facility inspections and monitoring and reporting of stormwater sampling results. Management believes we are in substantial compliance with all such regulations. Notwithstanding current compliance, we previously determined that certain procedures regarding sampling, documentation, and reporting were not appropriately being performed in accordance with the CWA. As such, we self-reported the matter to the EPA. On March 20, 2023, ABF Freight entered into a consent decree with the EPA (the “Consent Decree”) to resolve alleged compliance issues under the CWA and, as a result, paid civil penalties of $0.5 million, including interest, during the third quarter of 2023. By the date of the Consent Decree, the Asset-Based service center facilities were in general compliance with the stormwater laws and have ensured compliance with applicable stormwater permits under the CWA. ABF Freight has internally developed an environmental stormwater management strategy, including the delineation of roles and responsibilities for stormwater maintenance and compliance; developing procedures for tracking the permit process, including comprehensive employee training; implementing standard operating procedures; ensuring contractor awareness of stormwater laws; and tracking facility-specific corrective actions throughout the term of the Consent Decree.
We have received notices from the EPA and others that we have been identified as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, or other federal or state environmental statutes, at several hazardous waste sites. After investigating our subsidiaries’ involvement in waste disposal or waste generation at such sites, we have either agreed to de minimis settlements or determined that our obligations, other than those specifically accrued with respect to such sites, would involve immaterial monetary liability, although there can be no assurance in this regard.
It is anticipated that the resolution of our environmental matters could take place over several years. Our reserves for environmental compliance matters and cleanup costs are estimated based on management’s experience with similar environmental matters and testing performed at certain sites.
Other Government Regulations
We operate in the United States, and from the United States for international transportation, pursuant to federal operating authority granted by the U.S. Department of Transportation (the “DOT”) and the U.S. Federal Maritime Commission. Our operations are subject to cargo security and transportation regulations issued by the Transportation Security Administration and regulations issued by the U.S. Department of Homeland Security.
We operate under the Occupational Safety and Health Act of 1970 (the “OSH Act”). Under the OSH Act, ArcBest has a responsibility to provide employees a safe workplace. This includes, but is not limited to:
● | Providing a workplace free from serious recognized hazards and complying with standards, rules, and regulations issued under the OSH Act; |
● | Examining workplace conditions to make sure they conform to applicable Occupational Safety and Health Administration Standards; and |
● | Ensuring employees have and use safe tools and equipment and properly maintain this equipment. |
Our Asset-Based operations and our Asset-Light segment’s network of third-party contract carriers must comply with industry regulations, including the ELD mandate of the Federal Motor Carrier Safety Administration (the “FMCSA”) for interstate commercial trucks and hours of service, safety and fitness, and other regulations of the DOT, including requirements related to drug and alcohol testing. We are subject to the hazardous materials regulations of the FMCSA for our transportation and arrangement for transportation of hazardous materials and explosives, as well as our disposal of hazardous waste.
We provide transportation and logistics services to and from a number of international locations and are, therefore, subject to a wide variety of domestic and international laws and regulations, including export and import laws. We are also subject to compliance with the Foreign Corrupt Practices Act of 1977, as amended and hold Customs-Trade Partnership Against Terrorism status for businesses within our Asset-Based and Asset-Light segments.
If we were to violate the government regulations under which we operate, we may be subject to substantial fines or penalties or our business operations could be restricted, which could have a material adverse impact on our financial condition, results of operations, and cash flows.
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Human Capital Resources
Our people are at the heart of our success, and we provide a workplace that respects all cultures, perspectives, and experiences, so that we can provide the best atmosphere for our employees and the best service to our customers. As of December 2023, we had 15,000 employees, of which approximately 56% were members of labor unions. As previously described in the “Asset-Based Segment” within this Business section, as of December 2023, approximately 82% of our Asset-Based segment’s employees were covered under the 2023 ABF NMFA, the collective bargaining agreement with the IBT, which will remain in effect through June 30, 2028.
Employee Attraction, Development, and Retention
Our business results and future growth opportunities depend on our ability to successfully manage our human capital resources, including attracting, developing, retaining, and upskilling our personnel. We strive to recruit values-aligned people who are the right individuals for each position and maintain a culture of continuous growth and development of our employees. Our data-enriched, real-time linkage between forecasted demand and diverse talent pools, along with hiring for character, enable our unified recruiting team to attract and onboard the right candidates for the right roles. We then have intentional training and development plans throughout each stage of career progression that accelerate job mastery and development for future roles. Our comprehensive learning program offers classroom, virtual, and web-based training options. We also offer a tuition reimbursement program, and we partner with a private university to provide onsite and virtual classes for employees to further their education. In 2023, we announced the launch of ArcBest’s Employee Dependent Scholarship Program with initial scholarships to be awarded in 2024.
We utilize a customized performance management system that incorporates goals and development planning to better position employees in their career paths. Employees participate in annual career conversations with their direct supervisor. We also have a succession planning program to ensure continuity in critical roles, allowing leaders to identify and develop employees for specific career paths. We evaluate compensation to ensure it remains competitive, including insurance and retirement benefits, and we offer programs to support the four pillars of wellness for our employees – physical, financial, emotional/social, and developmental. We conduct an annual survey as well as periodic pulse surveys to request employee feedback to help us assess and improve engagement and implement changes to enhance our work environment.
Attracting, retaining, and upskilling qualified truck drivers is crucial to our business. To address the driver shortage that continues to impact the freight transportation industry, we have strong hiring partnerships with the military that allow us to hire and train potential drivers before they leave military service. We also conduct in-house training through our Driver Development Program, a six-week paid training program, in certain service center locations, to help drivers earn a CDL-A license, and we host onsite hiring events at critical locations, as needed.
Diversity, Equity, and Inclusion
We embrace and encourage diverse experiences, needs, and perspectives which, in turn, help us create an environment where our employees feel welcome, safe, and valued. Such diversity enables us to better serve our customers around the globe. We partnered with a consulting firm specializing in diversity, equity, and inclusion (“DEI”) to measure and develop these areas of human capital management in our organization. Our three-year DEI roadmap is divided into four main areas — workforce, workplace, community, and marketplace — each focusing on a different aspect of corporate diversity.
We continue to invest in personnel and partnerships to lead and execute ArcBest’s DEI strategy. Our Corporate Social Responsibility (CSR) team leads ArcBest’s DEI initiatives, reporting quarterly to the Nominating/Corporate Governance Committee of our Board of Directors. We also regularly engage leaders in the organization to advance our people and community programs. Our DEI Task Force shapes ArcBest’s DEI vision by identifying best practices and creating opportunities for meaningful engagement about workplace diversity. Our voluntary, employee-led Employee Resource Groups (“ERGs”) help create an open and welcoming space to foster community building for employees’ shared identities, experiences, or interest in supporting underrepresented talent. We now have six ERGs available to employees, including ERGs focused on women in the supply chain industry; neurodivergent employees or employees caring for neurodivergent loved ones; employees of color; employees who are military veterans or currently serving military members or family members; LGBTQ+ employees or allies; and a welcoming network for new employees or employees who have recently relocated and are looking for support in making connections within ArcBest.
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In October 2022, we announced our partnership with Integrate Autism Employment Advisors (“Integrate”), a non-profit organization that collaborates with companies to identify, recruit, and retain professionals on the autism spectrum, to foster a neuro-inclusive workforce and continue attracting the best talent with unique skill sets. Our investments in internal programs and in partnerships, including with Integrate, demonstrate ArcBest's commitment to advancing DEI initiatives to create a workplace where every employee comes to work feeling safe, welcome, and valued.
Our 2023 new hires represented a variety of backgrounds and experiences, with over 54% being diverse as categorized by gender, race, ethnicity, or military status. We are intentional in our efforts to attract, hire, retain, and upskill diverse and historically excluded talent, including those within the neurodivergent community. Our Neurodivergent Project Team has helped develop our neuroinclusive strategy by raising awareness, educating co-workers, and engaging with department leaders about positions that may be particularly well-suited for individuals on the autism spectrum.
Our corporate Code of Conduct sets forth our general business conduct and ethics principles. Our nonunion employees are required to participate in annual Code of Conduct training, which also covers our anti-discrimination and anti-harassment policies to further educate our employees about prohibited behaviors that undermine diversity. Our new hires complete anti-harassment training, and our management employees are provided with DEI training.
Health, Safety, and Security
We are focused on the health and well-being of our employees, and we have numerous programs to support our people in embracing total health. In addition to health benefits and voluntary insurance options, we also offer a wellness program through which employees may receive reduced premiums, deductibles, and out-of-pocket expenses for their insurance by completing certain preventative health requirements. We offer a digital health platform, life coaching services, behavioral health support, and a weight loss program, and we encourage healthy behaviors throughout the year through regular communications, educational sessions, wellness challenges, and other incentives.
Safety is critical to our business. We have safety procedures and guidelines, as well as required training and certification programs, for our drivers and freight-handling personnel to promote safety on and off the road. We also have safety measures and policies that apply to all independent contractors, owner-operators, and fleet owners in our Panther fleet, for whom we have provided safety programs to heighten awareness, promote safe driving behaviors, and reduce violations and accidents. Additionally, all of our company campuses, including corporate offices, are subject to safety and security policies and procedures to ensure the health, safety, and welfare of all employees. Based on employee feedback, several ArcBest teams collaborated to create new, more durable forklift attachments, designed to make freight handling safer and easier while reducing damage.
We expect all employees to obey and respect human rights laws, and we will not tolerate conduct that violates these laws. We set the same expectations for our vendors, suppliers, and service providers through our Supplier Code of Conduct. Given the nature of our industry, we are in a critical position to help raise awareness of human trafficking to potentially disrupt these networks. Through partnerships with Truckers Against Trafficking® and Polaris, we educate our employees and drivers on the realities of modern-day slavery and how they can play a role in the fight against human trafficking.
Reputation and Responsibility
Our Company and our brands are consistently recognized for best-in-class performance.
Brands
The value of our brands is critical to our success. ArcBest is recognized as a leading integrated logistics company with creative problem solvers who deliver innovative logistics solutions. Beyond this fundamental marketplace recognition of our collective brand identity, our other key brands represent additional unique value in their target markets.
We have registered or are pursuing registration of various marks or designs as trademarks in the United States, including, but not limited to “ArcBest,” “ABF Freight,” “Panther,” “MoLo,” “U-Pack,” “Vaux,” and “More Than Logistics.” For some marks, we also have registered or are pursuing registration in certain other countries.
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Other Intellectual Property
Additionally, our business and operations utilize and depend upon both internally developed and purchased technology. We have obtained or are pursuing patent protection on internally developed and certain purchased technology, including equipment and process patents in connection with the previously disclosed Vaux freight handling program.
Commitment to Social and Environmental Responsibility
We are focused on understanding the potential impact and related risks of environmental and social issues on our business and the impact of our operations on the environment. In recent years, we have invested in personnel and resources to develop our sustainability and corporate citizenship program. We are integrating these factors into our strategy as we seek more sustainable approaches across our business and partner with customers to meet sustainability needs in their supply chains. We have voluntarily published an annual report over the last four years that details our responsible business focal points, including DEI efforts, sustainability approaches, investments in operational efficiencies and innovation, safety standards, and community-based partnerships. We are working to align our sustainability framework with pertinent Sustainability Accounting Standards Board (“SASB”) standards, which connect businesses and investors to the financial impacts of sustainability and identify the subset of related issues most relevant to financial performance, and the Task Force on Climate-Related Financial Disclosures (“TCFD”) framework. In 2023, we continued to collaborate with a third-party consultant to help identify and prioritize our responsible business initiatives. As mentioned previously, we continue to develop our sustainability dashboard, which is used to track quantitative metrics related to the environmental impact of our operations, including emissions. This dashboard will be utilized, along with qualitative analysis, to identify areas for improvement, track our Scope 1 (direct) and Scope 2 (indirect) GHG emissions and, in future phases of the sustainability dashboard project, provide insights to our customers supply chains until 2024 when we plan to transition to a third-party platform that will enable us to calculate and disclose Scope 3 emissions in the future. Preliminary information regarding our Scope 1 and Scope 2 emissions based on this dashboard can be found on the Company’s website. Additionally, our 2022 ESG Report included Scope 1 and Scope 2 emissions disclosures and other disclosures required by SASB and TCFD.
We actively promote a cleaner environment by reducing both fuel consumption and emissions, including through our GHG emissions measurement task force, which was established to better understand the impact of our business on the environment and opportunities for improvement. ArcBest, ABF Freight, Panther, and MoLo participate in the EPA’s SmartWay Transport Partnership, a collaboration between the EPA and the freight transportation industry that helps freight shippers, carriers, and logistics companies reduce GHGs and diesel emissions. ABF Freight has also participated in opportunities to address environmental issues in association with the Sustainability Task Force of the American Trucking Associations. For many years, our Asset-Based segment has voluntarily limited the maximum speed of its trucks, thereby reducing fuel consumption and emissions and contributing to ABF Freight’s excellent safety record. Our Asset-Based segment utilizes engine idle management programming to automatically shut down engines of parked tractors, in addition to our City Route Optimization program that has allowed ABF Freight to run fewer miles with less idling in traffic reducing our emissions impact. Fuel consumption and emissions have also been minimized through a strict equipment maintenance schedule. To further enhance fuel economy and reduce emissions, ABF Freight voluntarily installs aerodynamic aids on its fleet of over-the-road trailers. We continue to research and pursue more sustainable equipment, including replacing aging equipment models with clean, fuel-efficient equipment. In our dock operations, we utilize forklifts with engines powered by liquefied petroleum gas (LPG), which the EPA recognizes as a clean, alternative fuel, and have invested in a small number of electric forklifts, electric yard tractors, and electric Class 6 straight trucks to replace diesel-burning equipment. Additionally, in 2022, our Asset-Light segment began leasing a LEED Gold-certified office facility in Chicago, which was constructed to include a green roof, smart lighting, energy-efficient HVAC units, and additional eco-friendly features.
Contributions & Awards
Our culture is focused on quality service and responsibility, and our employees are committed to the communities in which they live and work. We make financial contributions to a number of charitable organizations, many of which are supported by our employees. These employees volunteer their time and expertise, and many serve as officers or board members of various philanthropic organizations. To help guide our actions in our giving efforts, we have outlined our three philanthropic pillars — Community, Education and People. In celebration of our 100th anniversary, we committed to $1 million in centennial giving during 2023 to organizations that align with our philanthropic pillars. In our corporate headquarters’ local community, we have long supported the United Way of Fort Smith Area and its partner organizations. In 2023, with employee support, we again earned the United Way’s Pacesetter award by setting the standard for leadership and community support, along with the Chairman’s Award and the Outstanding Achievement award for 2022-2023 campaign efforts. ArcBest has earned a spot in Forbes “Best-In-State Employers” list in Arkansas for the fourth year, including ranking as No. 3 in Arkansas overall and No. 1 in the Transportation and Logistics Employer category, in
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addition to holding an A+ culture rating by employees via Comparably. We support our employees as they carry out our wellness value by participating in healthy workplace initiatives and representing our company in wellness events in their local communities. Our employees are also great contributors of time to our local community through various volunteer activities.
In addition to the recognitions noted above, ArcBest has been recognized with the following awards since 2022:
● | “Training APEX Awards” (formerly “Training Top 100”) by Training magazine in 2023, marking the seventh year in a row to be honored and 13th year to be recognized; |
● | Inbound Logistics’ list of “Top 100 Truckers” for the sixth consecutive year, continuing ABF Freight’s recognition on the list for the previous four years; |
● | Inbound Logistics’ 2023 G75 Green Supply Chain Partner, following receipt of this recognition in 2022, demonstrating ArcBest’s commitment to sustainability; |
● | “FreightTech 100” by FreightWaves, Inc., as one of the most innovative and disruptive companies across the freight industry for the third consecutive year and the fourth year overall; |
● | “FreightTech 25” by FreightWaves, Inc., ranked as No. 20 among the most innovative and disruptive companies changing the transportation industry’s tech landscape; |
● | Second annual “Top 500 For-Hire Carriers” by FreightWaves, Inc., recognizing companies on the basis of tractor count; |
● | Fortune 1000 List of Top Companies, ranking No. 621 in 2023, up from No. 696 in 2022; |
● | Six Comparably Awards, including for “Best Company Perks & Benefits,” “Best CEOs for Women,” “Best Company for Women,” “Best Company Compensation,” “Best Company Culture,” and “Best Leadership Teams” for 2023, following the receipt of three Comparably Awards in 2022 and highlighting ArcBest’s commitment to providing a work environment where all employees can thrive; |
● | “2023 Top Companies for Women to Work For in Transportation” list by the Women in Trucking Association, highlighting corporate cultures in the trucking industry that foster gender diversity, competitive compensation and benefits, and career advancement opportunities; |
● | Forrester “Return on Integration (ROI) Honors Winner,” in 2022 - award honoring leading organizations that made bold decisions to transform their business by integrating marketing, sales and product functions to align business goals and drive growth; |
● | 17th in The Commercial Carrier Journal’s 2023 list of “Top 250 For-Hire Carriers,” marking our eighth year listed; |
● | Transport Topic’s 2023 list of “Top 100 For-Hire Carriers” for our tenth consecutive year; |
● | Inbound Logistics’ “Top 100 3PL Providers” list as one of the best of the best third-party logistics companies in 2023; |
● | Supply Chain Brain’s 2023 list of Top 100 Great Supply Chain Partners for excellent customer service door-to-door; |
● | Armstrong & Associates, Inc’s “Top 50 U.S. 3PLs” list, which ranks the largest U.S. third-party providers by 2022 gross logistics revenue and turnover; |
● | One of America’s “Most Responsible Companies of 2024” by Newsweek and Statista, demonstrating our ongoing commitment to being a responsible corporate citizen; |
● | Bronze medal sustainability rating from EcoVadis in 2023, achieving sustainability performance recognition in the top half of all companies and industries rated across the world for the third consecutive year; |
● | Business Media, Inc.’s 2023 Power Partner Awards honoring Business-to-Business (B2B) organizations who go above and beyond in providing value to customers’ business; |
● | Named to TIME’S 2023 “Best Invention” list for ArcBest’s Vaux freight movement system in the Apps and Software category creating innovative technology that helps customers across all industries optimize operations and create remarkable efficiencies in their intralogistics processes; |
● | Received an honorable mention in the Enterprise category of Fast Company’s Innovation by Design Awards for our revolutionary freight movement technology, Vaux; |
● | VETS Indexes Employer Awards with a 4-Star Employer Designation for 2023, recognizing the nation’s top veteran employers; and |
● | U.S. Department of Labor’s “2023 Gold Honoring Investments in Recruiting and Hiring American Military Veterans (HIRE Vets) Medallion” award for our exemplary efforts in recruiting, employing, and retaining our nation’s veterans. |
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Our Chairman of the Board, President and CEO, Judy R. McReynolds, was named to Arkansas Money & Politics’s 2024 Influencers of the Year list, the Women’s Foundation of Arkansas and Little Rock Soiree Top 100 Women of Impact in Arkansas in 2023 and the Arkansas Business Hall of Fame class of 2023. As listed above, the Company received Comparably’s 2023 Best CEOs for Women award, honoring Ms. McReynolds for the third consecutive year. She was also named to the 2022 Arkansas Business Executive of the Year by Arkansas Business, included on the prestigious 2022 Forbes 50 over 50, named a Gartner CEO Talent Champion in 2022, and the “Arkansas 250” list of Arkansas’ most influential leaders by Arkansas Business in 2022.
Asset-Based Segment
Our Asset-Based carrier ABF Freight has received the following awards since 2022:
● | 2022 Excellence in Cargo Claims & Loss Prevention Award from the American Trucking Associations, making ABF Freight the only 10-time award winner of the award; |
● | Two “Quest for Quality” awards in the National LTL Carriers and Expedited Motor Carriers categories from Logistics Management magazine for 2023, marking its seventh year overall to be recognized; |
● | EPA SmartWay Transport Partner recognition since 2006; and |
● | 2022 SmartWay High Performer by the EPA for the second consecutive year and the third time overall in recognition of its leadership in the freight industry for producing more efficient and sustainable supply chain solutions. |
Our Asset-Based segment is dedicated to safety and security in providing transportation and freight-handling services to its customers. ABF Freight is a nine-time winner of the Excellence in Security Award and a seven-time winner of the President’s Trophy for Safety from the American Trucking Associations. In January 2024, three ABF Freight drivers were named by the American Trucking Associations as captains of the 2024-2025 “America’s Road Team,” continuing the long-time tradition of ABF Freight’s representation in this select program based on the drivers’ exceptional safety records and their strong commitment to safety and professionalism.
During 2023, ABF Freight partnered with the IBT and the U.S. Army in the Teamsters Military Assistance Program (TMAP), a joint training program to help soldiers transition from military service to civilian careers as professional truck drivers. In 2023, ABF Freight was highlighted in the Task Force Movement (TFM): Life Cycle Pathway for Military and Veterans into Trucking report for its TMAP. ABF Freight has a partnership with the U.S. Military to train transitioning service members for our management roles through the Department of Defense SkillBridge program. ABF Freight also participates in the U.S. Army Partnership for Youth Success program. This initiative connects first-term regular Army and Army Reserve soldiers to the civilian workforce by providing two guaranteed job interviews and possible employment after their service in the Army.
Asset-Light Segment
Asset-Light received the following recognitions since 2022:
● | “2023 leading third-party logistics provider” by Global Trade Magazine in their Leading 3PLs List for the second consecutive year; |
● | “Top Freight Brokerage Firms” in Transport Topics for 2023, marking its ninth consecutive year to be listed; |
● | MoLo was honored in January 2024, for the fourth consecutive year, as part of Built In’s “2024 Best Places to Work For” awards, earning a place in the “Best Places to Work in Chicago” and the “Best Midsize Places to Work in Chicago” categories; |
● | MoLo was named a “2023 Top Food Chain Provider” by Food Shippers of America; |
● | MoLo was named by Financial Times to the “America’s Fastest Growing Companies” list for 2022; |
● | 2023 and 2022 EPA SmartWay Transport Partners recognition for Panther and recognition for MoLo in 2022; and |
● | Three “Quest for Quality” awards by Logistics Magazine in the categories of 3PL Transportation Management, Household Goods and High Value Goods, and Intermodal Marketing Companies in 2023, marking the eighth time Panther has been recognized and the fourth time U-Pack has been honored with “Quest for Quality” awards. |
Available Information
We file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports, proxy and information statements, and other information electronically with the SEC. All reports and financial information filed with, or furnished to, the SEC can be obtained, free of charge, through our website located at www.arcb.com or through the SEC’s website located at www.sec.gov as soon as reasonably practical after such material
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is electronically filed with, or furnished to, the SEC. The Annual Report on Form 10-K and other information may also be obtained without charge in writing to ArcBest Corporation, Attention: Investor Relations, 8401 McClure Drive, Fort Smith, AR 72916; or by telephone at 479-785-6000. The information contained on our website does not constitute part of this Annual Report on Form 10-K, nor shall it be deemed incorporated by reference into this Annual Report on Form 10-K.
In addition to its reports filed or furnished with the SEC, the Company publicly discloses material information from time to time in our press releases, at annual meetings of shareholders, in publicly accessible conferences and investor presentations, and through our website (principally in its News and Events and Investor Relations pages).
ITEM 1A.RISK FACTORS
Our business is subject to a variety of material risks about which we are aware. We could also be affected by additional risks and uncertainties not currently known to us or that we currently deem to be immaterial. This Risk Factors section discusses the material risks relating to our business activities, including business risks affecting the transportation industry and our Company that are largely out of our control. If any of these risks or circumstances actually occur, it could materially harm our business, results of operations, financial condition, and cash flows; impair our ability to implement business plans or complete development activities as scheduled; and/or result in a decline in the market price of our common stock.
Risks Related to Significant Unusual Events
The effects of a widespread outbreak of an illness or disease or any other public health crisis, as well as regulatory measures implemented in response to such events, could negatively impact the health and safety of our employees and/or adversely affect our business, results of operations, financial condition, and cash flows.
The widespread outbreak of illness, disease, or emergence of another public health crisis, as we experienced with the COVID-19 pandemic, may, in the future, negatively impact our business, including operational efficiencies and demand for our services. Future measures intended to prevent the spread of a health epidemic, including regulatory measures and our efforts and costs incurred to comply with them, could negatively impact our operational efficiency and that of our third-party capacity providers, as well as our customers’ demand for our services. Additionally, if a high number of our employees were to contract a virus, disease or illness or were quarantined, our operations and customer service levels and, consequently, our results of operations, could be adversely impacted. We do not have insurance coverage specific to losses resulting from a pandemic. In the event of another pandemic or other public health crisis that adversely affects the U.S. and global economies, our results of operations, financial condition, and cash flows could be adversely impacted, and many of the other risks discussed in this Risk Factors section may be heightened.
We, or the third parties who provide services for us, may be adversely affected by external events for which our business continuity plans may not adequately prepare us.
The occurrence of severe weather, natural disasters, health epidemics, acts of war or terrorism, military conflicts (such as the Russia-Ukraine and Israel-Hamas wars and Red Sea crisis), trade restrictions, and other adverse external events or conditions that impact us or the operations of third parties who provide services for us have the potential to significantly impact our ability to conduct business. Although we have business continuity plans in place, there is no guarantee that our plans have adequately addressed each known risk or every possible risk and can be successfully or timely implemented. Even if we were to successfully implement our continuity plans, we may incur substantial expenses and there is no guarantee that our business, financial condition, and results of operations will not be materially impacted.
Risks Related to Cybersecurity, Data Privacy, and Information Technology
We depend on our Information Technology (“IT”) systems, and a systems failure, perceived or actual data privacy breach, or cybersecurity incident could have a material adverse effect on our business, results of operations, and financial condition.
We depend on the proper functioning, availability, and security of our IT 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. Our IT systems are vulnerable to interruption by adverse weather conditions or natural disasters; power loss; telecommunications failures; terrorist attacks; internet failures and other disruptions to technology, including
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computer viruses; and other events beyond our control, including cybersecurity incidents such as denial of service, system failure, security breach, intentional or inadvertent acts by employees or vendors with access to our systems or data, phishing, disruption by malware, or attacks enabled by AI. Any significant failure or other disruption in our critical IT systems that impacts the availability, reliability, speed, accuracy, or other proper functioning of these systems or that results 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 business, interrupt or delay our operations, damage our reputation, cause a loss of customers, cause errors or delays in financial reporting, result in violation of privacy laws, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse effect on our business, results of operations, and financial condition.
New or enhanced technology that we develop and implement may also be subject to cybersecurity attacks and may be more prone to related incidents. We also utilize certain third-party software applications; provide underlying data to third parties; grant access to certain of our systems to third parties who provide certain services; and increasingly store and transmit data with our customers and third parties by means of connected IT systems, any of which may increase the risk of a data privacy breach or other cybersecurity incident. Any problems caused by or impacting these third parties, including cybersecurity 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.
A portion of our employee population operates under remote and hybrid work arrangements, which has increased demand for IT resources and our exposure to cybersecurity risks, including an increased risk of social engineering attempts, such as phishing, unauthorized access to proprietary information or sensitive or confidential data, and other cybersecurity incidents. As AI capabilities improve and are increasingly adopted, we may see cybersecurity attacks perpetrated through AI. While we maintain property and cyber insurance, losses arising from a significant disaster or cyber incident may exceed our insurance coverage and could have a material adverse impact on our results of operations and financial condition. Although we have implemented measures to mitigate our exposure to the heightened risks of cybersecurity incidents, we cannot be certain that such measures will be effective to prevent a cybersecurity incident from materializing.
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 points when the impact on our business could be minimized. Despite our efforts to monitor and develop our IT networks and infrastructure, due to the increasing sophistication of cyber criminals and the development of new techniques for attack, we may be unable to anticipate, promptly detect, or timely implement adequate protective or remedial measures against cybersecurity attacks or recover use of our IT networks and infrastructure timely.
We engage third parties to provide certain IT needs, including licensed software, and the inability to maintain these third-party systems or licenses, or any interruptions or failures thereof, could adversely affect our business.
Certain of our IT needs are provided or supported by third parties, and we have limited control over the operation, quality, or maintenance of services provided by our vendors or whether they will continue to provide services that are essential to our business. The IT systems and operations of our third-party service providers are vulnerable to interruption by adverse weather conditions or natural disasters, power loss, telecommunications failures, terrorist attacks, internet failures, computer viruses, security breaches, and other events beyond our control. Disruptions or failures in the services upon which our IT platforms rely, or in other third-party services upon which we rely to operate our business and report financial results, may adversely affect our operations and the services we provide. Such disruptions or failures could increase our costs or result in a loss of customers that could have a material adverse effect on our results of operations and financial condition. Additionally, we license a variety of software that provide critical support for our operations. There is no guarantee that we will be able to continue these licensing arrangements with the current licensors, or that we can replace the functions provided by these licenses, on commercially reasonable terms or at all.
We rely on the suitability of the design and operating effectiveness of internal controls maintained by our third-party software providers and obtain related assurance reports from independent service auditors engaged by our third-party software providers for all in-scope systems. However, we cannot ensure that controls identified by our third-party software providers are adequate to prevent, detect or correct misstatements in processing or reporting transactions, or to adequately limit or eliminate system or operational vulnerabilities.
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If we are unable to timely and effectively develop and implement new or enhanced technology or processes, or if we fail to realize the potential benefits thereof, we may suffer competitive disadvantage, loss of customers, or other consequences that could negatively impact our business, results of operations, and financial condition.
The industry has experienced, and will likely continue to experience, rapid changes in technology, including the development of new technology, the deployment of emerging technology, such as generative AI and machine learning, and enhancements in existing technology. With industry advancements in technology, our customers may find alternatives to our services to meet their freight transportation and logistics needs. New entrants to the market, including start-ups and emerging business models which are often technology-centric or technology-enabled, have also expanded the field of competition and driven an increased pressure for innovation in the industry.
Technology and new market entrants may also disrupt the way we, and our competitors, operate to provide freight logistics services. We expect our customers will continue to demand more sophisticated technology-driven solutions from their suppliers, including advancements in processes, equipment, and facilities to address concerns over business efficiency, supply chain effectiveness, and climate change. To improve efficiencies and meet our customers’ needs, we have made, and continue to make, significant investments in the enhancement of existing technology and in the development of new and innovative solutions, such as software and physical assets that are in various stages of development and implementation. Among other initiatives, our investments in technology include VauxTM and our equity investment in Phantom Auto, as further described in “Technology” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. A number of factors will be involved in determining proof of concept, and there can be no assurance that our technology implementations, including Vaux and remote-operated equipment, will be successful. Furthermore, investments in start-up companies, by their nature, involve risk which may subject our investment to risk of loss.
Our efforts and investments in technology innovation may continue to require significant ongoing research and development costs and implementation costs and may involve new or unforeseen risks and challenges, including heightened risks for data and information security, privacy, protection, and copyright infringement and, in the case of generative AI, potential compliance gaps in an emerging but fragmented regulatory environment. The success of our approach to technology innovation depends on market acceptance of our solutions and a number of other factors, including our ability to:
● | deploy funds and resources for investment in technology and innovation; |
● | achieve the right balance of strategic investments in existing or developing technology and innovation; |
● | timely and effectively develop and implement new or enhanced technology, including integration into current operations and interaction with existing systems; |
● | train our employees to operate the technology and/or achieve appropriate customer, carrier or other desired user adoption of the technology; |
● | adequately anticipate challenges and respond to unforeseen challenges; |
● | detect and remedy defects in enhanced or new technology; and |
● | recover costs of investment through increased business levels, higher prices, improved efficiencies or other means, such as licensing or disposing of the developed technology. |
If we do not pursue technological advances or engage in innovation, if we fail to successfully or timely develop and deploy enhanced or new technology, or if any enhanced or new technology does not yield the results we expect, or is developed by others, we may be placed at a competitive disadvantage; lose customers; incur higher than anticipated costs, including the possible impact of asset impairment or the write-off of software development costs; or fail to meet the goals of our internal growth strategy, any one of which could materially adversely impact our financial condition and results of operations.
Risks Related to Our Business
The loss of or reduction in business from one or more large customers, or an overall reduction in our customer base, could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Although we do not have a significant customer concentration, the growth of our business could be materially impacted and our results of operations and cash flows would be adversely affected if we were to lose all or a portion of the business of some of our large customers. Such loss may occur if our customers choose to divert all or a portion of their business with us to our competitors; demand pricing concessions for our services; require us to provide enhanced services at lower prices; or develop their own shipping and distribution capabilities. Our customer relationships are generally not subject to
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long-term contractual obligations or minimum volume commitments, and we cannot ensure that our current customer relationships will continue at the same business levels or at all. A reduction in our customer base or difficulty in collecting, or the inability to collect, payments from our customers due to changes in pricing, economic hardship, or other factors could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Our initiatives to grow our business operations or to manage our cost structure to business levels may take longer than anticipated or may not be successful.
Developing our service offerings requires ongoing investment in personnel and infrastructure, including operating and management information systems. Depending upon the timing and level of revenues generated from our growth initiatives, the related results of operations and cash flows we anticipate from these initiatives and additional service offerings may not be achieved. If we are unable to manage our growth effectively, our business, results of operations, and financial condition may be adversely affected.
Our growth plans place significant demands on our management and operating personnel, and we may not be able to hire, train, upskill, and retain the appropriate personnel to manage and grow these services. We have incurred increased costs associated with long-term investment in the development of our owner-operator fleet and contract carrier capacity for our Asset-Light segment. As we focus on growing our Asset-Light segment, we may also encounter difficulties in adapting our corporate structure or in developing and maintaining effective partnerships among our operating segments, which could hinder our operational, financial, and strategic objectives. Furthermore, we may invest significant resources to enter or expand our services in markets with established competitors and in which we will encounter new competitive challenges, and we may not be able to successfully gain market share, which could have an adverse effect on our operating results and financial condition.
We also face challenges and risks in implementing initiatives to manage our cost structure to business levels or changing market demands, as portions of salaries, wages, and benefits are fixed in nature and the adjustments that would otherwise be necessary to align the labor cost structure to corresponding business levels are limited as we strive to maintain customer service. It is more difficult to match our staffing levels and purchased transportation resources to our business needs in periods of rapid or unexpected change, which we have experienced in recent years. We may, in the future, incur additional costs related to purchased transportation and/or experience labor inefficiencies in training new employees who are hired in response to growth. If such additional costs are disproportionate to our business levels, they may adversely impact our operating results. A prolonged labor shortage or significant labor inefficiencies could have a material adverse effect on our results of operations, financial condition, and cash flows as a result of lower levels of service, including timeliness, productivity and/or quality of service. We regularly evaluate and modify the network of our Asset-Based operations to reflect changes in customer demands and to reconcile the segment’s infrastructure with tonnage and shipment levels and the proximity of customer freight, and there can be no assurance that any given network change will result in a material improvement in our Asset-Based segment’s results of operations.
We may be unsuccessful in realizing all or any part of the anticipated benefits of acquisitions within the expected time period or at all. The cost, integration, and performance of any such acquisition may adversely affect our business, results of operations, financial condition, and cash flows.
We may be unable to generate sufficient revenue or earnings from the operations of MoLo, which we acquired on November 1, 2021, or any future acquired business, to offset our acquisition or investment costs, and the acquired business may otherwise fail to meet our operational or strategic expectations. Difficulties encountered in combining operations, including underestimation of the resources required to support an acquisition, could prevent us from realizing the full anticipated benefits, and within the anticipated timeframe, and could adversely impact our business, results of operations, and financial condition. If acquired operations fail to generate sufficient cash flows, we may incur impairments of goodwill, intangibles, and other assets in the future.
The possible risks involved in acquisitions include, among others:
● | potential loss of customers, key employees, and third-party service providers; |
● | difficulties synchronizing operations of the companies, including the integration of workforces, while continuing to provide consistent, high-quality service to customers; |
● | unanticipated issues in the assimilation and consolidation of IT, communications, and other systems, including additional systems training and other labor inefficiencies; |
● | potentially unacceptable qualification requirements for contract carriers or other third-party vendors; |
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● | potentially unfavorable, or adverse changes to, pre-existing contractual relationships; |
● | delays in consolidation of corporate and administrative infrastructures; |
● | difficulties and costs of synchronizing our policies, procedures, business culture, and benefits and compensation programs; |
● | inability to apply and maintain our internal controls and comply with regulatory requirements; |
● | difficulties related to additional or unanticipated regulatory and compliance issues; |
● | adverse tax consequences associated with the acquisition; and |
● | other unanticipated issues, expenses, and liabilities, including previously unknown liabilities, or legal proceedings which may arise, associated with the acquired business for which we have no, or are unable to secure, recourse under applicable indemnification or insurance provisions. |
We continue to evaluate acquisition candidates and may acquire assets and businesses that we believe complement our existing assets and business or enhance our service offerings. The complex and time-consuming processes of evaluating acquisitions and performing due diligence procedures include risks that may adversely impact the success of our selection of candidates, pricing of the transaction, and ability to integrate critical functional areas of the acquired business. Future acquisitions, if any, may require substantial capital or the incurrence of substantial indebtedness or may involve the dilutive issuance of equity securities, which may negatively impact our capitalization and financial position. Further, we may not be able to acquire businesses or assets in the future, or acquire them on terms favorable to us, even though we may have incurred expenses in evaluating and pursuing strategic transactions.
Unsolicited takeover proposals, proxy contests and other proposals/actions by activist investors may distract management and adversely affect our business and the market price and lead to pronounced volatility in the price of our common stock.
We could become subject to unfavorable advances by investor activists or receive unsolicited takeover proposals at an undervalued stock price. In the event that a third party makes an unsolicited takeover proposal or otherwise attempts to gain control of our Company, our review and consideration of such proposals may be a significant distraction for our management and may require us to expend significant time and resources away from our primary operations. Such proposals may disrupt our business by causing uncertainty among current and potential employees, customers and other stakeholders, which could negatively impact our business, results of operations, and financial condition. Any perceived uncertainties as to our future direction also may adversely affect the market price and lead to pronounced volatility in the price of our common stock.
Damage to our corporate reputation may cause our business to suffer.
Our business depends, in part, on our ability to maintain the image of our brands. Service, performance, and safety issues, whether actual or perceived, and whether as a result of our actions or those of our third-party service providers, could adversely impact our customers’ image of our brands, including ArcBest, ABF Freight, Panther, MoLo, and U-Pack, and result in the loss of business or impede our growth initiatives. Adverse publicity regarding labor relations, legal matters, cybersecurity and data privacy concerns, social and sustainability issues, and similar matters, whether or not justified, could have a negative impact on our reputation and may result in the loss of customers and our inability to secure new customer relationships. Despite our efforts to adapt to and address these concerns and concerns over AI impacting brand reputations, our efforts may be insufficient. Additionally, the implementation of initiatives, including our sustainability initiatives, may increase our costs. It is difficult to predict how our efforts with respect to sustainability matters will be evaluated by current and prospective investors or by our customers or business partners, and our industry may be generally disfavored by the investing community at large.
Our business is increasingly dependent on the internet for attracting and securing customers, and the possibility that fraudulent behavior may confuse or deceive customers, including through use of AI, heightens the risk of damage to our reputation and increases the time and expense required to protect and maintain the integrity of our brands. With the increased use of social media outlets, adverse publicity, even when based upon incorrect information or false statements, can be disseminated quickly and broadly, making it increasingly difficult for us to effectively respond. Damage to our reputation and loss of brand equity could reduce demand for our services and, thus, have an adverse effect on our business, results of operations, financial condition, and the market price of our stock, as well as require additional resources to rebuild our reputation and restore the value of our brands.
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Our corporate reputation and business depend on a variety of intellectual property rights, and the costs and resources expended to enforce or protect our rights or to defend against infringement claims could adversely impact our business, results of operations, and financial condition.
We have registered or are pursuing registration of various marks and designs as trademarks in the United States, including, but not limited to, “ArcBest,” “ABF Freight,” “Panther,” “MoLo,” “U-Pack,” “Vaux,” and “More Than Logistics.” For some marks, we also have registered or are pursuing registration in certain other countries. At times, competitors may adopt service or trade names, logos, or designs similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. We have obtained or are pursuing patent protection on internally developed and certain purchased technology, including equipment and process patents in connection with Vaux. Competitors or other third parties could attempt to reproduce or reverse-engineer our patented technologies, or we could be subject to third-party claims of infringement. Any of our intellectual property rights related to trademarks, trade secrets, domain names, copyrights, patents, or other intellectual property, whether owned or licensed, could be challenged or invalidated, or misappropriated or infringed upon, by third parties. Our efforts to obtain, enforce, or protect our proprietary rights, or to defend against third-party infringement claims, may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our corporate reputation, business, results of operations, and financial condition.
Risks Related to Our Industry
A nationwide or global disruption in the supply chain could increase volatility in freight volumes and materially impact our business.
Our business may be materially impacted by the cyclical nature of the supply chain industry due to changes in consumer spending related to inflation and higher interest rates and, more recently, due to disruption to two crucial trade corridors – the Panama Canal as a result of low rain levels and the Suez Canal as a result of geopolitical tensions in the Middle East, among other challenges affecting our industry. Although there have been recent signs of normalizing in the manufacturing capacity of original equipment manufacturers (“OEMs”), we have experienced, and may continue to experience, an inability to obtain, or delays in the delivery of, equipment necessary for operations, including tractors, trailers, and other equipment, as a result of manufacturing delays, supply chain disruptions, parts shortages, and equipment design changes due to upcoming federal and/or state emissions standards. The extent to which we are vulnerable to and may be negatively impacted by supply chain disruptions is uncertain and dependent upon the duration and severity of supply shortages as well as other factors beyond our control, such as extreme weather events, natural disasters, cybersecurity breaches, geopolitical conflicts, or government shutdowns. Supply chain disruptions have and may continue to have a significant impact on consumer prices, demand, and bottlenecks in production, which may negatively impact our freight volume, operating costs, and ability to serve our customers.
We operate in a highly competitive and fragmented industry, and our business could suffer if we are unable to adequately address factors that could affect our profitability, growth prospects, and ability to compete in the transportation and logistics market.
We face significant competition in local, regional, national, and, to a lesser extent, international markets. We compete with LTL carriers of varying sizes, including both union and nonunion LTL carriers and, to a lesser extent, with truckload carriers and railroads. We also compete with domestic and global logistics service providers, including asset-light logistics companies, integrated logistics companies, and third-party freight brokers that compete in one or more segments of the transportation industry.
Numerous factors could adversely impact our ability to compete effectively in the transportation and logistics industry, retain our existing customers, or attract new customers, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows. The competitive factors material to our business are the following:
● | Our Asset-Based segment competes primarily with nonunion motor carriers who generally have a lower fringe benefit cost structure than union carriers for freight-handling and driving personnel and have greater operating flexibility because they are subject to less-stringent labor work rules. Under its current collective bargaining agreement, ABF Freight continues to pay some of the highest benefit contribution rates in the industry, which continues to adversely impact the operating results of our Asset-Based segment relative to our competitors in the LTL industry. |
● | Some of our competitors periodically reduce their prices to gain business, especially during times of reduced growth rates in the economy, which limits our ability to maintain or increase prices. If customers select |
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transportation service providers based on price alone rather than the total value offered, we may be unable to maintain our operating margins or to maintain or grow tonnage levels. |
● | Enhanced visibility of capacity options in the marketplace is increasing, and customers may seek bids from multiple carriers for their shipping needs, which may generally depress prices or result in the loss of some business to our competitors. |
● | In an excess capacity market, we may be unable to maintain the higher market-driven prices we obtained for our services in the tighter capacity environment, especially if there is a prolonged recessionary period in the freight environment as there was during 2023. As market capacity tightens, customer demand may exceed available carrier capacity in the industry as experienced through the second half of 2022. |
● | Customers may reduce the number of carriers they use by selecting “core carriers” as approved transportation service providers, and in some instances, we may not be selected. |
● | Customers are increasingly focused on environmental concerns, including emissions, and may select transportation providers that are able to reduce emissions more readily or effectively through efficiency improvements to existing and emerging technologies, adoption of alternative fuels or through carbon offsetting mechanisms. |
● | Shippers may choose to build their own logistics capabilities reducing or eliminating need for these services from our Asset-Based segment. |
Additionally, as the retail industry continues its trend toward increases in e-commerce at an unprecedented rate, the manner in which our customers source or utilize our services will continue to evolve. If we are unable to successfully adapt and implement appropriate measures in response to these changes, our operating results could be adversely affected.
Increased prices for, or decreases in the availability of, equipment, including new revenue equipment, as well as higher costs of related operating expenses, could adversely affect our results of operations and cash flows.
In recent years, OEMs have significantly raised the prices of equipment, including new revenue equipment, due to supply chain disruptions and other challenges beyond our control, including, but not limited to geopolitical conflicts and significant weather events, in addition to increased costs of materials and labor, above normal inflation levels, and high interest rates, which impact equipment financing. Manufacturers have also raised prices, in part, to offset their costs of compliance with new tractor engine and emissions system design requirements intended to reduce emissions, which have been mandated by the EPA, the NHTSA, and various state agencies as described in “Environmental and Other Government Regulations” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. GHG emissions regulations are likely to continue to impact the design and cost of equipment utilized in our operations as well as fuel costs. Additional state-mandated emission-control requirements could increase equipment and fuel costs for entire fleets that operate in interstate commerce. If new equipment prices increase more than anticipated, we could incur higher depreciation and rental expenses than anticipated. Our third-party capacity providers, including owner-operators for portions of our Asset-Light segment operations, are also subject to increased regulations and higher equipment and fuel prices, which will, in turn, increase our costs for utilizing their services or may cause certain providers to exit the industry, which could lead to or exacerbate a capacity shortage and further increase our costs of securing third-party services. If we are unable to fully offset any such increases in expenses with freight rate increases and/or improved fuel economy, our results of operations could be adversely affected.
We depend on suppliers for equipment, parts, and services that are critical to our operations, which may be difficult to procure in the event of decreased supply or other supply chain disruptions. From time to time, some OEMs of tractors and trailers may reduce their manufacturing output due to, for example, lower demand for their products in economic downturns or a shortage of component parts. For example, significant shortages of semiconductor chips, as experienced through the first half of 2023, and other component parts and supplies, including steel, have forced and may continue to force manufacturers to curtail or suspend their production, leading to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles. Component suppliers may either reduce production or be unable to increase production to meet OEM demand, creating periodic difficulty for OEMs to react in a timely manner to increased demand for new equipment and/or increased demand for replacement components as economic conditions change.
When market forces result in demand outstripping supply, we have and may continue to face reduced supply levels and/or increased acquisition costs for new tractors or trailers, as well as related parts and services, for our Asset-Based operations, which could have a material adverse effect on our business and growth initiatives, results of operations, financial condition, and cash flows.
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Fuel shortages, changes in fuel prices, or the inability to collect fuel surcharges could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
The transportation industry is dependent upon the availability of adequate fuel supplies. A disruption in our fuel supply resulting from natural or man-made disasters; armed conflicts; terrorist attacks; actions by producers, including a decrease in drilling activity or the use of crude oil and oil reserves for purposes other than fuel production; legislation or regulations that require or result in new or alternate uses or other increases in the demand for fuel traditionally used by trucks; or other political, economic, and market factors that are beyond our control could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Fuel represents a significant operating expense for us, and we do not have any long-term fuel purchase contracts or any hedging arrangements to protect against fuel price increases. Fuel prices fluctuate greatly due to factors beyond our control, such as global supply and demand for crude oil and diesel, political events, military conflicts, price and supply decisions by oil producing countries and cartels, terrorist activities, and hurricanes and other natural or man-made disasters. Significant increases in fuel prices or fuel taxes resulting from these or other economic or regulatory changes that are not offset by base freight rate increases or fuel surcharges could have an adverse impact on our results of operations.
Additionally, we pay independent contractor drivers a fuel surcharge that increases with the increase in fuel prices. A significant increase or rapid fluctuation in fuel prices could cause the fuel surcharge we pay to independent contractors to be higher than the revenue we receive under our customer fuel surcharge programs, which could adversely impact the results of operations of our Asset-Light segment.
Our Asset-Based segment and certain operations of our Asset-Light segment assess a fuel surcharge based on an index of national diesel fuel prices. When fuel surcharges constitute a higher proportion of the total freight rate paid, our customers are less receptive to increases in base freight rates. Prolonged periods of inadequate base rate improvements could adversely impact operating results as elements of costs, including contractual wage rates, continue to increase. In periods of declining fuel prices, fuel surcharge percentages also decrease, which negatively impacts the total billed revenue per hundredweight or revenue per shipment measure and, consequently, our revenues, and the revenue decline may be disproportionate to the corresponding decline in our fuel costs, as experienced in 2023.
Risks Related to Employees and Benefits
Difficulty attracting, retaining and upskilling employees throughout the Company, or if ABF Freight is unable to reach agreement on future collective bargaining agreements, could result in labor inefficiencies, disruptions, stoppages, or delayed growth.
During recent years, we experienced, and continue to experience in certain markets, challenges with hiring an adequate number of qualified drivers, freight-handlers, and professional personnel to meet increases in demand due to numerous factors. With the exception of the market disruption experienced in 2023 due to the shutdown of a large LTL competitor, the available pool of drivers has been declining in recent years, which has caused and may in the future cause difficulty in retaining and hiring qualified drivers. Government regulations or the adverse impact of certain legislative actions that result in shortages of qualified drivers could also impact our ability to grow. The expansion of flexible work options triggered by the COVID-19 pandemic has also provided more employment opportunities for those in professional roles, including our IT roles, making attraction and retention more complex. If wage inflation continues for noncontractual professional roles, our labor costs will increase. If we encounter difficulty in attracting, retaining, and upskilling employees, including qualified drivers, freight-handlers, and professional personnel, we could incur higher recruiting expenses or a loss of business, and our profitability and ability to grow could be adversely affected.
As of December 2023, approximately 82% of our Asset-Based segment’s employees were covered under the 2023 ABF NMFA, the collective bargaining agreement with the IBT that will remain in effect through June 30, 2028. If we are unable to effectively manage our relationship with the IBT, we could be less effective in ongoing relations and future negotiations, which could lead to operational inefficiencies and increased operating costs. There can be no assurance that our future collective bargaining agreements will be renewed on terms favorable to us. The terms of any future collective bargaining agreements or the inability to agree on acceptable terms for the next contract period may also result in higher labor costs, insufficient operational flexibility, which may increase our operating costs, a work stoppage, the loss of customers, or other events that could have a material adverse effect on our business, results of operations, financial condition, and cash
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flows. We could also experience a loss of customers or a reduction in our potential share of business in the markets we serve if shippers limit their use of unionized freight transportation service providers because of the risk of work stoppages.
We could be obligated to make additional significant contributions to multiemployer pension plans.
ABF Freight contributes to multiemployer pension and health and welfare plans to provide benefits for its contractual employees. These multiemployer plans, established pursuant to the Taft-Hartley Act, are jointly-trusteed and cover collectively bargained employees of multiple unrelated employers. Due to the inherent nature of multiemployer pension plans, there are risks associated with participation in these plans that differ from single-employer plans. Assets received by the plans are not segregated by employer, and contributions made by one employer can be and are used to provide benefits to current and former employees of other employers. If a participating employer in a multiemployer pension plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If a participating employer in a multiemployer pension plan completely withdraws from the plan, it owes to the plan its proportionate share of the plan’s unfunded vested benefits, referred to as a withdrawal liability. A complete withdrawal generally occurs when the employer permanently ceases to have an obligation to contribute to the plan. Withdrawal liability is also owed in the event the employer withdraws from a plan in connection with a mass withdrawal, which generally occurs when all or substantially all employers withdraw from the plan in a relatively short period of time pursuant to an agreement. Were ABF Freight to completely withdraw from certain multiemployer pension plans, whether in connection with a mass withdrawal or otherwise, under current law, we would have material liabilities for our share of the unfunded vested liabilities of each such plan.
The multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. ABF Freight’s obligations to these plans are generally specified in the 2023 ABF NMFA and other related supplemental agreements, as further discussed in Note K to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. These pension plans provide the best retirement benefits in the industry. However, when compared to competitors, ABF Freight pays some of the highest benefit contribution rates in the industry and continues to address the effect of the Asset-Based segment’s wage and benefit cost structure on its operating results in discussions with the IBT. Through the term of its current collective bargaining agreement, ABF Freight’s multiemployer pension 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.
Certain legislative actions that became effective in recent years include provisions to improve funding for multiemployer pension plans, as further discussed in Note K to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. However, despite such legislative actions, we may still trigger withdrawal liability through, among other things, mergers and other fundamental corporate transactions and, as a result of operational changes, site closures and job losses. We continue to monitor the impact these legislative actions have on the funding status of the multiemployer pension plans to which ABF Freight contributes; however, we cannot determine with any certainty the minimum contributions that will be required under future collective bargaining agreements or the impact they will have on our results of operations and financial condition.
Risks Related to Third Parties
We depend on services provided by third parties, and increased costs or disruption of these services, and claims arising from these services, could adversely affect our business, results of operations, financial condition, cash flows, and customer relationships.
A reduction in the availability of rail services or services provided by third-party capacity providers to meet customer requirements, as well as higher utilization of third-party agents to maintain service levels in periods of tonnage growth or higher shipment levels, could increase purchased transportation costs which we may be unable to pass along to our customers. If a disruption or reduction in transportation services from our rail or other third-party service providers were to occur, we could be faced with business interruptions that could cause us to fail to meet the needs of our customers, which could result in loss of business or customer loyalty. In addition, third-party providers can be expected to increase their prices based on market conditions or to cover increases in operating expenses. If we are unable to correspondingly increase the prices we charge to our customers, or if we are unable to secure sufficient third-party services to expand our capacity, add additional routes, or meet our commitments to our customers, there could be a material adverse impact on our operations, revenues, profitability and customer relationships.
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Our ability to secure the services of third-party service providers is affected by many risks beyond our control, including unfavorable pricing conditions; the shortage of quality third-party providers, including owner-operators and drivers of contracted carriers for our Asset-Light segment; shortages in available cargo capacity of third parties; equipment shortages in the transportation industry, particularly among contracted truckload carriers; changes in government regulations affecting the transportation industry and their related impact on operations, such as hours-of-service rules and the ELD mandate; labor disputes; or a significant interruption in service or stoppage in third-party transportation services. Each of these risks could have a material adverse effect on the operating results of our Asset-Light segment.
In addition, we may be subject to claims arising from services provided by third parties, particularly in connection with the operations of our Asset-Light segment, which are dependent on third-party contract carriers. From time to time, the drivers who are owner-operators, independent contractors, or employees working for third-party carriers that we contract with are involved in accidents or incidents that may result in cargo loss or damage, other property damage, or serious personal injuries including death. As a result, claims may be asserted against us for actions by such drivers or for our actions in contracting with them initially or retaining them over time. We or our subsidiaries could be held directly responsible for these third-party claims and, regardless of ultimate liability, may incur significant costs and expenses in defending these claims or through settlements, even in cases where we believe we have meritorious claims or defenses. Our third-party contract carriers and other vendors may not agree to bear responsibility for such claims, or we may become responsible if they are unable to pay the claims, for example, due to bankruptcy proceedings, and such claims may exceed the amount of our insurance coverage or may not be covered by insurance at all.
Our engagement of independent contractor drivers to provide a portion of the capacity for our Asset-Light segment exposes us to different risks than we face with our employee drivers.
The driver fleet for portions of our Asset-Light segment is made up of independent owner-operators and individuals. We face intense competition in attracting and retaining qualified owner-operators from the available pool of drivers and fleets, and we may be required to increase owner-operator compensation or take other measures to remain an attractive option for owner-operators, which may negatively impact our results of operations. If we are not able to maintain our delivery schedules due to a shortage of drivers or if we are required to increase our rates to offset increases in owner-operator compensation, our services may be less competitive, which could have an adverse effect on our business. Furthermore, as these independent owner-operators and individuals are third-party service providers, rather than our employees, they may decline loads of freight from time to time, which may impede our ability to deliver freight in a timely manner or result in increased expenses to do so.
If the independent contractors with which we contract are deemed by regulators or judicial process to be employees, or if we experience operational or regulatory issues related to our use of these contract drivers, our financial condition, results of operations, and cash flows could be adversely affected.
Class actions and other lawsuits have arisen in the transportation and logistics industry seeking to reclassify independent contractor drivers as employees for a variety of purposes, including workers’ compensation, wage-and-hour, and health care coverage. Many states have enacted restrictive laws that make it difficult to successfully prove independent-contractor status, and all states have enforcement programs to evaluate the classification of independent contractors. In the event of such reclassification of our owner-operators, we could be exposed to various liabilities and additional costs, for both future and prior periods, under federal, state, and local tax laws, and workers’ compensation, unemployment benefits, labor, and employment laws, as well as potential liability for penalties and interest and under vicarious liability principles.
Risks Related to Legal and Regulatory Matters
We are subject to litigation risks, and at times may need to initiate litigation, which could result in significant costs and have other material adverse effects on our business, results of operations, and financial condition.
The nature of our business exposes us to the potential for various claims and litigation, including class-action litigation and other legal proceedings brought by customers, suppliers, employees, or other parties, related to labor and employment, including wage and hour claims; competitive matters; personal injury; property damage; cargo claims; safety and contract compliance; environmental liability; and other matters, such as the matters (if any) described in Item 3 (Legal Proceedings) included in Part I of, or otherwise disclosed in, this Annual Report on Form 10-K. We are subject to risk and uncertainties related to liabilities, including damages, fines, penalties, and substantial legal and related costs, that may result from these claims and litigation. Some or all of our expenditures to defend, settle, or litigate these matters may not be covered by
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insurance or could impact our cost of, and ability to obtain, insurance in the future. Also, litigation can be disruptive to normal business operations and could require a substantial amount of time and effort from our management team. Further, because of the potential risks, expenses, and uncertainties of litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses. Any material litigation or a catastrophic accident or series of accidents could have a material adverse effect on our business, results of operations, and financial condition. Our business reputation and our relationship with our customers, suppliers, and employees may also be adversely impacted by our involvement in legal proceedings.
We establish reserves based on our assessment of known legal matters and contingencies. New legal claims, or subsequent developments related to known legal claims, asserted against us may affect our assessment and estimates of our recorded legal reserves and may require us to make payments in excess of our reserves, which could have a material adverse effect on our financial condition or results of operations.
Our business operations are subject to numerous governmental regulations in the transportation industry, and costs of compliance with, or liability for violations of, existing or future regulations could have a material adverse effect on our financial condition and results of operations.
Various international, federal, state and local agencies exercise broad regulatory powers over the transportation industry, such as those described in “Environmental and Other Government Regulations” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. We could become subject to new or more restrictive regulations, and the costs to comply with such regulations could increase our operating expenses or otherwise have a material adverse effect on the results of our operations. Such regulations could also influence the demand for transportation services. Failure to comply with laws and regulations can result in penalties, revocation of our permits or licenses, or both civil and criminal actions against us. In addition to the potential harm to our reputation and brands, the financial burdens resulting from such actions could have a material adverse effect on our financial condition and results of operations.
Failures by us, or our contracted owner-operators and third-party carriers, to comply with the various applicable federal safety laws and regulations, or downgrades in our safety rating, could have a material adverse impact on our operations or financial condition, and could cause us to lose customers, as well as the ability to self-insure. The loss of our ability to self-insure for any significant period of time could materially increase insurance costs, or we could experience difficulty in obtaining adequate levels of insurance coverage.
Our Asset-Light segment utilizes third-party service providers who are subject to similar regulatory requirements. If the operations of these providers are impacted to the extent that a shortage of quality third-party service providers occurs, there could be a material adverse effect on the business and results of operations of our Asset-Light segment. Also, activities by these providers that violate applicable laws or regulations could result in governmental or third-party actions against us. Although third-party service providers with whom we contract agree to comply with applicable laws and regulations, we may not be aware of, and may therefore be unable to address or remedy, violations by them.
We are also subject to stringent and changing privacy laws, regulations and standards as well as policies, contracts and other obligations related to data privacy, including customer and employee data. As a provider of worldwide transportation and logistics services, we collect and process significant amounts of customer data on a daily basis. In recent years, there have been global efforts by governments and consumer groups for increased transparency in how customer data is utilized and how customers and employees can control the use and storage of their data. Complying with existing or new data protection laws and regulations may increase our compliance costs or require us to modify our data handling practices. Non-compliance could result in governmental or consumer actions against us and even perceived non-compliance may otherwise adversely impact our reputation, operating results and financial condition. The uncertainty of the interpretation and enforcement of these laws, and their increasing scope and complexity, create regulatory risks that will likely increase over time. Additionally, if third parties or others violate obligations and restrictions with respect to data privacy and security, such violations may also put our customers’ or employees’ information at risk and could in turn have a material and adverse effect on our business.
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Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties. The costs of compliance with current and future environmental laws and regulations may be significant and could adversely impact our results of operations.
We routinely transport or arrange for the transportation of hazardous materials and explosives. At certain facilities of our Asset-Based operations, we store fuel and oil in underground and aboveground tanks and other containers. In connection with these operations, we are subject to federal, state and local environmental laws and regulations relating to, among other areas: emission controls, transportation 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 be subject to substantial fines, civil penalties, or litigation if we fail to obtain proper certifications or permits or if we do not comply with required environmental inspections and testing provisions. Under certain environmental laws, we could be subject to strict liability for any clean-up costs relating to contamination at our past or present facilities, including those occurring prior to ownership or use of such facilities, and at third-party waste disposal sites, as well as costs associated with the cleanup of accidents involving our vehicles.
The transportation of hazardous materials or explosives also involves the risks of, among others, fuel spillage or leakage, environmental damage, a spill or accident involving hazardous substances, and hazardous waste disposal. In addition, if any damage or injury occurs as a result of these operations, we may be subject to claims from third parties and bear liability for such damage or injury.
Although we have instituted programs to monitor and control environmental risks and promote and maintain compliance with applicable environmental laws and regulations, violations of applicable laws or regulations may subject us to clean-up costs and liabilities not covered by insurance or in excess of our applicable insurance coverage, including substantial fines, civil penalties, or civil and criminal liability, as well as bans on making future shipments in particular geographic areas, any of which could adversely affect our business, results of operations, financial condition, and cash flows.
Concern over climate change, including the impact of global warming, has led to significant legislative and regulatory efforts to limit carbon and other GHG emissions, and some form of federal, state, and/or regional climate change legislation is possible in the future. Emission-related regulatory actions have historically resulted in increased costs of revenue equipment, diesel fuel, and equipment maintenance, and future legislation, if enacted, could impose substantial costs on us that may adversely impact our results of operations. Such regulatory actions may require changes in our operating practices, impair equipment productivity, or require additional reporting disclosures. Compliance with laws and regulations related to climate risk may also increase our exposure to litigation or governmental investigations or proceedings. We may also encounter difficulties in collecting and managing data that impact timely compliance or incur significant costs to comply with increased regulation regarding environmental monitoring and financial reporting disclosure requirements, including those signed into law in October 2023 under California Senate Bill 253 Climate Corporate Data Accountability Act and California Senate Bill 261 Climate-Related Financial Risk Act, as described in “Environmental and Other Government Regulations” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. We are subject to increasing investor and customer sensitivity to sustainability issues, and we may be subject to additional requirements related to shareholder proposals, customer-led initiatives, or our customers’ efforts to comply with environmental programs. Until the timing, scope, and extent of any future regulation or customer requirements become known, we cannot predict their effect on our cost structure, business, or results of operations.
Risks Related to Financial Considerations
We are subject to interest rate risk and certain covenants under our financing arrangements. A default under these financing arrangements or changes in regulations could impact the availability of funds or our borrowing costs.
We are affected by the instability in the financial and credit markets, which from time to time has created volatility in various interest rates and returns on invested assets. We are subject to market risk due to variable interest rates on our borrowings on the accounts receivable securitization program (“A/R Securitization”) and the revolving credit facility (“Credit Facility”) under our Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). Although we have an interest rate swap agreement to mitigate a portion of our interest rate risk by effectively converting $50.0 million of borrowings under our Credit Facility, of which $50.0 million remains outstanding at the end of February 2024, from variable-rate interest to fixed-rate interest, changes in interest rates may increase our financing costs related to our Credit Facility, future borrowings against our A/R Securitization, new notes payable or finance lease arrangements, or additional sources of financing. Interest rates are highly sensitive to many factors, including inflation, governmental monetary
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policies, domestic and international economic and political conditions and other factors beyond our control. Furthermore, future financial market disruptions may adversely affect our ability to refinance, maintain our letter of credit arrangements or, if needed, secure alternative sources of financing. If any of the financial institutions that have extended credit commitments to us are adversely affected by economic conditions, disruption to the capital and credit markets, or increased regulation, they may become unable to fund borrowings under their credit commitments or otherwise fulfill their obligations to us, which could have an adverse impact on our ability to borrow additional funds, and thus have an adverse effect on our operations and financial condition. See Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of our financing arrangements.
Our Credit Agreement and A/R Securitization contain customary financial covenants and other customary restrictive covenants that may limit our future operations. Failing to achieve certain required financial ratios could adversely affect our ability to finance our operations, make strategic acquisitions or investments, or plan for or react to market conditions or otherwise execute our business strategies.
If we default under the terms of the Credit Agreement or our A/R Securitization and fail to obtain appropriate amendments to or waivers under the applicable financing arrangement, our borrowings under such facilities could be immediately declared due and payable. An event of default under either of these facilities could constitute automatic default on the other facility and could trigger cross-default provisions in our outstanding notes payable and other financing agreements unless the lenders to these facilities choose not to exercise remedies or to otherwise allow us to cure the default. If we fail to pay the amount due under our Credit Facility or A/R Securitization, the lender of the A/R Securitization could proceed against the collateral by which that facility is secured, our borrowing capacity may be limited, or one or both of the facilities could be terminated. If acceleration of outstanding borrowings occurs or if one or both of the facilities is terminated, we may have difficulty borrowing additional funds sufficient to refinance the accelerated debt or entering into new credit or debt arrangements, and, if available, the terms of the financing may not be favorable or acceptable. A default under the Credit Agreement or A/R Securitization, changes in regulations that impact the availability of funds or our borrowing costs, or our inability to renew our financing arrangements with terms that are acceptable to us, could have a material adverse effect on our liquidity and financial condition.
Our business is capital intensive. If we are unable to generate sufficient cash from operations, our growth and profitability could be limited due to significant ongoing capital expenditure requirements.
Our business requires significant capital expenditures, which we finance through various sources, including cash flows from operations, borrowings under our revolving credit facility or our accounts receivable securitization program, and notes payable. We continue to invest significantly in our revenue equipment fleet. If we are unable to generate sufficient cash over an extended period of time from operations to fund our capital requirements, we may have to limit our growth, including our ability to invest in technological initiatives that drive business efficiencies; utilize our existing liquidity or enter into additional financing arrangements, including leasing arrangements; or operate our revenue equipment for longer periods resulting in increased maintenance costs, any of which could negatively impact our financial condition and results of operations.
Claims expenses, the cost of maintaining our insurance, or the loss of our ability to self-insure could have a material adverse effect on our results of operations and financial condition.
Claims may be asserted against us for cargo loss or damage, property damage, personal injury, and workers’ compensation related to accidents or events occurring in our operations. Claims may also be asserted against us for accidents involving the operations of third-party service providers that we utilize, for our actions in retaining their services, for loss or damage to our customers’ goods or other damages for which we are alleged or may be determined to be responsible. Such claims against us and associated costs and legal expenses may not be covered by insurance policies or may exceed the amount of insurance coverage or our established reserves, which could adversely impact our results of operations and financial condition. If the frequency and/or severity of claims increase, our operating results could be adversely affected. The timing of the incurrence of these costs could significantly and adversely impact our operating results.
We are primarily self-insured for workers’ compensation, third-party casualty loss, and cargo loss and damage claims for the operations of our Asset-Based segment and certain of our other subsidiaries. We also self-insure for medical benefits for our eligible nonunion personnel. Because we self-insure for a significant portion of our claims exposure and related expenses, our insurance and claims expense may be volatile. If we lose our ability to self-insure for any significant period of time, insurance costs could materially increase, and we could experience difficulty in obtaining adequate levels of
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insurance coverage. Our self-insurance program for third-party automobile casualty claims is conducted under a federal program administered by a government agency. If the government were to terminate the program or if we were to be excluded from the program, our insurance costs could increase. Additionally, if our third-party insurance carriers or underwriters leave the trucking/logistics sector, our insurance costs or collateral requirements could materially increase, or we could experience difficulties in finding insurance in excess of our self-insured retention limits. In recent years, many insurance companies have completely stopped offering coverage to trucking and logistics companies or have significantly reduced the amount of coverage they offer or have significantly raised premiums or retention levels as a result of increases in the severity of automobile liability claims and sharply higher costs of settlements and verdicts. Our insurance premiums, deductibles, and self-insurance retention levels, which are discussed in “Insurance” within Part I, Item 1 (Business) of this Annual Report on Form 10-K, have increased and could further increase in the future due to market conditions or if our claims experience worsens. The impact of climate change, including its effect on weather-related events which may disrupt our operations or damage our property and equipment, may increase our claims liabilities and the cost to obtain adequate insurance coverage for our business. If our insurance or claims expense increases, or if we decide to increase our insurance coverage in the future, and we are unable to offset any increase in expense with higher revenues, our earnings could be adversely affected. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our results of operations and financial condition.
We have programs in place with multiple surety companies for the issuance of unsecured surety bonds in support of our self-insurance program for workers’ compensation and third-party casualty liability. Estimates made by the states and the surety companies of our future exposure for our self-insurance liabilities could influence the amount and cost of additional letters of credit and surety bonds required to support our self-insurance program, and we may be required to maintain secured surety bonds in the future, which could increase the amount of our cash equivalents and short-term investments restricted for use and unavailable for operational or capital requirements.
Future impairment, if any, of our long-lived assets and our goodwill and intangible assets could adversely affect our earnings.
Long-lived assets, including operating right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Determination that certain long-lived assets are no longer needed for the strategic growth of our business may result in significant impairment charges, such as those incurred during the third quarter of 2023 as certain long-lived operating right-of-use assets were made available for sublease. See Note C and Note H to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of our lease-related impairment charges.
Our goodwill and intangible assets are primarily associated with acquisitions in the Asset-Light segment. Our annual impairment evaluations for goodwill and indefinite-lived intangible assets in 2023, 2022, and 2021 produced no indication of impairment of the recorded balances; however, there can be no assurance that an impairment will not occur in the future.
Given the uncertainties regarding the economic environment, there can be no assurance that our estimates and assumptions made for purposes of impairment evaluations and accounting estimates will prove to be accurate. 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 noncash write-off of a significant portion of our long-lived assets, goodwill, and intangible assets, which would have an adverse effect on our financial condition and results of operations.
Risks Related to Other External Conditions
We are subject to general economic factors and instability in financial and credit markets that are largely beyond our control.
Our business is cyclical in nature and tends to reflect general economic conditions, which can be impacted by government actions, including changes in tax laws, suspension of government operations and imposition of trade tariffs. Our performance is affected by recessionary economic cycles, inflation, labor and supply shortages, downturns in customers’ business cycles, and changes in their business practices, which may be impacted by factors such as higher inflation and interest rates. Our tonnage and shipment levels are directly affected by industrial production and manufacturing, distribution, residential and commercial construction, and consumer spending, in each case primarily in the North
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American economy, and capacity in the trucking industry as well as our customers’ inventory levels and freight profile characteristics. We are also subject to risks related to disruption of world markets that could affect shipments between countries and could adversely affect the volume of freight and related pricing in the markets we serve. Further changes to U.S. or international trade policy or other global trade impacts could result in increased cost for goods transported globally, which may lead to reduced consumer demand, or trading partners could limit trades with countries that impose anti-trade measures, which may lead to a lower volume of global economic trading activity. International security concerns, including the Russia-Ukraine and Israel-Hamas wars, Red Sea crisis, and other geopolitical tensions, and potential actions or retaliatory measures taken in respect thereof, could continue to have a material adverse effect on global trade and economic activity.
Recessionary economic conditions may result in a general decline in demand for freight transportation and logistics services. The pricing environment generally becomes more competitive during periods of slow economic growth and economic recessions, which may adversely affect the profit margin for our services. If we are unable to respond timely and effectively to changes in the pricing environment or if our strategies for customer retention and margin optimization are unsuccessful, our business, financial condition, and results of operations could be adversely impacted. Our operations and the rates we obtain for our services may also be negatively impacted when economic conditions lead to a decrease in shipping demand, which in turn results in excess equipment capacity in the industry. In certain market conditions, we may have to accept more freight from freight brokers, where freight rates are typically lower, or we may be forced to incur more non-revenue miles to obtain loads. Conversely, during times of higher shipping demand, tight market capacity may negatively impact the service levels we are able to provide to our customers.
Economic conditions could adversely affect our customers’ business levels, the amount of transportation services they require, and their ability to pay for our services, which could negatively impact our working capital and our ability to satisfy our financial obligations and covenants of our financing arrangements. Customers encountering adverse economic conditions or facing credit issues could experience cash flow difficulties and, thus, represent a greater potential for payment delays or uncollectible accounts receivable, and, as a result, we may be required to increase our allowances for uncollectible accounts receivable. Our obligation to pay third-party service providers is not contingent upon payment from our customers, and we extend unsecured credit to these customers, which increases our exposure to uncollectible receivables.
Inflation and high interest rates may adversely affect us by increasing costs beyond what we can recover through price increases.
Inflation in the United States was at its highest level in 40 years by the end of June 2022 and has remained above normal and historical levels throughout 2023 and into 2024. Significant inflation can adversely impact our financial condition by increasing interest rates and the cost of equipment. Most of our operating expenses are sensitive to increases in inflation, including fuel, insurance, employee wages and benefits, purchased transportation, and depreciation due to higher equipment prices. Further, inflation may generally increase costs for materials, supplies, services, and capital. In a highly inflationary environment, we may be unable to secure adequate price increases for our services to offset the increases in our operating costs, which could reduce our operating margins. Additionally higher inflation and interest rates could impact consumer demand, which could adversely affect our financial condition and operating results as tonnage and shipment levels decrease.
Our business and results of operations could be impacted by seasonal fluctuations, adverse weather conditions, natural disasters, and climate change.
Our operations are, and may in the future be, impacted by seasonal fluctuations and, at times, inclement weather conditions that affect employee working conditions, tonnage and shipment levels, demand for our services, and operating costs, which in turn may impact our revenues and operating results, as further described in “Seasonality” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. Climate change may have an influence on the severity of weather conditions. Severe weather events and natural disasters could disrupt our operations or the operations of our customers or third-party service providers, damage existing infrastructure, destroy our assets, affect regional economies, or disrupt fuel supplies or increase fuel costs, any of which could adversely affect our business levels and operating results.
34
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.CYBERSECURITY
Risk Management and Strategy
We prioritize the management of cybersecurity risk and the protection of information across the Company by embedding data protection and cybersecurity risk management in our operations. The Company follows the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”) and other industry standards and applicable laws and regulations to assess and manage cybersecurity risks within our services, infrastructure, and corporate resources. Our processes for assessing, identifying, and managing material risks from cybersecurity threats have been integrated into our overall risk management system and processes through a layered governance structure.
The Company maintains an enterprise-wide risk management (“ERM”) process to identify, assess and monitor risks that are or may become material to our business. Our ERM process includes participation by senior management, other leaders, and employees across the business in surveys and discussions about the risk environment with certain members of senior management and management level leaders meeting quarterly to discuss the Company’s top risks as identified through our ERM process.
Our cybersecurity policies and controls encompass incident response procedures, information security, and IT vendor risk management. We monitor the cybersecurity laws, regulations, and guidance applicable to us in the maintenance of these policies and procedures, including, but not limited to, regulations issued by the U.S. Department of Homeland Security, as further described in Item 1 (Business) of this Annual Report on Form 10-K, as well as proposed laws, regulations, guidance, and emerging risks.
We utilize various tools and security technology to help us deter, detect, identify, and respond to potential cybersecurity threats. Annually, we undergo external evaluations by third-party consulting services, including the performance of penetration testing and vulnerability scanning. With respect to third-party service providers, we generally require our vendors to maintain security controls to protect our confidential information and data, and we perform risk assessments of IT vendors, including their ability to protect data from unauthorized access. When the Company learns of a cybersecurity incident at a third-party service provider, the Company’s respective department contacts maintain communication with the third-party service provider and communicate the incident to our Chief Technology Officer (“CTO”).
As described in Part 1, Item 1A (Risk Factors), our operations rely on the secure processing, storage, and transmission of confidential and other information in our IT systems and networks. Computer viruses and other events beyond our control, including cybersecurity attacks and other cyber incidents such as denial of service, system failure, security breach, intentional or inadvertent acts by employees or vendors with access to our systems or data, or disruption by malware, could expose our IT systems and those of our vendors to system interruptions, impacting the availability, reliability, speed, accuracy, and other proper functioning of these systems or result in the release of proprietary information or sensitive or confidential data, any of which could materially and adversely affect our business. Because the sophistication of cybersecurity threats is increasing and new techniques for attack are being developed rapidly, including attacks enabled by AI, we cannot be certain that the controls and preventative actions that we have implemented to reduce the risk of cybersecurity incidents and to protect our systems will be effective in preventing a cybersecurity incident from materializing. While we have experienced minor cybersecurity incidents, we are not aware of any material cybersecurity incidents that occurred during the year ended December 31, 2023.
Governance
Our Audit Committee, with delegated authority from our Board of Directors, has primary oversight of cybersecurity risks.
Our CTO and Director of Information Security are responsible for oversight of the Company’s cybersecurity program, implementation and compliance of our information security standards, and mitigation of information security-related risks. Our CTO, with 37 years of IT experience and an undergraduate degree in Computer and Information Science, has served in his current role for four years and previously served as our Director of Infrastructure Management for 12 years. Our
35
CTO reports to the Company’s Chief Innovation Officer and President of ArcBest Technologies, who directly reports to the Chief Executive Officer. Our Director of Information Security, reports to our CTO, has 32 years of IT experience, including over 20 years in information security; a Master of Business Administration; an undergraduate degree in Computer Information Systems and Quantitative Analysis; and is a Certified Information Systems Security Professional.
We also have management-level committees who support our processes to assess and manage cybersecurity risk and related incidents as follows:
● | The Information Security Executive Sponsors Committee (the “Executive Sponsors Committee”), chaired by our Director of Information Security, includes IT, legal, compliance and other business leads. The Executive Sponsors Committee provides a forum for these cross-functional members of management to consider existing and emerging cybersecurity risks; review cybersecurity regulations; determine cybersecurity project prioritization; approve, review, and update policies and standards, as appropriate; and promote cross-functional collaboration to manage cybersecurity risks across the enterprise to support the Company’s goals and address cybersecurity risks. |
● | The Risk Management Committee, comprised of senior IT, operations, risk, legal, and compliance leaders across business segments, monitors enterprise risk management for the Company, including all subsidiaries. Among other processes, this committee reviews the Company’s programs and processes related to information security, third-party risks, vendor management, business disruption, business continuity, and disaster recovery, identifying gaps in the current risk management processes and considering potential risks due to changes in laws or the regulatory environment. |
● | The Cybersecurity Incident Response Team, which includes representatives from our information security and technical services departments, in addition to company management and executives across the Company, is activated when a suspected incident is reported or discovered and is responsible for dissemination of information and coordination of personnel efforts required to successfully respond to an incident. |
● | The Cybersecurity Incident Reporting Committee was formed to assess the materiality of cybersecurity incidents from a Securities and Exchange Commission reporting standpoint. In the event this committee determines a cybersecurity incident is material, committee members, as delegated, will notify the Audit Committee. |
The CTO provides a quarterly cybersecurity risk update and presents an annual cybersecurity review to our Board of Directors.
We also conduct mandatory company-wide security awareness training and periodic phishing tests and generally seek to promote awareness of cybersecurity risks through regular communication and education of our employees.
36
ITEM 2.PROPERTIES
The Company believes that its facilities, including owned and leased properties, are suitable and adequate and that the facilities have sufficient capacity to meet current business requirements. The Company owns two office facilities in Fort Smith, Arkansas, which provide space for corporate and certain subsidiary functions. The Company also leases an office building and an innovation lab in Fort Smith, Arkansas for certain subsidiary functions.
Asset-Based Segment
The Asset-Based segment operates out of its general office building located in Fort Smith, Arkansas and 240 revenue producing facilities, 10 of which also serve as distribution centers. The Company owns 114 of these Asset-Based segment facilities and leases the remainder from nonaffiliates. Asset-Based distribution centers are as follows:
| No. of Doors |
| |
Owned: | |||
Carlisle, Pennsylvania |
| 333 | |
Dayton, Ohio |
| 330 |
|
South Chicago, Illinois |
| 274 | |
Kansas City, Missouri |
| 252 |
|
Atlanta, Georgia |
| 226 |
|
North Little Rock, Arkansas |
| 196 |
|
Dallas, Texas |
| 196 |
|
Winston-Salem, North Carolina |
| 150 | |
Albuquerque, New Mexico |
| 85 |
|
Leased from nonaffiliate: | |||
Salt Lake City, Utah |
| 89 |
|
Asset-Light Segment
The Asset-Light segment owns a general office building and service bay in Medina, Ohio and leases five additional office and warehouse locations, including an office and warehouse location in Sparks, Nevada and an office location in Chicago, Illinois.
ITEM 3.LEGAL PROCEEDINGS
Various legal actions, the majority of which arise in the normal course of business, are pending. The Company maintains liability insurance against certain risks arising out of the normal course of business, subject to certain self-insured retention limits. The Company has amounts accrued for certain legal, environmental, and self-insurance exposures. These exposures and legal actions which arise in the normal course of business are not expected to have a material adverse effect, individually or in the aggregate, on the Company’s financial condition, results of operations, or cash flows.
In January 2023, ArcBest Corporation and MoLo Solutions, LLC were added as defendants in five separate lawsuits all arising from a single multi-fatality auto accident involving one of MoLo’s contract carriers. The accident occurred in June 2021 in Baxter County, Alabama, and the cases are pending in the state and federal courts therein situated. The accident occurred prior to the Company’s acquisition of MoLo. The lawsuits allege that MoLo was negligent in the selection of the motor carrier involved in the accident. The claimants are seeking compensatory and punitive damages. The Company intends to vigorously defend against these lawsuits. Although a range of reasonably possible losses for this matter cannot be estimated at this time, it is reasonably possible that such amounts could be material to the Company’s financial condition, results of operations, or cash flows. The Company will pursue recovery for its losses, if any, against all available sources, including, but not limited to, insurance and any potentially responsible third parties.
For additional information related to our environmental and legal matters and other events, see Note P to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
37
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information, Dividends and Holders
The common stock of ArcBest Corporation trades on the Nasdaq Global Select Market under the symbol “ARCB.” As of February 19, 2024, there were 23,520,701 shares of the Company’s common stock outstanding, which were held by 177 stockholders of record. A substantially greater number of holders of ArcBest Corporation common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
On February 2, 2024, the board of directors of the Company (the “Board of Directors”) declared a quarterly dividend of $0.12 per share to stockholders of record as of February 16, 2024. The Company expects to continue to pay quarterly dividends in the foreseeable future, although there can be no assurance in this regard since future dividends will be at the discretion of the Board of Directors and will depend upon the Company’s future earnings, capital requirements, and financial condition, contractual restrictions applying to the payment of dividends under the Company’s Fourth Amended and Restated Credit Agreement, and other factors.
Issuer Purchases of Equity Securities
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. In January 2003, the Board of Directors authorized a $25.0 million common stock repurchase program and authorized extensions of the share repurchase program in 2005, 2015, and 2021. In February 2023, the Board of Directors reauthorized the program and increased the total amount available for purchases of the Company’s common stock under the program to $125.0 million.
During 2023, the Company purchased 930,754 shares of its common stock for an aggregate cost of $91.5 million, including 501,146 shares for an aggregate cost of $47.6 million under Rule 10b5-1 plans, which allowed for stock repurchases during closed trading windows. During the three months ended December 31, 2023, the Company purchased 242,252 shares, leaving $33.5 million remaining under the Company’s share repurchase program. In February 2024, the Board of Directors reauthorized the share repurchase program and increased the total amount available for purchases of the Company’s common stock under the share repurchase program to $125.0 million.
Total Number of | Maximum | ||||||||||
Shares Purchased | Approximate Dollar | ||||||||||
Total Number | Average | as Part of Publicly | Value of Shares that | ||||||||
of Shares | Price Paid | Announced | May Yet Be Purchased | ||||||||
Purchased |
| Per Share(1) |
| Program |
| Under the Program | |||||
(in thousands, except share and per share data) | |||||||||||
10/1/2023-10/31/2023 | 128,766 |
| $ | 97.68 |
| 128,766 |
| $ | 46,536 | ||
11/1/2023-11/30/2023 | 55,297 |
| 117.54 |
| 55,297 |
| $ | 40,036 | |||
12/1/2023-12/31/2023 | 58,189 |
| 112.87 |
| 58,189 |
| $ | 33,468 | |||
Total | 242,252 |
| $ | 105.86 |
| 242,252 |
(1) | Represents the weighted average price paid per common share including commission. |
ITEM 6.RESERVED
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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ArcBest Corporation™ (together with its subsidiaries, the “Company,” “ArcBest®,” “we,” “us,” and “our”) is a multibillion-dollar integrated logistics company that leverages our technology and a full suite of solutions to meet our customers’ supply chain needs. Our operations are conducted through two reportable operating segments:
● | Asset-Based, which consists of ABF Freight System, Inc. and certain other subsidiaries (“ABF Freight”); and |
● | Asset-Light, which includes MoLo Solutions, LLC (“MoLo”), Panther Premium Logistics®, and certain other subsidiaries. |
For more information, see additional segment descriptions in Part I, Item 1 (Business) and in Note O to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
On February 28, 2023, the Company sold FleetNet America, Inc. (“FleetNet”), a wholly owned subsidiary of the Company, for an aggregate adjusted cash purchase price of $100.9 million, including post-closing adjustments. Following the sale, FleetNet was reported as discontinued operations. As such, historical results of FleetNet have been excluded from both continuing operations and segment results for all periods presented, and reclassifications have been made to the prior-period financial statements to conform to the current-year presentation. Unless otherwise indicated, all amounts in this Annual Report on Form 10-K refer to continuing operations, including comparisons to the prior year. For more information on our discontinued operations, see Note D to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
ORGANIZATION OF INFORMATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is 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. MD&A includes additional information about significant accounting policies, practices, and the transactions that underlie our financial results. This discussion should be read in conjunction with our consolidated financial statements and the related notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. MD&A includes forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from the statements made in this section due to a number of factors that are discussed in Part I (Forward-Looking Statements) and Part I, Item 1A (Risk Factors) of this Annual Report on Form 10-K. MD&A is comprised of the following:
● | Results of Operations includes: |
● | an overview of consolidated results with 2023 compared to 2022, and a consolidated Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”) reconciliation to net income; |
● | a financial summary and analysis of our Asset-Based segment results of 2023 compared to 2022, including a discussion of key actions and events that impacted the results; |
● | a financial summary and analysis of the results of our Asset-Light segment for 2023 compared to 2022, including a discussion of key actions and events that impacted the results; and |
● | a discussion of other matters impacting operating results, including effects of inflation, current economic conditions, environmental and legal matters, and information technology and cybersecurity. |
● | Liquidity and Capital Resources provides an analysis of key elements of the cash flow statements, borrowing capacity, and contractual cash obligations, including a discussion of financing arrangements and financial commitments. |
● | Income Taxes provides an analysis of the effective tax rates and deferred tax balances, including deferred tax asset valuation allowances. |
● | Critical Accounting Policies and Estimates discusses those accounting policies that are important to understanding certain material judgments and assumptions incorporated in the reported financial results. |
● | Recent Accounting Pronouncements discusses accounting standards that are not yet effective for our financial statements but are expected to have a material effect on our future results of operations or financial condition. |
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RESULTS OF OPERATIONS
This Results of Operations section of MD&A generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in the Results of Operations section of MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Consolidated Results
|
| |||||||||
Year Ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
| (in thousands, except per share data) |
| ||||||||
REVENUES | ||||||||||
Asset-Based | $ | 2,871,004 | $ | 3,010,900 | $ | 2,573,773 | ||||
Asset-Light(1) |
| 1,680,645 |
| 2,139,272 |
| 1,300,626 | ||||
Other and eliminations |
| (124,206) |
| (121,164) |
| (108,214) | ||||
Total consolidated revenues | $ | 4,427,443 | $ | 5,029,008 | $ | 3,766,185 | ||||
OPERATING INCOME (LOSS) | ||||||||||
Asset-Based | $ | 253,152 | $ | 381,133 | $ | 260,707 | ||||
Asset-Light(1) |
| (12,271) |
| 52,725 |
| 46,397 | ||||
Other and eliminations |
| (68,262) |
| (39,332) |
| (30,126) | ||||
Total consolidated operating income | $ | 172,619 | $ | 394,526 | $ | 276,978 | ||||
NET INCOME FROM CONTINUING OPERATIONS | $ | 142,164 | $ | 294,648 | $ | 210,459 | ||||
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX(2) | 53,269 | 3,561 | 3,062 | |||||||
NET INCOME | $ | 195,433 | $ | 298,209 | $ | 213,521 | ||||
DILUTED EARNINGS PER COMMON SHARE | ||||||||||
Continuing operations | $ | 5.77 | $ | 11.55 | $ | 7.86 | ||||
Discontinued operations(2) | 2.16 | 0.14 | 0.11 | |||||||
Total diluted earnings per common share | $ | 7.93 | $ | 11.69 | $ | 7.98 |
(1) | Includes the operations of MoLo® since the November 1, 2021 acquisition. The acquisition of MoLo is more fully described in the Asset-Light Segment Overview section of Asset-Light Operations. |
(2) | Discontinued operations represents the FleetNet segment, which sold on February 28, 2023, as previously discussed. The year ended December 31, 2023 includes the net gain on sale of FleetNet of $52.3 million (after-tax) or $2.12 diluted earnings per share. Discontinued operations are further described within Note D to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. |
Our consolidated revenues, which totaled $4.4 billion for 2023, decreased 12.0% compared to 2022. The revenue decline is primarily attributable to lower market rates for shipping and logistics services in a softer market environment with more available capacity, compared to the prior-year periods, despite an increase in demand for our core, published LTL business during the second half of 2023 following market disruption, as further discussed below. The year-over-year decrease in consolidated revenues for 2023 reflects a 4.6% decrease in our Asset-Based revenues and a 21.4% decrease in our Asset-Light revenues. The increased elimination of revenues reported in the “Other and eliminations” line of consolidated revenues in 2023, compared to 2022, includes the impact of increased intersegment business levels among our operating segments.
Our Asset-Based revenue decline reflects changes in business mix, resulting in a 2.4% decrease in tonnage per day and a 2.2% decrease in billed revenue per hundredweight, including fuel surcharges, in 2023, compared to 2022. The change in total billed revenue per hundredweight also reflects a decrease in fuel surcharge associated with lower fuel prices. During the first half of 2023, the Company increased utilization of dynamically priced, transactional LTL shipments as the volume of LTL-rated published shipments declined due to lower market demand. Following the shutdown of one of our larger LTL competitors in late July 2023 (as further discussed in the Asset-Based Segment Overview within the Asset-Based Operations section) and the resulting decline in LTL industry carrier capacity, our Asset-Based segment experienced an increase in demand for its core, published LTL business and was able to secure these shipments at profitable rates. This
40
increase in the published LTL-rated shipments and resulting decrease in transactional LTL business positively impacted the Asset-Based business mix during the second half of 2023.
The decrease in revenues of our Asset-Light segment for 2023, compared to 2022, was impacted by a 25.3% decline in revenue per shipment associated with softer market conditions and changes in business mix, partially offset by a 5.3% increase in shipments per day. Our Asset-Light segment generated approximately 37% and 42% of total revenues before other revenues and intercompany eliminations for 2023 and 2022, respectively.
Consolidated operating income decreased $221.9 million in 2023, compared to 2022, primarily due to lower revenues. Operating expenses for 2023, compared to 2022, reflect lower purchased transportation costs in both of our operating segments and lower employee costs in the Asset-Light segment due to the alignment of costs to business levels, offset partially by higher employee costs in the Asset-Based segment due to union wage increases and higher headcount. Segment operating expenses are further described in the Asset-Based Segment Results and Asset-Light Segment Results sections of Results of Operations. In addition to the results of our operating segments, the year-over-year comparison of consolidated operating income was also impacted by items described in the following paragraphs.
Innovative technology costs impacted our consolidated and Asset-Based segment results during 2023 and 2022. These costs include our freight handling pilot test program at ABF Freight, as further discussed in the Asset-Based Segment Results section. In March 2023, we launched our customer offering of VauxTM – the innovative suite of hardware and software which modernizes and transforms how freight is loaded, unloaded, and transferred in warehouse and dock operations. Certain costs related to our growing number of Vaux pilot programs in customer test locations and other initiatives to optimize performance through technological innovation are reported in the “Other and eliminations” line of consolidated operating income. These combined costs impacted consolidated results by $52.4 million (pre-tax), or $39.7 million (after-tax) and $1.61 per diluted share, for 2023, compared to $40.8 million (pre-tax), or $30.8 million (after-tax) and $1.21 per diluted share, for 2022.
The liability for contingent earnout consideration recorded for the MoLo acquisition is remeasured at each quarterly reporting date, and any change in fair value as a result of the recurring assessments is recognized in operating income (loss). Consolidated operating results increased $19.1 million (pre-tax), or $14.4 million (after-tax) and $0.58 per diluted share, due to quarterly remeasurements which resulted in a lower liability of the contingent earnout consideration for 2023. For 2022, the quarterly remeasurements resulted in a higher contingent earnout consideration liability, which decreased consolidated operating results by $18.3 million (pre-tax), or $13.6 million (after-tax) and $0.54 per diluted share. Remeasurement of the contingent earnout consideration is further discussed in Note C to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
The Company recognized lease impairment charges during the third quarter of 2023 related to a freight handling pilot facility, an Asset-Based service center, and certain Asset-Light office spaces that were made available for sublease, as further described within Note H to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Lease impairment charges reduced operating results by $30.2 million (pre-tax), or $22.6 million (after-tax) and $0.92 per diluted share. Remeasurement of the operating right-of-use assets and leasehold improvements is further discussed within Note C to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Estimated legal expenses to settle a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act reduced operating results in 2023 by $9.5 million (pre-tax), or $7.1 million (after-tax) and $0.29 per diluted share. Estimated legal settlement expenses are further discussed within Note P to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Consolidated operating results for 2022 were impacted by a one-time, noncash charge of $2.0 million (pre-tax), or $1.5 million (after-tax) and $0.06 per diluted share, for enhancements to our nonunion vacation policy, which were effective in third quarter 2022.
In addition to the above items, the year-over-year changes in consolidated net income and earnings per share were impacted by changes in the cash surrender value of variable life insurance policies, changes in the fair value of our equity investment in Phantom Auto, tax benefits from the vesting of share-based compensation awards, tax credits, and other changes in the effective tax rate as described within the Income Taxes section of MD&A and in Note G to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. A portion of our variable life insurance policies
41
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 consolidated net income by $4.6 million and $0.19 per diluted share in 2023, and reduced consolidated net income by $2.7 million and $0.11 per diluted share in 2022. We recorded an adjustment to the fair value of our equity investment in Phantom Auto, a provider of human-centered remote operation software, based on an observable price change during second quarter 2023, which increased consolidated net income by $2.8 million or $0.11 per diluted share, with no comparable prior-year impact. The vesting of restricted stock units resulted in a tax benefit of $5.3 million and $0.21 per diluted share for 2023, compared to a tax benefit of $8.1 million and $0.32 per diluted share in 2022.
Consolidated Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)
We report our financial results in accordance with U.S. 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 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 segment, changes in the fair value of contingent earnout consideration and equity investment, lease impairment charges, estimated legal settlement expenses of the Asset-Light segment, gain on sale of subsidiary, and transaction costs, which are significant expenses or gains resulting from strategic decisions or other factors rather than core daily operations. Additionally, Adjusted EBITDA is a primary component of the financial covenants contained in our Fourth Amended and Restated Credit Agreement (see Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K). 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. The following table presents a reconciliation of Adjusted EBITDA to our net income, which is the most directly comparable GAAP measure for the periods presented.
Year Ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
| ($ thousands) |
| ||||||||
Net Income from Continuing Operations | $ | 142,164 | $ | 294,648 | $ | 210,459 | ||||
Interest and other related financing costs |
| 9,094 |
| 7,726 |
| 8,914 | ||||
Income tax provision |
| 44,751 |
| 93,655 |
| 62,628 | ||||
Depreciation and amortization(1) |
| 145,349 |
| 138,159 |
| 122,560 | ||||
Amortization of share-based compensation |
| 11,385 |
| 12,470 |
| 11,203 | ||||
Change in fair value of contingent consideration(2) | (19,100) | 18,300 | — | |||||||
Lease impairment charges(3) | 30,162 | — | — | |||||||
Legal settlement(4) |
| 9,500 | — | — | ||||||
Change in fair value of equity investment(5) |
| (3,739) | — | — | ||||||
Gain on sale of subsidiary(6) |
| — | (402) | (6,923) | ||||||
Transaction costs(7) | — | — | 5,969 | |||||||
Consolidated Adjusted EBITDA from Continuing Operations | $ | 369,566 | $ | 564,556 | $ | 414,810 |
(1) | Includes amortization of intangibles associated with acquired businesses. |
(2) | Represents change in fair value of the contingent earnout consideration recorded for the MoLo acquisition, as previously discussed. |
(3) | Represents noncash lease-related impairment charges for a freight handling pilot facility, an Asset-Based service center, and Asset-Light office spaces that were made available for sublease. |
(4) | Represents estimated expenses to settle a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act. |
(5) | Represents increase in fair value of our investment in Phantom Auto, as previously discussed. |
(6) | Gain relates to the sale of the labor services portion of the Asset-Light segment’s moving business in second quarter 2021, including the contingent amount recognized in second quarter 2022 when the funds were released from escrow. |
(7) | Represents costs associated with the acquisition of MoLo. |
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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. Our Asset-Based segment provides freight transportation services through one of North America’s largest less-than-truckload (“LTL”) carriers. Our customers trust the LTL solutions ABF Freight has provided for over a century and rely on our unwavering commitment to quality, safety, and customer service to solve their transportation challenges through market disruptions and rapidly changing economic conditions. We are strategically investing in our Asset-Based operations to utilize technology to drive efficiency and productivity and to enrich our deep customer relationships to navigate challenges now and in the future.
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 this Annual Report on Form 10-K. See Note O to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of the Asset-Based segment and additional segment information, including revenues, operating expenses, and operating income for the years ended December 31, 2023, 2022, and 2021.
The key indicators necessary to understand the operating results of our Asset-Based segment 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.
Tonnage per day (average daily shipment weight) – 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 between origin and destination service centers for all shipments (including shipments moved with purchased transportation) during the period.
● | Prices obtained for services, including fuel surcharges, primarily measured by: |
Billed revenue per hundredweight, including fuel surcharges (yield) – revenue per 100 pounds of shipment weight, including fuel surcharges, 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 our 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
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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”) hours. This metric is used to measure labor efficiency in the segment’s local operations. The shipments per DSY hour metric will generally increase when more purchased transportation is used; however, the labor efficiency may be offset by increased purchased transportation expense. |
● | 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 it is influenced by other factors including freight density, loading efficiency, average length of haul, and the degree to which purchased transportation (including rail service) is used. |
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 December 2023, approximately 82% of our Asset-Based segment’s employees were covered under the ABF National Master Freight Agreement (the “2023 ABF NMFA”), the collective bargaining agreement with the International Brotherhood of Teamsters (the “IBT”), which was ratified on June 30, 2023 by a majority of ABF Freight’s IBT member employees, replacing the prior collective bargaining agreement ratified in 2018 (the “2018 ABF NMFA”). A majority of the supplements to the 2023 ABF NMFA also passed on June 30, 2023 and, following ratification of the remaining supplements on July 7, 2023, the 2023 ABF NMFA was implemented on July 16, 2023, effective retroactive to July 1, 2023. The 2023 ABF NMFA will remain in effect through June 30, 2028.
The terms of the 2023 ABF NMFA continue to provide some of the best wages and benefits in the industry to our contractual employees. The combined contractual wage and benefits top hourly rate is estimated to increase approximately 4.2% on a compounded annual basis through the end of the agreement, with potential profit-sharing bonuses representing additional costs under the 2023 ABF NMFA. The 2023 ABF NMFA provides for:
● | wage rate or per mile increases in each year of the contract, with the initial increase effective retroactive to July 1, 2023; |
● | continued annual contribution rate increases to multiemployer health and welfare and pension plans to which ABF Freight contributed under the 2018 ABF NMFA; |
● | an additional paid holiday; |
● | two additional paid sick days; |
● | a new non-CDL employee classification; and |
● | profit-sharing bonuses for qualifying contractual employees based upon the Asset-Based segment’s achievement of certain annual operating ratios for any full calendar year during the contract period. |
Tonnage
The level of freight tonnage managed by the Asset-Based segment is directly affected by industrial production and manufacturing; distribution; residential and commercial construction; consumer spending, primarily in the North American economy; and capacity in the trucking industry. Operating results are affected by economic cycles and conditions, customers’ business cycles, and changes in customers’ business practices. The Asset-Based segment actively competes for freight business based primarily on price, service, and capacity availability.
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Pricing
The industry pricing environment, another key factor impacting our Asset-Based results, influences the ability to obtain appropriate margins and price increases on customer accounts. Generally, LTL freight is rated by a class system, which is established by the National Motor Freight Traffic Association, Inc. Light, bulky freight typically has a higher class and is priced at a higher revenue per hundredweight than dense, heavy freight. Changes in the rated class and packaging of the freight, along with changes in other freight profile factors, such as average shipment size; average length of haul; freight density; and customer and geographic mix, can affect the average billed revenue per hundredweight measure.
Approximately 20% of our Asset-Based business is subject to base LTL tariffs, which are affected by general rate increases, subject to individually-negotiated discounts. Rates on the remaining Asset-Based business, including business priced in the spot market, are subject to individual pricing arrangements negotiated at various times throughout the year. The majority of the business that is subject to negotiated pricing arrangements is associated with larger customer accounts with annually-negotiated pricing arrangements. The remaining business is priced on an individual shipment basis considering each shipment’s unique profile, value provided to the customer, network capacity, and current market conditions. Since pricing is established individually by account, the Asset-Based segment focuses on individual account profitability rather than a single measure of billed revenue per hundredweight when considering customer account or market evaluations.
We allow shippers with established accounts and without negotiated published rates, instant access to competitive LTL rates through an online portal and API connectivity, matching their shipping needs with capacity available in the ABF Freight network at the time of the quote. The market has been receptive to this dynamic pricing option for transactional LTL shipments, and this program has been beneficial in optimizing our business levels by improving capacity utilization in the Asset-Based network. In a softer market environment, such as the conditions we experienced in the first half of 2023, our dynamic pricing option allowed us to strategically fill empty capacity, enabling us to reduce the need for employee furloughs or layoffs and be better positioned for a market rebound of higher freight demand, as well as provide a more sustainable service offering by reducing “empty miles” (or the number of miles we move empty or near-empty equipment for repositioning purposes).
Utilization of our dynamic pricing option to maintain capacity in the ABF Freight network positioned us well for the increase in freight demand following the market disruption caused by one of our larger LTL competitors ceasing operations on July 30, 2023. During the second half of 2023, we experienced an increase in demand for core, published LTL-rated business, which was secured at profitable rates. As we shifted more capacity to serve this core business, pricing also improved on the dynamic-priced transactional LTL shipments in the tighter capacity market during the second half of 2023. Although we continually evaluate our business mix to ensure revenue optimization, the resulting increase in revenues could be offset partially or entirely by the related increase in expenses needed to service higher shipment volumes. There can be no assurance that the higher published LTL-rated shipment volumes and prices experienced during the second half of 2023 resulting from the reduction in LTL industry carrier capacity will be maintained as customer re-pricing occurs. By late December, as the market disruption stabilized, pressure from shippers has increased to reduce shipping rates. As we begin 2024, pricing remains rational within the industry.
We also utilize a space-based pricing approach for shipments subject to LTL tariffs to align our pricing with freight shipping trends in the industry, including the overall growth and ongoing profile shift to bulkier, yet often lighter, shipments across the supply chain, the acceleration in e-commerce, and the unique requirements of many shipping and logistics solutions. Space-based pricing involves the use of freight dimensions (length, width, and height) to determine applicable cubic minimum charges (“CMC”) that supplement weight-based metrics when appropriate. Traditional LTL pricing is generally weight-based, while our linehaul costs are generally space-based (i.e., costs are impacted by the volume of space required for each shipment). We believe space-based pricing better aligns our pricing mechanisms with the metrics which affect our resources and, therefore, our costs to provide logistics services. We seek to provide logistics solutions to our customers’ businesses and the unique shipment characteristics of their various products and commodities, and we believe that we are particularly experienced in handling freight that is generally considered difficult to handle. CMC is an additional pricing mechanism to better capture the value we provide in transporting these shipments.
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Fuel
The transportation industry is dependent upon the availability of adequate fuel supplies. The Asset-Based segment assesses a fuel surcharge based on the index of national on-highway average diesel fuel prices published weekly by the U.S. Department of Energy. To better align fuel surcharges to fuel- and energy-related expenses and provide more stability to account profitability as fuel prices change, we may, from time to time, revise our standard fuel surcharge program, which impacts approximately one-third of Asset-Based shipments and primarily affects noncontractual customers. While fuel surcharge revenue generally more than offsets the increase in direct diesel fuel costs when applied, the total impact of energy prices on other nonfuel-related expenses is difficult to ascertain. Management cannot predict, with reasonable certainty, future fuel price fluctuations, the impact of energy prices on other cost elements, recoverability of fuel costs through fuel surcharges, and the effect of fuel surcharges on the overall rate structure or the total price that the segment will receive from its customers. While the fuel surcharge is one of several components in the overall rate structure, the actual rate paid by customers is governed by market forces and the overall value of services provided to the customer.
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. Fuel prices have fluctuated significantly in recent years. Whether fuel prices fluctuate or remain constant, operating results may be adversely affected if competitive pressures limit our ability to recover fuel surcharges. Throughout 2023, the fuel surcharge mechanism generally continued to have market acceptance among customers; however, certain nonstandard pricing arrangements have limited the amount of fuel surcharge recovered. The negative impact on operating margins of capped fuel surcharge revenue during periods of increasing fuel costs is more evident when fuel prices remain above the maximum levels recovered through the fuel surcharge mechanism on certain accounts. 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 our fuel costs. Asset-Based revenues for 2023, compared to 2022, were negatively impacted by lower fuel surcharge revenue due to a decrease in the nominal fuel surcharge rate, while total fuel costs also decreased. The segment’s operating results will continue to be impacted by further changes in fuel prices and the related fuel surcharges.
Labor Costs
Our Asset-Based labor costs, including retirement and healthcare benefits for contractual employees that are provided by a number of multiemployer plans (see Note K to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K), are impacted by contractual obligations under the 2023 ABF NMFA and other related supplemental agreements. Total salaries, wages, and benefits, amounted to 48.1% and 43.0% of revenues for 2023 and 2022, respectively. Changes in salaries, wages, and benefits expense and shared services expenses, which include labor costs related to ABF Freight’s portion of company-wide functions, as a percentage of revenues are discussed in the following Asset-Based Segment Results section.
ABF Freight operates in a highly competitive industry comprised primarily of nonunion motor carriers. Nonunion competitors have a lower fringe benefit cost structure and less stringent labor work rules, and certain carriers also have lower wage rates for their freight-handling and driving personnel. ABF Freight has continued to address with the IBT the effect of the segment’s wage and benefit cost structure on its operating results. Under the 2023 ABF NMFA, ABF Freight continues to pay some of the highest benefit contribution rates in the industry, and through this contract, ABF Freight may implement location-specific wage increases in areas where hiring has been challenging.
ABF Freight’s benefit contributions for its contractual employees include contributions to multiemployer plans. These contributions to multiemployer pension plans and health and welfare plans totaled $162.5 million and $215.6 million, respectively, in 2023, and $154.6 million and $194.4 million, respectively, in 2022. As previously outlined, the 2023 ABF NMFA provided for ABF Freight’s contributions to multiemployer pension plans to remain at the rates that were paid under the prior labor agreement with the IBT, while wage rates and health and welfare contribution rates for most plans increased annually in accordance with the terms of the 2023 ABF NMFA. Union wages increased 13.0% effective July 1, 2023 related to contractual wage and mileage rate increases under the 2023 ABF NMFA, and the contractual wage rate increased 1.9% effective July 1, 2022 under the 2018 ABF NMFA. The average health, welfare, and pension benefit contribution rate increased approximately 3.6% and 2.5% effective primarily on August 1, 2023 and 2022, respectively.
Through the term of the 2023 ABF NMFA, which extends through June 30, 2028, 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 we cannot determine with any certainty the contributions that will be required under future
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collective bargaining agreements for ABF Freight’s contractual employees, our future contribution rates to multiemployer pension plans may be less likely to increase as a result of legislation in recent years that has provided funding relief to many underfunded plans (see Note K to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K). If ABF Freight were 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. Further, ABF Freight could also trigger complete or partial withdrawal liability from certain multiemployer pension plans through, among other things, mergers and other fundamental corporate transactions and as a result of operational changes, site closures and job losses, which could result in material liabilities.
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:
| |||||||
Year Ended December 31 | |||||||
2023 |
| 2022 |
| 2021 | |||
Asset-Based Operating Expenses (Operating Ratio) | |||||||
Salaries, wages, and benefits | 48.1 | % | 43.0 | % | 46.6 | % | |
Fuel, supplies, and expenses | 12.6 | 12.6 | 10.3 | ||||
Operating taxes and licenses | 1.9 | 1.7 | 1.9 | ||||
Insurance | 1.8 | 1.6 | 1.5 | ||||
Communications and utilities | 0.7 | 0.6 | 0.7 | ||||
Depreciation and amortization | 3.6 | 3.2 | 3.6 | ||||
Rents and purchased transportation | 11.8 | 14.6 | 14.2 | ||||
Shared services | 9.7 | 9.4 | 10.2 | ||||
(Gain) loss on sale of property and equipment and lease impairment charges | — | (0.4) | (0.3) | ||||
Innovative technology costs(1) | 0.8 | 0.9 | 1.1 | ||||
Other | 0.2 | 0.1 | 0.1 | ||||
91.2 | % | 87.3 | % | 89.9 | % | ||
Asset-Based Operating Income | 8.8 | % | 12.7 | % | 10.1 | % |
(1) | Represents costs associated with the freight handling pilot test program at ABF Freight, as further discussed in the Asset-Based Operating Income section. |
The following table provides a comparison of key operating statistics for the Asset-Based segment, as previously defined in the Asset-Based Segment Overview:
| |||||||||
Year Ended December 31 | |||||||||
2023 |
| 2022 |
| % Change |
| ||||
Workdays(1) | 251.5 |
| 252.0 | ||||||
Billed revenue per hundredweight, including fuel surcharges | $ | 44.46 | $ | 45.45 |
| (2.2) | % | ||
Tonnage (tons) |
| 3,220,013 |
| 3,304,352 |
| (2.6) | % | ||
Tonnage per day |
| 12,803 |
| 13,113 |
| (2.4) | % | ||
Shipments per day |
| 20,529 |
| 19,895 |
| 3.2 | % | ||
Shipments per DSY hour |
| 0.425 |
| 0.428 |
| (0.7) | % | ||
Pounds per shipment |
| 1,247 |
| 1,318 |
| (5.4) | % | ||
Pounds per mile |
| 18.87 |
| 18.71 |
| 0.9 | % | ||
Average length of haul (miles) | 1,092 | 1,090 | 0.2 | % |
(1) | Workdays represent the number of operating days during the period after adjusting for holidays and weekends. |
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Asset-Based Revenues
Asset-Based segment revenues totaled $2.9 billion and $3.0 billion for the year ended December 31, 2023 and 2022, respectively. The decrease in revenue compared to the prior year primarily reflects a softer market environment and our response to market conditions, which included changes to the Asset-Based business mix. Billed revenue (as described in the Asset-Based Segment Overview) decreased 4.5% on a per-day basis in 2023 compared to 2022, primarily reflecting a 2.4% decrease in tonnage per day, and a 2.2% decrease in total billed revenue per hundredweight, including fuel surcharges.
The 2.4% decrease in tonnage per day for 2023, compared to 2022, despite higher daily shipment levels, reflects lower average weight per shipment on both LTL-rated and truckload-rated shipments, primarily related to changes in the Asset-Based business mix and smaller shipment sizes for our core customers. We began to experience a deceleration in demand trends during third quarter 2022. In this softer market environment, our dynamic pricing option for LTL-rated shipments allowed us to strategically fill empty network capacity during the first half of 2023 when there was lower demand for our core published LTL-rated shipments. The market disruption related to the shutdown of a larger LTL competitor at the end of July 2023 resulted in an increase in available published LTL-rated shipments in the market. Total shipments increased 3.2% on a per-day basis for 2023, compared to 2022, reflecting increases in LTL- and truckload-rated shipments.
The 2.2% decrease in total billed revenue per hundredweight for 2023, including fuel surcharges, compared to 2022, was primarily impacted by the softened pricing environment and the effect of changes in business mix. During the first half of 2023, lower-priced dynamic LTL-rated shipments increased as a proportion of total business as we worked to strategically fill capacity to avoid employee furloughs and layoffs in the recessionary freight environment. During the second half of 2023, we experienced an increase in demand and improved pricing on both dynamic and published LTL shipments following tightening in market capacity resulting from the exit of a larger LTL competitor, which drove core, published LTL tonnage to be a higher proportion of total business mix in the Asset-Based network. Lower fuel surcharge revenues associated with decreased fuel prices also negatively impacted the total billed revenue per hundredweight measure in 2023, compared to 2022. The Asset-Based segment’s average nominal fuel surcharge rate for 2023 decreased approximately 7 percentage points from 2022 levels. Excluding the impact of fuel surcharges, the percentage increase in billed revenue per hundredweight on our traditional published LTL-rated freight was in the low-single digits for 2023, compared to 2022. Prices on accounts subject to deferred pricing agreements and annually negotiated contracts that were renewed during 2023 increased an average of 4.2%, compared to the prior year which reflected the second highest average increase we have secured in company history, primarily due to tight market capacity which continued through the first half of 2022. The Asset-Based segment implemented nominal general rate increases on its LTL base rate tariffs of 5.9%, 5.9% and 6.9% effective on October 2, 2023, November 7, 2022, and November 15, 2021, respectively, although the rate changes vary by lane and shipment characteristics.
Current economic conditions and the Asset-Based segment’s pricing approach, as previously discussed in the Pricing section of the Asset-Based Segment Overview within Results of Operations, will continue to impact the 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. The marketplace pricing environment has remained rational which has benefited our efforts to secure needed price increases, and pricing was strong during the market disruption of 2023; 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-Based Operating Income
The Asset-Based segment generated operating income of $253.2 million in 2023, compared to $381.1 million in 2022, with an operating ratio of 91.2% and 87.3%, respectively. The 3.9 percentage point increase in the Asset-Based segment’s operating ratio for 2023, compared to 2022, primarily reflects the decreased revenues, partially offset by lower operating expenses, reflecting cost control efforts to reduce utilization of outside resources.
Innovative technology costs related to the freight handling pilot test program (the “pilot”) at ABF Freight impacted operating results of the Asset-Based segment by $21.7 million and $27.2 million for 2023 and 2022, respectively. The freight handling pilot at ABF Freight included both hardware and software elements. During the third quarter of 2023, the Company paused the hardware portion of the pilot at ABF Freight distribution centers in Kansas City, Missouri and Salt Lake City, Utah, as the implementation team’s efforts were refocused toward training managers and employees on operational best practices. The software portion of the pilot program, which provides greater visibility into Asset-Based operations, continues to be utilized in the Asset-Based operations network to drive efficiency, productivity, and service
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improvements. As a result of pausing the hardware portion of the pilot, the Asset-Based segment did not incur innovative technology costs in fourth quarter 2023, while these costs totaled $6.2 million in fourth quarter 2022.
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 48.1% and 43.0% of Asset-Based segment revenues for 2023 and 2022, respectively. The increase in salaries, wages, and benefits as a percentage of revenue was partially offset by lower utilization of purchased transportation as discussed later in this section. Salaries, wages, and benefits increased $86.3 million for 2023, compared to 2022, primarily due to a 13% increase in union wages related to the wage and mileage rate increases effective July 1, 2023 under the 2023 ABF NMFA, as previously discussed in the Labor Costs section of the Asset-Based Segment overview; higher headcount as additional drivers and service center personnel have been hired over the past year to support shipment levels; and higher workers’ compensation expense reflecting an increase in the severity of claims experience and increased retention levels. The union profit-sharing bonus for 2022, paid to qualifying union-represented employees in February 2023, represents the maximum amount provided under the 2018 ABF NMFA and payment of the bonus in all four eligible years under the prior labor contract. As profit sharing bonuses are based on the Asset-Based segment’s achievement of certain annual operating ratios for any full calendar year under the 2023 ABF NMFA, which went into effect mid-year 2023, a union profit-sharing bonus was not accrued for 2023, partially offsetting the increase in salaries, wages, and benefits during 2023, compared to the prior year.
The Asset-Based segment manages costs with shipment levels; however, a number of factors impact DSY productivity, including the effect of freight profile and mix changes, utilization of local delivery agents, and personnel efficiency. Shipments per DSY hour declined 0.7% for 2023, compared to 2022, primarily due to changes in freight and profile mix driven by dynamic LTL-price-quoted shipments, which typically require a higher number of stops, accounting for more of the total Asset-Based network shipments during the first half of 2023.
Fuel, supplies, and expenses as a percentage of revenue in 2023 remained consistent with 2022 despite a $17.2 million decrease, primarily due to lower fuel costs, offset by higher repairs and maintenance costs. The Asset-Based segment’s average fuel price per gallon (excluding taxes) decreased approximately 20% during 2023, compared to 2022, partially offsetting the impact of the low-single digit increase in miles driven. Lower fuel costs were partially offset by increased repairs and maintenance costs, reflecting the impact of delays in receiving new revenue equipment, combined with higher market-driven costs to repair and maintain revenue equipment units.
Rents and purchased transportation as a percentage of revenue decreased 2.8 percentage points in 2023, compared to 2022, primarily due to focused reduction in the utilization of local delivery agents and linehaul purchased transportation. Rail miles also decreased approximately 11% in 2023, compared to 2022. The year-over-year decrease in purchased transportation costs also benefited from lower fuel surcharges related to these services due to lower fuel costs.
In 2023, a $0.7 million noncash lease-related impairment charge was recognized on a service center made available for sublease as reflected in gain (loss) on sale of property and equipment and lease impairment charges. Gain (loss) on sale of property and equipment and lease impairment charges for 2022 reflects the $12.5 million gain on sales of replaced equipment and a like-kind exchange of a service center property in the prior year.
Asset-Light Operations
Asset-Light Segment Overview
Our Asset-Light segment is a key component of our strategy to offer a single source of integrated logistics solutions, designed to satisfy customers’ complex supply chain needs and unique shipping requirements. We are focused on growing and making strategic investments in our Asset-Light segment that enhance our service offerings and strengthen our customer relationships. Throughout our operations, we are seeking opportunities to expand our revenues by deepening existing customer relationships, securing new customers, and adding capacity options for our customers. We continue to develop our managed transportation solutions as part of our strategic efforts to cross-sell our service offerings and meet the demand for these services that increase operational efficiencies, reduce costs, and give better insights into their supply
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chain. We expect to benefit from these and other strategic initiatives as we continue to deliver innovative solutions to customers.
Our acquisition of MoLo, which was completed on November 1, 2021, accelerated the growth of our company by increasing the scale of truckload brokerage services offered within our Asset-Light segment and expanding our access to truckload capacity partners. Our acquisition of MoLo, including detail regarding the initial consideration payment and provision for certain additional cash consideration based on the achievement of certain targets, is discussed further in Note E to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Our Asset-Light operations are affected by general economic conditions, as well as several other competitive factors that are more fully described in Part I, Item 1 (Business) and in Part I, Item 1A (Risk Factors) of this Annual Report on Form 10-K. See Note O to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for descriptions of the Asset-Light segment and additional segment information, including revenues, operating expenses, and operating income for the years ended December 31, 2023, 2022, and 2021.
The key indicators necessary to understand our Asset-Light segment 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 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-Light segment:
● | Customer demand for logistics and premium transportation services, primarily measured by: |
Shipments per day – total shipments divided by the number of working days during the period, compared to the same prior-year period.
● | Prices obtained for services, primarily measured by: |
Revenue per shipment – total segment revenue divided by total segment shipments during the period, compared to the same prior-year period.
● | Availability of market capacity and cost of purchased transportation to fulfill customer shipments, 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 Asset-Light segment previously excluded statistical data of our managed transportation solutions transactions, as inclusion of the data resulted in key operating statistics which were not representative of the operating results of the segment as a whole 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. However, initiatives have been successful in expanding our managed transportation solution to be a larger proportion of the total segment. As such, the key operating statistics management uses to evaluate performance of the Asset-Light segment now include managed transportation services transactions for all periods presented and discussed below.
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 Segment Results
The following table sets forth a summary of operating expenses and operating income (loss) as a percentage of revenue for the Asset-Light segment:
Year Ended December 31 | |||||||
2023 |
| 2022 |
| 2021 | |||
Asset-Light Segment Operating Expenses (Operating Ratio) | |||||||
Purchased transportation | 85.4 | % | 83.4 | % | 84.4 | % | |
Supplies and expenses(1) | 0.7 | 0.6 | 0.7 | ||||
Depreciation and amortization(2) | 1.2 | 1.0 | 0.9 | ||||
Shared services | 11.6 | 10.2 | 10.1 | ||||
Contingent consideration(3) | (1.1) | 0.9 | — | ||||
Lease impairment charges(4) | 0.9 | — | — | ||||
Legal settlement(5) | 0.6 | — | — | ||||
Gain on sale of subsidiary(6) | — | — | (0.5) | ||||
Other(1) | 1.4 | 1.4 | 0.8 | ||||
100.7 | % | 97.5 | % | 96.4 | % | ||
Asset-Light Segment Operating Income (Loss) | (0.7) | % | 2.5 | % | 3.6 | % |
(1) | For 2022 and 2021, amounts have been adjusted from those previously reported to reclassify certain facility rent expense between line items within the Asset-Light segment. Adjustments made are not material. |
(2) | Includes amortization of intangibles associated with acquired businesses. |
(3) | Represents the change in fair value of the contingent earnout consideration recorded for the MoLo acquisition, as further discussed in the Asset-Light Operating Expenses section below. |
(4) | Represents noncash lease-related impairment charges for certain office spaces that were made available for sublease, as further discussed in the Asset-Light Operating Expenses section below. |
(5) | Represents estimated expenses to settle a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act, as further discussed in the Asset-Light Operating Expenses section below. |
(6) | The year ended December 31, 2021, represents a gain of $6.9 million related to the sale of the labor services portion of the Asset-Light segment’s moving business in second quarter 2021. The year ended December 31, 2022 includes a gain of $0.4 million recognized when funds were released from escrow in second quarter 2022, relating to the May 2021 sale of the labor services portion of the Asset-Light moving business. |
A comparison of key operating statistics for the Asset-Light segment, as previously defined in the Asset-Light Segment Overview section, is presented in the following table:
Year Over Year % Change | |||||||
Year Ended December 31 | |||||||
| 2023 | 2022 | |||||
Revenue per shipment | (25.3%) | 18.1% | |||||
Shipments per day | 5.3% | 39.3% |
Asset-Light Revenues
Asset-Light segment revenues totaled $1.7 billion and $2.1 billion in 2023 and 2022, respectively. The 21.4% decrease in 2023 revenues, compared to 2022, primarily reflects the impact of changes in business mix and lower average revenue per shipment associated with a softer market environment. Although average daily shipment levels increased due to growth in both the truckload and managed transportation service offerings despite weak market demand, lower revenue per shipment drove the reduction in revenue compared to 2022.
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Asset-Light Operating Income (Loss)
The Asset-Light segment generated an operating loss of $12.3 million in 2023 and operating income of $52.7 million in 2022. The year-over-year decline in operating results reflects the lower revenues along with changes in operating expenses discussed in the following paragraphs, primarily purchased transportation costs, which did not decline in proportion to the decrease in revenues.
Asset-Light Operating Expenses
Operating expenses decreased $393.6 million, or 18.9%, in 2023, compared to 2022, as purchased transportation buy rates steadily declined in the soft market environment. Employee-related and outside service cost reductions were implemented in second quarter 2023 and continued through year-end to better align resources with business levels. Operating expenses as a percentage of revenue increased for 2023, compared to 2022, due to lower revenue, partially offset by lower operating expenses, including purchased transportation costs.
Purchased transportation costs as a percentage of revenue increased by 2.0 percentage points for 2023, compared to 2022, reflecting lower revenue outpacing the reduction of purchased transportation costs in 2023. Changes in market capacity impact the cost of purchased transportation and may not correspond to the timing of revisions to customer pricing and changes in revenue per shipment. There can be no assurance that we will be able to secure prices from our customers that will allow us to maintain or improve our margins on the cost of sourcing carrier equipment capacity.
Shared service costs as a percentage of revenue increased 1.4 percentage points for 2023, compared to 2022, due to the effect of lower revenue despite the $23.8 million decrease in shared service costs for 2023, as employee costs were aligned with business levels; however, portions of operating expenses are fixed in nature and cost reductions can be limited as the segment strives to maintain customer service.
Contingent earnout consideration decreased as a percentage of revenue by 2.0 percentage points for 2023, compared to 2022, as the fair value of the contingent earnout consideration related to the MoLo acquisition decreased $19.1 million in 2023, compared to the $18.3 million increase in fair value recognized in 2022. The fair value remeasurements in 2023 considered the impact of the continued soft market environment on the achievement of earnout targets through 2025. The contingent earnout consideration is discussed further in Note C to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Lease-related impairment charges of $14.4 million recorded in the third quarter for certain office spaces made available for sublease were 0.9 percentage point of revenue for 2023. The lease-related impairment charges are discussed further in Note C and Note H to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
The segment recorded estimated legal settlement expenses of $9.5 million, or 0.6 percentage point of revenue, in the fourth quarter of 2023 related to estimated expenses to settle a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act. These settlement expenses are discussed further in Note P to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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Asset-Light Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Asset-Light Adjusted EBITDA”)
We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP performance measures and ratios, such as Asset-Light Adjusted EBITDA, which is 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 Asset-Light Adjusted EBITDA as a key measure of performance and for business planning. This measure is particularly meaningful for analysis of our Asset-Light segment, because it excludes amortization of acquired intangibles and software, changes in the fair value of contingent earnout consideration, lease impairment charges, and estimated legal settlement expenses, which are significant expenses or gains resulting from strategic decisions or other factors rather than core daily operations. Management also believes Asset-Light 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 Asset-Light 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. Asset-Light Adjusted EBITDA should not be construed as a better measurement than operating income (loss), operating cash flow, net income, or earnings per share, as determined under GAAP.
Asset-Light Adjusted EBITDA
Year Ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 | |||||
($ thousands) | ||||||||||
Operating Income (Loss)(1) | $ | (12,271) | $ | 52,725 | $ | 46,397 | ||||
Depreciation and amortization(2) | 20,370 | 20,730 | 11,387 | |||||||
Change in fair value of contingent consideration(3) | (19,100) | 18,300 | — | |||||||
Lease impairment charges(4) | 14,407 | — | — | |||||||
Legal settlement(5) | 9,500 | — | — | |||||||
Gain on sale of subsidiary(6) | — | (402) | (6,923) | |||||||
Asset-Light Adjusted EBITDA | $ | 12,906 | $ | 91,353 | $ | 50,861 |
(1) | The calculation of Asset-Light Adjusted EBITDA as presented in this table begins with operating income as the most directly comparable GAAP measure. 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) | Includes amortization of intangibles associated with acquired businesses. Amortization of acquired intangibles totaled $12.8 million, $12.9 million, and $5.3 million for 2023, 2022, and 2021, respectively, and is expected to total approximately $13.0 million for 2024. |
(3) | Represents the change in fair value of the contingent earnout consideration recorded for the MoLo acquisition. The liability for contingent consideration is remeasured at each quarterly reporting date, and any change in fair value as a result of the recurring assessments is recognized in operating income. See Note C to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. |
(4) | Represents noncash lease-related impairment charges for certain office spaces that were made available for sublease. See Note C and Note H to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. |
(5) | Represents estimated expenses to settle a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act, as previously described. See Note P to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. |
(6) | Gain relates to the sale of the labor services portion of the Asset-Light segment's moving business in second quarter 2021, including the contingent amount recognized in second quarter 2022 when the funds were released from escrow. |
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Current Economic Conditions
Economic conditions continue to be challenged by higher inflation levels and interest rates; supply chain volatility, including the impact of geopolitical conflicts; and a tight labor market. Recession risk remains elevated as manufacturing and home sales continued to contract in 2023 following the U.S. Federal Reserve’s implementation of a tighter monetary policy in March 2022 in an effort to curb inflation, which included rapidly increasing its targeted federal funds rate and reducing its security holdings. Economic growth is expected to slowly decelerate without causing a recessionary downturn as measured by U.S. real gross domestic product (“real GDP”), primarily driven by a declining growth rate of consumer spending.
Recent economic measures continue to indicate slowing economic activity despite economic growth exceeding expectations in the second half of 2023, which, combined with rising consumer prices, has created additional uncertainties in the global and U.S. economies and supply chains. According to the advance estimate released by the Bureau of Economic Analysis on January 25, 2024, real GDP increased at an annual rate of 3.3% for fourth quarter 2023. The Purchasing Managers’ Index (“PMI”), which is a leading indicator for demand in the freight transportation and logistics industry, was 49.1% in January 2024, compared to 47.4% in January 2023. The January 2024 PMI marks the fifteenth consecutive month of economic contraction in the manufacturing sector following the 29-month period of growth in factory activity since the COVID-19 pandemic-related contractions in April and May 2020. The Industrial Production Index issued by the Federal Reserve decreased at an annual rate of 3.1% for fourth quarter 2023. Our business has been impacted by the economic conditions indicated by these statistics related to the softened economic environment, which resulted in decelerating customer demand trends for transportation and logistics services. Market disruption caused by the shutdown of a large LTL competitor at the end of July 2023 resulted in an influx of demand for core, published LTL business during the second half of 2023. There can be no assurance that the economic environment, including the impact of interest rates on consumer demand, will be favorable for our freight services in future periods and that the impact of recent market disruptions will continue to positively impact demand for our Asset-Based and Asset-Light services.
Geopolitical conflicts, including the Israel-Hamas war and related Red Sea crisis, have and could in future periods result in a shift in trade routes, including requiring a reduction in the use of the Suez Canal to ship goods to the U.S. East Coast. Additionally, a lack of rainfall in Panama has forced a reduction in the number of vessels traveling through the Panama Canal. As freight flow is reshaped by these disruptions, supply of goods, including those of our customers, may be delayed and could result in an increase in shipping costs.
Given the uncertainties of current economic conditions, 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. The softer economic environment, which we experienced during 2023, resulted in a year-over-year decline in market pricing for many of our services, as compared to 2022. Following the previously mentioned market disruption in late July 2023 which resulted in a decline in LTL industry carrier capacity, our Asset-Based segment was able to secure additional core, published LTL-rated shipments at profitable rates. There can be no assurance that we will be able to secure adequate prices from this new business or from our existing customers to maintain or improve our operating results. Significant declines in our 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 noncash write-off of a significant portion of the goodwill and intangible assets of our Asset-Light segment, which would have an adverse effect on our financial condition and operating results.
Effects of Inflation
Inflation remains above normal levels. Global supply chain volatility and labor and energy shortages, in addition to the impact of federal programs and monetary policy, have elevated costs higher across a broad array of consumer goods. The consumer price index (CPI) increased 3.1%, before seasonal adjustment, year-over-year in January 2024 and 0.3% from December 2023. While CPI has declined year-over-year since June 2022 as a direct market response to the Federal Reserve’s tighter monetary policy implemented in March 2022, the latest increase in CPI indicates an ongoing challenge in achieving the Federal Reserve’s target inflation of 2%. Inflation is impacted by energy prices, including petroleum products; shelter prices; and food prices, which have moderated in recent months while remaining elevated. Most of our
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expenses are affected by inflation, which generally results in increased operating costs. As such, there can be no assurances of the potential impact of inflationary conditions on our business, including demand for our transportation services.
Generally, inflationary increases in labor and fuel costs 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. Our Asset-Based segment’s ability to fully offset inflationary and contractual cost increases can be challenging during periods of recessionary and uncertain economic conditions.
Generally, inflationary increases in labor and operating costs related to our Asset-Light operations have historically been offset through price increases. The pricing environment, however, generally becomes more competitive during economic downturns, which may, as it has in the past, affect the ability to obtain price increases from customers both during and following such periods. While the pricing environment continues to be rational, we believe that Asset-Light pricing has stabilized at the bottom of the truckload market cycle and is expected to improve in 2024.
The impact of supply chain disruptions and component shortages has limited the availability and production of certain revenue equipment and certain other equipment used in our business operations. Consequently, the prices for these items have also increased. Partly as a result of inflationary pressures, our revenue equipment (tractors and trailers) has 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. In addition to general effects of inflation, the motor carrier freight transportation industry faces rising costs related to 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. In March 2023, ABF Freight entered into a Consent Decree with the Environmental Protection Agency (the “EPA”) to resolve alleged compliance issues under the federal Clean Water Act. As a result of the Consent Decree, ABF Freight paid a civil penalty of $0.5 million during the third quarter of 2023 and has agreed to certain compliance tasks. See Note P to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the environmental matters to which we are subject, including additional detail on ABF Freight’s Consent Decree with the EPA.
Concern over climate change has led to legislative and regulatory efforts to limit carbon and other greenhouse gas (“GHG”) emissions, and we may incur significant costs to comply with increased regulation related to climate change in the future. Customers are increasingly focused on concerns related to climate change and demand for our services may be adversely impacted if we are less effective than our competitors in reducing or offsetting our GHG emissions. In consideration of the environmental impact of emissions from our operations, we are seeking more sustainable options for our equipment. We are piloting a small number of electric forklifts, electric yard tractors, and electric straight trucks at several ABF Freight service centers across our network. Electric tractors are significantly more expensive than new diesel tractors. To comply with more stringent sustainability standards for tractors, we expect the cost of our equipment, as well as our fuel and maintenance costs, will continue to increase in future periods. We are also investing in upgrades to our facilities, including energy efficient lighting, plumbing updates that lower our water usage, and other sustainability remodels and updates. To address our environmental impact in our city pickup and delivery operations, during 2021 and 2022, we built, tested and, with the help of a third-party leading provider of data analytics solutions using artificial intelligence (“AI”), implemented City Route Optimization technology during 2023 at our service centers that identifies opportunities to optimize routes and reduce emissions.
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Physical effects from climate change, including more severe weather events, have the potential to adversely impact our business levels and employee working conditions, cause shipping delays or disrupt our operations, increase our operating costs, and cause damage to our property and equipment. Due to the uncertainty of these matters, we cannot estimate the impact of climate-related developments on our operations or financial condition at this time. These and other matters related to climate change and the related risks to our business are further discussed in Part I, Item 1 (Business) and Part I, Item 1A (Risk Factors) of this Annual Report on Form 10-K. In addition to our focus on sustainability of our equipment and facilities, we continue our commitment to advance environmental and social issues that are critical to our business and our customers’ businesses by investing in innovative technologies, developing our employees, and enhancing our capabilities and services for customers.
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.
In January 2023, we and MoLo were named as defendants in lawsuits related to an auto accident involving one of MoLo’s contract carriers, which occurred prior to our acquisition of MoLo. Although we cannot estimate a range of reasonably possible losses for this matter at this time, it is reasonably possible that such amounts could be material to our financial condition, results of operations, or cash flows. See Note P to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the legal matters in which we are currently involved.
As disclosed in Note P to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Company tentatively settled a claim relating to the classification of certain Asset-Light employees under the Fair Labor Standards Act. The estimated settlement expense of $9.5 million is reserved within accrued expenses in the consolidated balance sheet at December 31, 2023.
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. Any significant failure or other disruption in our critical information systems, including denial of service, ransomware, and other cybersecurity attacks and 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. Generative AI has the ability to create higher-quality misinformation and phishing attacks increasing the likelihood of a successful attack. Any new or enhanced technology that we 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 (“IT”) systems, any of which may increase the risk of a data privacy breach or other 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 cybersecurity 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.
Our IT systems are protected through physical and software safeguards as well as backup systems considered appropriate by management. However, these systems are vulnerable to interruption by adverse weather conditions or natural disasters; power loss; telecommunications failures; terrorist attacks; internet failures and other disruptions to technology, including computer viruses; and other events beyond our control. It is not practicable to fully protect against the possibility of 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; fire suppression systems to protect our on-site data centers; 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.
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A portion of our office personnel work remotely through hybrid and remote work arrangements, which may increase the demand for IT resources and our exposure to cybersecurity risks, including increased risks of phishing, an increased risk of unauthorized access to proprietary information or sensitive or confidential data, and increased risks of other cybersecurity incidents. As AI capabilities improve and are increasingly adopted, we may see cybersecurity attacks perpetrated through AI. As a component of our cyber risk management program, we periodically engage a third-party provider to assess our cyber posture and assist us in improving our security profile. During 2023, we reviewed our processes around cybersecurity risk management and related governance framework and began performing materiality assessments in order to comply with the new cybersecurity disclosure requirements. Although we have implemented measures to mitigate our exposure to the heightened risks of cybersecurity incidents, we cannot be certain that such measures will be effective to prevent a cybersecurity incident from materializing.
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 may 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 or geopolitical conflict. A significant disruption in our IT 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, result in violation of privacy laws, 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 IT 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 cybersecurity attacks. Management is not aware of any current 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.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash, cash equivalents, and short-term investments; cash generated by continuing operations; and borrowing capacity under our revolving credit facility or our accounts receivable securitization program.
This Liquidity and Capital Resources section of MD&A generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in the Liquidity and Capital Resources section of MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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Cash Flow and Short-Term Investments
Components of cash and cash equivalents and short-term investments, which are further described in Note C to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, were as follows:
| Year Ended December 31 |
| ||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
| (in thousands) |
| ||||||||
Cash and cash equivalents(1) | $ | 262,226 | $ | 158,264 | $ | 76,568 | ||||
Short-term investments |
| 67,842 |
| 167,662 |
| 48,339 | ||||
Total | $ | 330,068 | $ | 325,926 | $ | 124,907 |
(1) | Represents amounts from continuing operations. Balances reflect the reclassification of FleetNet amounts to discontinued operations. |
Cash, cash equivalents, and short-term investments increased $4.1 million from December 31, 2022 to December 31, 2023 reflecting cashflow generated from operations, primarily offset by financing activities. Cash provided by operating activities decreased $148.7 million during 2023 to $322.2 million, compared to $470.8 million during 2022. Net income, which decreased by $102.8 million in 2023, compared to 2022, includes $142.2 million of net income from continuing operations and $53.3 million of net income from discontinued operations, including $52.3 million after-tax gain on sale of FleetNet, net of transaction costs. Net income from continuing operations decreased $152.5 million during 2023, compared to 2022, primarily due to the decline in operating income, as previously discussed in the Results of Operations section.
Our consolidated statements of cash flows presented for the years ended December 31, 2023 and 2022, include cash flows from continuing operations and the discontinued operations of FleetNet. Our discussions below segregate cash flows from continuing operations from those of discontinued operations for 2023 and 2022.
Cash Flows from Continuing Operations
Changes in operating assets and liabilities, excluding income taxes, increased cash provided by operating activities $40.7 million and $20.6 million during 2023 and 2022, respectively. Excluding amounts recorded for insured settlement of third-party casualty claims as of December 31, 2023, for which the liability is fully offset by the receivable, these changes were primarily due to a larger decrease in accounts receivable, partially offset by a larger decrease in accounts payable and a smaller increase in accrued expenses at December 31, 2023 versus December 31, 2022, compared to the same prior-year periods.
The larger year-over-year decrease in accounts receivable, compared to the prior-year period, was primarily due to lower business levels and improved collections for the 2023 period, primarily in our Asset-Light segment, versus lower business levels partially offset by slower collections for the 2022 period, primarily in our Asset-Light segment. The larger year-over-year decrease in accounts payable, compared to the prior-year period, was also primarily due to a larger decrease in business levels. The smaller increase in accrued expenses, compared to the prior-year period, is primarily due to lower liabilities for certain union and nonunion performance-based incentive plans, partially offset by increases in reserves for workers’ compensation and third-party casualty claims. Liabilities for incentives earned for 2023 decreased, compared to 2022, due to lower operating results and no union profit sharing bonus provided for in the 2023 ABF NMFA, as 2023 was not a full year under the collective bargaining agreement. Liabilities for incentives earned for 2022 increased, compared to 2021, due to higher operating income in 2022.
Our capital expenditures increased significantly in 2023, compared to the prior year, due, in part, to 2022 orders that were delayed due to supply-chain manufacturing delays and cancellations but were completed in 2023. We funded capital expenditures, net of proceeds from asset sales and equipment financings, of $211.2 million in 2023, including property purchases and the renovation of properties for our Asset-Based network; financed an additional $33.5 million of revenue equipment for our Asset-Based operations; and invested $12.7 million in internally developed software. See Capital Expenditures section below for annual expenditure amounts and estimates for 2024. Cash used in investing activities was also impacted by $100.9 million of proceeds from the sale of FleetNet.
We have financed the purchase of certain revenue equipment and other equipment through promissory note arrangements. Cash used to fund these promissory note payments for 2023 was $69.2 million. The obligation for notes payable recognized in our consolidated balance sheet totaled $178.9 million as of December 31, 2023, and we anticipate $72.8 million of payments related to these notes in 2024. During 2023, we repurchased 930,754 shares of our common stock under our
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share repurchase plan for an aggregate cost of $91.5 million. We also continued to return capital to our shareholders with our quarterly dividend payments, which totaled $11.5 million during 2023. Our dividends and share repurchase programs are further discussed in the Other Liquidity section below.
Cash Flows from Discontinued Operations
Net cash provided by operating activities of discontinued operations was $0.8 million and $2.8 million during the year ended December 31, 2023 and 2022, respectively, reflecting the routine operations of FleetNet. Net cash used in investing activities of discontinued operations was $0.4 million and $3.3 million for the year ended December 31, 2023 and 2022, respectively. Net cash used in financing activities of discontinued operations was $0.5 million for the year ended December 31, 2023, compared to net cash provided by financing activities of $0.6 million for the same prior-year period. Net cash of discontinued operations for both investing and financing activities did not have a material effect on operations as disclosed in Note D to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Net cash activity for FleetNet has not materially impacted our operations in recent years, nor is the absence of cash flows from the discontinued operations of FleetNet expected to affect future liquidity or capital resources.
Financing Arrangements
We have a revolving credit facility (the “Credit Facility”) under our Fourth Amended and Restated Credit Agreement, which matures on October 7, 2027. As of December 31, 2023, we have $50.0 million of borrowings outstanding under the Credit Facility and have available borrowing capacity of $200.0 million under the initial maximum credit amount. We may request additional revolving commitments or incremental term loans under the Credit Facility up to an aggregate amount of up to $125.0 million, subject to the satisfaction of certain additional conditions.
We have an accounts receivable securitization program, which matures on July 1, 2024, that provides available cash proceeds of $50.0 million and has an accordion feature allowing us to request additional borrowings up to $100.0 million, subject to certain conditions. As of December 31, 2023, standby letters of credit of $16.8 million have been issued under the program which reduced our available borrowing capacity to $33.2 million.
We financed the purchase of $33.5 million of revenue equipment through notes payable during the year ended December 31, 2023. Future payments due under notes payable totaled $191.9 million, including interest, as of December 31, 2023, for a decrease of $37.3 million from December 31, 2022.
See Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of our financing arrangements and presentation of the scheduled maturities of our long-term debt obligations.
Contractual Obligations
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. In addition to the obligations discussed within the preceding Financing Arrangements section, we have contractual obligations as described in the following paragraphs. Certain contractual obligations are also further disclosed in the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
While we own the majority of our larger service centers, distribution centers, and administrative offices, we lease certain facilities and equipment. As of December 31, 2023, contractual obligations for operating lease liabilities, primarily related to our Asset-Based service centers, totaled $275.8 million, including imputed interest, for an increase of $43.0 million from December 31, 2022. Operating lease payments due within one year total $40.2 million. The scheduled maturities of our operating lease liabilities as of December 31, 2023 are disclosed in Note H to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We sponsor an insured postretirement health benefit plan that provides supplemental medical benefits and dental and vision care to certain executive officers. As of December 31, 2023, estimated projected payments, net of retiree premiums, related to postretirement health benefits total $0.7 million for the next year and $7.5 million for the next 10 years. These projected amounts are subject to change based upon increases and other changes in premiums and medical costs and continuation of the plan for current participants. The accumulated benefit obligation of the postretirement health benefit plan accrued in the consolidated balance sheet totaled $13.7 million as of December 31, 2023.
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We have purchase obligations, consisting of authorizations to purchase and binding agreements with vendors, relating to revenue equipment used in our Asset-Based and Asset-Light operations, other equipment, facility improvements, software, service contracts, and other items for which amounts were not accrued in the consolidated balance sheet as of December 31, 2023. These purchase obligations totaled $181.3 million as of December 31, 2023, with $172.1 million expected to be paid within the next year, provided that vendors complete their commitments to us. As of December 31, 2023, the amount of our purchase obligations has decreased $23.0 million from December 31, 2022, primarily related to commitment timing. 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 our executive officers or directors.
ABF Freight has a withdrawal liability that was triggered when its multiemployer pension plan obligation with the New England Teamsters Trucking Industry Pension Fund was restructured under a transition agreement in 2018. As of December 31, 2023, payments due within one year under the withdrawal liability settlement total $1.6 million and total payments, which are due over the next 18 years, total $28.2 million. As of December 31, 2023, the outstanding withdrawal liability recognized in the consolidated balance sheet for this obligation totaled $19.4 million. ABF Freight contributes to other 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 Multiemployer Plans within Note K to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K).
Capital Expenditures
The following table sets forth our capital expenditures for the periods indicated below:
Year Ended December 31 |
| |||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) |
| |||||||||
Capital expenditures, gross including notes payable(1) | $ | 252,516 | $ | 230,648 | $ | 118,112 | ||||
Less financing from notes payable |
| 33,495 |
| 82,425 |
| 59,700 | ||||
Capital expenditures, net of notes payable |
| 219,021 |
| 148,223 |
| 58,412 | ||||
Less proceeds from asset sales |
| 7,763 |
| 19,691 |
| 13,815 | ||||
Total capital expenditures, net | $ | 211,258 | $ | 128,532 | $ | 44,597 |
(2) | Actual capital expenditures in 2023 and 2022 fell below our estimates due to delays in the original build schedules of our Asset-Based and Asset-Light revenue equipment caused by parts shortages and manufacturing disruptions and, for 2023, delays in some real estate facility projects. |
For 2024, our total capital expenditures, including amounts financed, are estimated to range from $325.0 million to $375.0 million, net of asset sales. These 2024 estimated net capital expenditures include revenue equipment purchases of $155.0 million, primarily for our Asset-Based operations, including approximately $10.2 million of previously planned 2023 equipment purchases which were delayed due to supply chain-related manufacturing delays and cancellations and carried over to our 2024 planned expenditures. The remainder of our 2024 expected capital expenditures includes $130.0 million of investments in real estate and facility upgrades to support our growth plans, including $46.4 million of previously planned 2023 investments which were delayed and carried over to our 2024 planned expenditures, as well as other investments across the enterprise, such as technology-related items and miscellaneous dock equipment upgrades and enhancements. We have the flexibility to adjust certain planned 2024 capital expenditures as business levels dictate. In January 2024, we purchased three service center locations for an all-cash purchase price of $30.2 million and executed a lease buyout for $7.8 million, as a result of the properties becoming available due to the previously mentioned LTL competitor bankruptcy. Depreciation and amortization expense, excluding amortization of intangibles, is estimated to be approximately $142.0 million in 2024. The amortization of intangible assets is estimated to be approximately $13.0 million in 2024, primarily related to purchase accounting amortization associated with the MoLo acquisition.
Other Liquidity Information
General economic conditions are currently being impacted by geopolitical conflicts, competitive market factors, high interest rates as a result of monetary policy, and volatile energy prices, among other factors. These conditions 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 operating activities and maintain cash, cash equivalents, and
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short-term investments on hand. Cash, cash equivalents, and short-term investments totaled $330.1 million at December 31, 2023. Our Credit Facility and our accounts receivable securitization program provide available sources of liquidity with flexible borrowing and payment options. We believe these agreements provide borrowing capacity necessary for growth of our business. During the next 12 months and for the foreseeable future, we believe existing cash, cash equivalents, short-term investments, cash generated by operating activities, and amounts available under our revolving credit facility will be sufficient to finance our operating expenses; fund our ongoing initiatives to grow our business, including investments in technology; repay amounts due under our financing arrangements; and pay contingent earnout consideration related to the MoLo acquisition as it is earned. We also have borrowing capacity available under our accounts receivable securitization program until maturity on July 1, 2024. 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.
The Agreement and Plan of Merger (the “Merger Agreement”) for our acquisition of MoLo provides for additional cash consideration ranging from 44% to 212% of the target payment relative to the achievement of incremental adjusted EBITDA targets of 80% to 300% for years 2023 through 2025. The adjusted EBITDA metric was below target for 2023, resulting in no earnout payment for 2023. The cumulative additional consideration through 2025 would be $215.0 million at 100% of the target, consisting of target earnout payments of $70.0 million, and $145.0 million, including catch-up provisions, for the years ended December 31, 2024, and 2025, respectively. As of December 31, 2023, the fair value of the contingent consideration liability for the earnout recognized in the consolidated balance sheet totaled $92.9 million (see Assets and Liabilities Measured at Fair Value on a Recurring Basis within Note C to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K).
We continue to take actions to enhance shareholder value with our quarterly dividend payments and treasury stock purchases. On February 2, 2024, our Board of Directors declared a dividend of $0.12 per share payable to stockholders of record as of February 16, 2024. We expect to continue to pay quarterly dividends on our common stock in the foreseeable future, although there can be no assurance 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 revolving credit facility; and other factors.
In February 2023, our Board of Directors increased the total amount available for purchases of our common stock under our share repurchase program to $125.0 million. We purchased 930,754 shares of our common stock during 2023 for an aggregate cost of $91.5 million, including shares purchased under Rule 10b5-1 plans. As of December 31, 2023, $33.5 million remained available for repurchase under the share repurchase program. In February 2024, our Board of Directors reauthorized our share repurchase program and increased the amount available for purchases of our common stock under the program to $125.0 million (see Note L to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K).
Financial Instruments
We have an interest rate swap agreement, which is further discussed in Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. As of December 31, 2023, we have no other derivative or hedging arrangements outstanding.
Balance Sheet Changes
Accounts Receivable
Accounts receivable decreased $87.4 million from December 31, 2022 to December 31, 2023, reflecting improved collections and lower revenue levels in late 2023 compared to late 2022.
Other Accounts Receivable
Other accounts receivable increased $41.1 million from December 31, 2022 to December 31, 2023, reflecting the receivable for insured liability settlement for third-party casualty claims during 2023, with the related liability in accrued expenses.
Operating Right of Use Assets and Operating Lease Liabilities
The increase in operating lease liabilities, including current portion, of $34.7 million from December 31, 2022 to December 31, 2023, was primarily due to new leases and lease renewals during 2023. Lease impairment charges
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recognized during the third quarter of 2023, as previously discussed, reduced the carrying value of the related right-of-use assets and leasehold improvements to the estimated fair value, partially offset the impact of new leases and lease renewals resulting in an increase in operating right-of-use assets of $3.5 million.
Accounts Payable
Accounts payable decreased $55.9 million from December 31, 2022 to December 31, 2023, primarily due to the decrease in business levels, primarily in the Asset-Light segment, lower utilization of local delivery agents and linehaul purchased transportation in the Asset-Based segment, and timing of payables.
Accrued Expenses
Accrued expenses increased $39.6 million from December 31, 2022 to December 31, 2023, primarily due to insured liability settlement for third-party casualty claims during 2023; higher workers’ compensation and third-party casualty insurance reserves, primarily due to higher average claim costs and increased retention levels; estimated legal expenses to settle a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act; and an increase in accrued wages due to timing. These amounts were partially offset by decreases in accruals for certain performance-based incentive plans, due to lower operating results in 2023, compared to 2022, and no union profit sharing bonus, as 2023 was not considered a full calendar year under the 2023 ABF NMFA for payment of the bonus.
Long-term Debt
The $35.7 million decrease in long-term debt, including current portion, from December 31, 2022 to December 31, 2023, is primarily due to payments on notes payable of $69.2 million, net of equipment financed of $33.5 million.
Contingent Consideration
The contingent earnout consideration related to the MoLo acquisition, as previously described within the Other Liquidity section above, is remeasured at each quarterly reporting date, and any change in fair value as a result of the recurring assessments is recognized in operating income (loss). The liability for contingent earnout consideration decreased $19.1 million from December 31, 2022 to December 31, 2023, due to the net decrease in fair value following quarterly remeasurements during 2023.
INCOME TAXES
This Income Taxes section of MD&A generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in the Income Taxes section of MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Our effective tax rate on continuing operations was 23.9% and 24.1% of pre-tax income for 2023 and 2022, respectively. The rates for 2023 and 2022 were primarily impacted by state income taxes, the effect of changes in the cash surrender value of life insurance, non-deductible expenses, the alternative fuel credit, and the settlement of share-based payment awards. The 2023 rate was also impacted by life insurance proceeds. The settlement of share-based awards resulted in tax benefits of $4.3 million and $6.9 million in 2023 and 2022, respectively. We recognized alternative fuel tax credits of $1.3 million in 2023 and $2.4 million in 2022.
For 2023, our U.S. statutory tax rate was 21.0%. Our average state tax rate, net of the associated federal deduction, was approximately 5%. However, various factors, including the amount of pre-tax income as well as benefits recognized in the income statement upon settlement of share-based payment awards, caused our full year 2023 effective tax rate to vary significantly from the statutory rate. Due to the impact of non-deductible expenses, lower levels of pre-tax income result in a higher tax rate on income and a lower benefit rate on losses. As pre-tax income or pre-tax losses increase, the impact of non-deductible expenses on the overall rate declines.
We had net deferred tax liabilities after valuation allowances from continuing operations of $47.6 million and $54.2 million at December 31, 2023 and 2022, respectively. We evaluated the need for a valuation allowance for deferred tax assets at December 31, 2023 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 $1.8 million and $1.7 million at December 31, 2023 and 2022, respectively. As the Canadian tax rate is now higher than the U.S. tax rate, it is unlikely that foreign tax credit carryforwards will be useable, as U.S. taxes paid will be at a lower rate than the tax rates in Canada.
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Thus, the foreign tax credit carryforwards were fully reserved, resulting in valuation allowances of $1.0 million at December 31, 2023 and 2022. At December 31, 2023, we had gross state net operating loss carryforwards of $26.4 million. These state net operating loss carryforwards were reserved by valuation allowances of $0.5 million, and there were additional valuation allowances of $0.2 million related to state research and development tax credits and less than $0.1 million related to state interest expense carryforwards at December 31, 2023. Due to taxable income, there is no need for a valuation allowance on federal net operating loss carryforwards at December 31, 2023. The need for additional valuation allowances is continually monitored by management.
At December 31, 2023 and 2022, there was a reserve for uncertain tax positions of $0.9 million related to credits taken on federal returns, of which $0.5 million will reverse in the second quarter of 2024 upon the expiration of the statute of limitations.
Financial reporting income differs significantly from taxable income because of items such as bonus or accelerated depreciation for tax purposes, and a significant number of liabilities such as vacation pay, workers’ compensation reserves, and other liabilities, which, for tax purposes, are generally deductible only when paid. For the years ended December 31, 2023 and 2022 financial reporting income exceeded taxable income.
We made $115.7 million of federal, state, and foreign tax payments during the year ended December 31, 2023, and received refunds of $36.4 million of federal, state, and foreign taxes that were paid in prior years.
Management expects the cash outlays for income taxes will be less than reported income tax expense in 2024 due primarily to the effect of 60% bonus depreciation on qualified depreciable assets in 2024 as allowed under the Tax Reform Act of 1986 (the “Tax Reform Act”), as amended. However, in the event we were to become unprofitable, net operating loss carrybacks allowed under the provisions of the Tax Reform Act could be limited in certain circumstances.
The Company's total effective tax rate was 24.4% and 24.1% for 2023 and 2022, respectively, including discontinued operations, which are further discussed in Note D to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Income tax expense reflected in discontinued operations was $18.3 million, or an effective tax rate of 25.5% for 2023, which primarily consisted of federal and state income taxes on the gain on the sale of FleetNet. For 2022, income tax expense reflected in discontinued operations was $1.3 million, or an effective tax rate of 26.6%.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are based on prior experience and other assumptions that management considers reasonable in our circumstances. Actual results could differ from those estimates under different assumptions or conditions, which would affect the related amounts reported in the financial statements.
The accounting policies and estimates that are “critical” to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described as follows.
Revenue Recognition
Revenues are recognized when or as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Our performance obligations are primarily satisfied upon final delivery of the freight to the specified destination. Revenue is recognized based on the relative transit time in each reporting period with expenses recognized as incurred using a bill-by-bill analysis or standard delivery times to establish estimates of revenue in transit for recognition in the appropriate period. This methodology utilizes the approximate location of the shipment in the delivery process to determine the revenue to recognize, and management believes it to be a reliable method.
Certain contracts may provide for volume-based or other discounts which are accounted for as variable consideration. We estimate these amounts based on the expected discounts earned by customers, and revenue is recognized using these estimates. Revenue adjustments may also occur due to rating or other billing adjustments. We estimate revenue
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adjustments based on historical information, and revenue is recognized accordingly at the time of shipment. We believe that actual amounts will not vary significantly from estimates of variable consideration.
Revenue, purchased transportation expense, and third-party service expenses are reported on a gross basis for certain shipments and services where we utilize a third-party carrier for pickup, linehaul, delivery of freight, or performance of services, but we remain primarily responsible for fulfilling delivery to the customer and maintain discretion in setting the price for the services. Purchased transportation expense is recognized as incurred.
Payment terms with customers may vary depending on the service provided, location or specific agreement with the customer. The time between invoicing and when payment is due is not significant. For certain services, we require payment before the services are delivered to the customer.
We expense sales commissions when incurred because the amortization period is one year or less.
Impairment Assessment of Long-Lived Assets
We review our long-lived assets, including property, plant and equipment and operating right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If such an event or change in circumstances is present, we will estimate the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted future cash flows is less than the carrying amount of the related assets, we will determine the fair value of the assets and will recognize an impairment loss if the fair value of the assets is less than the recorded value. The evaluation of future cash flows requires management’s judgment and the use of estimates and assumptions. Assumptions require considerable judgment because changes in broad economic factors and industry factors can result in variable and volatile values. Economic factors and the industry environment were considered in assessing recoverability of long-lived assets, including revenue equipment (primarily tractors and trailers used in our Asset-Based operations and trailers used in our expedite and dedicated operations). Our strict equipment maintenance schedules have served to mitigate declines in the value of revenue equipment.
During the third quarter of 2023, the Company evaluated certain long-lived operating right-of-use assets for impairment that were made available for sublease. After determining the carrying values of these asset groups were not recoverable, impairment was measured as the amount by which the carrying value exceeded the fair value of the asset groups. Future cash flows used to determine fair value of the asset groups were discounted at estimated market-participant rates, which ranged from 7.5% to 9.5%. The discount rates were determined with the assistance of a third-party valuation firm based on property-specific risk factors and cash flow assumptions, as well as other market factors, in comparison to average surveyed market discount rates in similar markets. As a result of the impairment measurement, lease impairment charges of $30.2 million were recognized as a component of operating expenses in the consolidated statements of operations for the year ended December 31, 2023.
Contingent Consideration
We record the estimated fair value of contingent earnout consideration at the acquisition date as part of the purchase price consideration. The fair value of the contingent earnout consideration liability for the MoLo acquisition was determined with the assistance of an independent third-party valuation firm who utilized a Monte Carlo simulation with Level 3 inputs including scenarios of estimated revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) to be achieved for the applicable performance periods, volatility factors applied to the simulations, and the discount rate applied, which was 13.3% and 14.0% as of December 31, 2023 and 2022, respectively. As of December 31, 2023, the fair value of the outstanding contingent earnout consideration of $92.9 million related to the acquisition of MoLo was recorded in long-term liabilities as the 2023 target was not achieved. A 100-basis point decrease in the discount rate would increase the liability by $3.6 million.
The liability for contingent earnout consideration is remeasured at each quarterly reporting date, and any change in fair value as a result of the recurring assessments is recognized in operating income. We recognized a gain of $19.1 million related to the net decrease in the fair value changes in the liability of contingent earnout consideration for the year ended December 31, 2023. Inputs that could impact the measurement of contingent earnout consideration include revised projections of EBITDA; changes in the discount rate due to changes in market interest rates, equity valuations and other factors; changes in volatility factors based on equity market conditions; and other relevant factors. The EBITDA valuation input drove the decrease in fair value of the contingent earnout consideration as of December 31, 2023, compared to the valuation at December 31, 2022, reflecting lower earnings than anticipated for 2023, resulting in no earnout payment for the year, and revised assumptions for the impact of business growth in 2024 and 2025.
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Impairment of Goodwill and Intangible Assets
Our consolidated goodwill balance of $304.8 million at December 31, 2023 is primarily related to acquisitions of MoLo and Panther in the Asset-Light segment. Goodwill is recorded as the excess of an acquired entity’s purchase price over the value of the amounts assigned to identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but rather is evaluated for impairment annually or more frequently if indicators of impairment exist. The annual impairment testing on the goodwill balances was performed as of October 1, 2023. Our annual evaluation typically includes an analysis of qualitative factors to determine if it is more likely than not the fair value of the reporting unit is less than its carrying value. If we determine it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative valuation of the reporting unit is performed and compared to the carrying value to determine if the reporting unit is impaired and to measure impairment loss, if any. For annual and interim impairment tests, we are required to record an impairment charge, if any, by the amount a reporting unit’s fair value is exceeded by the carrying value of the reporting unit, limited to the carrying value of goodwill included in the reporting unit.
As allowed by the accounting guidance, we elected to bypass the qualitative assessment of our goodwill and indefinite-lived intangible assets and proceed directly to performing the quantitative valuations for the annual impairment assessment as of October 1, 2023. The evaluation of goodwill impairment requires management’s judgment and the use of estimates and assumptions to determine the fair value of the reporting unit. 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 could materially affect the impairment analysis.
The fair value estimated for this evaluation is derived with the assistance of a third-party valuation firm and utilizing the present value of discounted cash flows (income approach). The EBITDA and revenues multiples (market approach) valuation method was also considered to support the reasonableness of conclusions reached. The discounted cash flow models utilized in the income approach incorporate discount rates, terminal multiples, and projections of future revenue, operating margins, and net capital expenditures. The projections used have changed over time based on historical performance and changing business conditions. Assumptions with respect to rates used to discount cash flows are dependent upon market interest rates and the cost of capital for our company and the industry at a point in time. We include a cash flow period of five years with a terminal value in the income approach. Cash flow projections for the forecast period generally reflect the cyclical nature of the industry. Changes in cash flow assumptions or other factors that negatively impact the fair value of the operations would influence the evaluation and could lead to impairment charges in the future.
In the impairment assessment of goodwill, management also considered the total market capitalization, which was noted to increase from the prior assessment date of October 1, 2022. The increase in our market capitalization as of October 1, 2023 is believed to be attributable to business growth and improved market value as indicated by the company’s higher stock price. We believe that there is no basis for adjustment of our goodwill asset value based on the impairment evaluation performed.
Our indefinite-lived intangible asset, which is the Panther Premium Logistics trade name, totaled $32.3 million as of December 31, 2023. Indefinite-lived intangible assets are not amortized but rather are evaluated for impairment annually or more frequently if indicators of impairment exist. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. We performed impairment testing on the indefinite-lived intangible asset as of October 1, 2023, and it was determined that the fair value of the Panther trade name was greater than the recorded balance by more than 40%, indicating there is no basis for adjustment of the asset value.
The Panther trade name valuation model utilizes the relief from royalty method, whereby the value is determined by calculating the after-tax cost savings associated with owning the trade name and, therefore, not having to pay royalties for its use for the remainder of its estimated useful life. The evaluation of intangible asset impairment requires management’s judgment and the use of estimates and assumptions to determine the fair value of the indefinite-lived intangible assets. 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 operations and resulting revenues, royalty rates, and discount rates could materially affect the intangible asset impairment analysis.
Our finite-lived intangible assets consist primarily of customer relationship, carrier list, and trademark intangible assets and are amortized over their respective estimated useful lives. Finite-lived intangible assets are also evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing finite-lived intangible assets for impairment, the carrying amount of the asset or asset group is compared to the
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estimated undiscounted future cash flows expected from the use of the asset and its eventual disposition. If such cash flows are not sufficient to support the recorded value, an impairment loss to reduce the carrying value of the asset to its estimated fair value will be recognized in operating income.
Insurance Reserves
We are self-insured up to certain limits for workers’ compensation and certain third-party casualty claims. As of November 1, 2023 and 2022, our self-insurance limits are effectively $2.0 million and $1.0 million, respectively, for each workers’ compensation loss. Effective November 1, 2023, our self-insured limits for each loss are generally $2.0 million for third-party casualty or general liability claims and $3.0 million for auto liability claims, up from self-insured limits of $1.0 million for third-party casualty or general liability claims and $2.0 million for auto liability claims prior to November 1, 2023. For our auto liability claims, we also have a corridor on our excess policy and a quota share arrangement on a portion of our excess claims, whereby we could incur additional liability on claims in excess of our general self-insurance limits. Workers’ compensation and third-party casualty claims liabilities, which are reported in accrued expenses, totaled $181.8 million and $122.8 million at December 31, 2023 and 2022, respectively. The reserve at December 31, 2023 includes an insured liability settlement for third-party casualty claims, for which the related receivable is recognized in other accounts receivable as of December 31, 2023. We do not discount our claims liabilities.
Liabilities for self-insured workers’ compensation and third-party casualty claims are based on the case-basis reserve amounts plus an estimate of loss development and incurred but not reported (“IBNR”) claims, which is developed from an independent actuarial analysis. The process of determining reserve requirements utilizes historical trends and involves an evaluation of claim frequency and severity, claims management, and other factors. Case reserves established in prior years are evaluated as loss experience develops and new information becomes available. Adjustments to previously estimated case reserves are reflected in financial results in the periods in which they are made. Aggregate reserves represent the best estimate of the costs of claims incurred, and it is possible that the ultimate liability may differ significantly from such estimates, as a result of a number of factors, including increases in medical costs and other case-specific factors. A 10% increase in the estimate of IBNR would increase the total 2023 expense for workers’ compensation and third-party casualty claims by approximately $6.8 million. The actual claims payments are charged against our accrued claims liabilities which have been reasonable with respect to the estimates of the related claims.
RECENT ACCOUNTING PRONOUNCEMENTS
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 B to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in certain interest rates, prices of diesel fuel, prices of equity and debt securities, and foreign currency exchange rates. These market risks arise in the normal course of business, as we do not engage in speculative trading activities. Further discussion of risks can be found in Item 1A (Risk Factors) included in Part I of this Annual Report on Form 10-K.
Interest Rate Risk
We have exposures to changes in interest rates as follows:
Cash, cash equivalents, and short-term investments. At December 31, 2023 and 2022, cash, cash equivalents, and short-term investments totaled $330.1 million and $325.9 million, respectively. Substantially all cash equivalents were in demand accounts with financial institutions. Our short-term investments at December 31, 2023 were principally composed of certificates of deposit, and at December 31, 2022, short-term investments also included U.S. government securities.
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Although the fair values of these instruments can fluctuate, we believe that the short-term, liquid nature of these instruments and our ability to hold these instruments to maturity reduces our risk for potential material losses.
Debt. Our debt portfolio includes notes payable to finance the purchase of certain revenue equipment and other equipment with a fixed rate of interest, which mitigates the impact of fluctuations in interest rates. Future issuances of notes payable could be impacted by increases in interest rates, which could result in higher interest costs. Borrowings, if any, under our Credit Facility and accounts receivable securitization program are at a variable interest rate and expose us to the risk of increasing interest rates. We currently have an interest rate swap agreement, which mitigates the risk of interest changes on our outstanding Credit Facility borrowings. The interest rate swap effectively converts $50.0 million of borrowings under our Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 1.55% based on the margin of our Credit Facility as of December 31, 2023. Amounts borrowed under our Credit Facility in excess of the $50.0 million notional amount, if any, are exposed to changes in market interest rates as defined by the Credit Agreement. Our Credit Facility, accounts receivable securitization program, interest rate swap agreement, and notes payable are further described in Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Liabilities associated with the supplemental benefit plan and the postretirement health benefit plan are remeasured on an annual basis (and upon curtailment or settlement, if applicable) using the applicable discount rates at the measurement date. The discount rates are determined by matching projected cash distributions from the plans with the appropriate high-quality corporate bond yields in a yield curve analysis. Changes in high-quality corporate bond yields will impact interest expense associated with these benefit plans as well as the amount of liabilities recorded.
Other Market Risks
A portion of the cash surrender value of variable life insurance policies, which are intended to provide funding for long-term nonunion benefit arrangements such as the supplemental benefit plan and certain deferred compensation plans, have investments, through separate accounts, in equity and fixed income securities and, therefore, are subject to market volatility. The portion of cash surrender value of life insurance policies subject to market volatility was $25.7 million and $23.0 million at December 31, 2023 and 2022, respectively. A 10% change in market value of these investments would have a $2.6 million impact on income before income taxes.
We are subject to market risk for increases in diesel fuel prices; however, this risk is mitigated somewhat by fuel surcharge revenues, which are charged based on an index of national diesel fuel prices. When fuel surcharges constitute a higher proportion of the total freight rate paid, customers are less receptive to increases in base freight rates. Prolonged periods of inadequate base rate improvements adversely impact operating results, as elements of costs, including contractual wage rates, continue to increase annually. We have not historically engaged in a program for fuel price hedging and did not have any fuel hedging agreements outstanding at December 31, 2023 and 2022.
Operations outside of the United States are not significant to total revenues or assets, and, accordingly, we do not have a formal foreign currency risk management policy. Revenues from non-U.S. operations amounted to less than 2% and 4% of total consolidated revenues for 2023 and 2022, respectively. Foreign currency exchange rate fluctuations have not had a material impact on our consolidated financial statements, and they are not expected to in the foreseeable future. We have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
| |
The following information is included in this Item 8: | ||
Report of Independent Registered Public Accounting Firm ( | 69 | |
Consolidated Balance Sheets as of December 31, 2023 and 2022 | 71 | |
Consolidated Statements of Operations for the years ended December 31, 2023, 2022, and 2021 | 72 | |
73 | ||
74 | ||
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021 | 75 | |
76 |
68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ArcBest Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ArcBest Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in Part IV, Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2024, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Insurance reserves
Description of the Matter | At December 31, 2023, the Company’s aggregate insurance reserves were $181.8 million, which is related to workers’ compensation and third-party casualty claims, inclusive of amounts expected to be paid by the Company’s insurers above its self- insured retention limits. As discussed in Note B of the financial statements, liabilities for self-insured workers’ compensation and third-party casualty claims are based on the case-basis reserve amounts (recognized at the time of the incident based on the nature and severity of the claim) plus an estimate of loss development and incurred but not reported (IBNR) claims, which is developed with the assistance of a third-party actuarial specialist. Auditing the Company's insurance reserves is complex as it includes significant measurement uncertainty associated with the estimate, involves the application of significant management judgment, and employs the use of various actuarial methods. In addition, the estimate for insurance reserves is sensitive to significant management assumptions, including the frequency and severity assumptions used to derive the computation of the IBNR reserve and loss development factors for reported claims. |
69
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the insurance reserves process, including management’s assessment of the assumptions and data underlying the IBNR reserve estimate. To evaluate the insurance reserves, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims data provided to management’s third-party actuarial specialist by performing test of details over a representative sample. Furthermore, we involved our actuarial specialist to assist in our evaluation of the methodologies applied and significant assumptions used in determining the estimated reserve. We compared the Company’s reserve amount to an estimated range that our actuarial specialist developed based on independently selected assumptions. |
/s/ Ernst & Young LLP | |
We have served as the Company’s auditor since 1972. | |
Tulsa, Oklahoma | |
February 23, 2024 |
70
ARCBEST CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31 | |||||||
| 2023 |
| 2022 |
| |||
(in thousands, except share data) | |||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | $ | | $ | | |||
Short-term investments |
| |
| | |||
Accounts receivable, less allowances (2023 – $ |
| |
| | |||
Other accounts receivable, less allowances (2023 – $ |
| |
| | |||
Prepaid expenses |
| |
| | |||
Prepaid and refundable income taxes |
| |
| | |||
Current assets of discontinued operations | — | | |||||
Other |
| |
| | |||
TOTAL CURRENT ASSETS |
| |
| | |||
PROPERTY, PLANT AND EQUIPMENT | |||||||
Land and structures |
| |
| | |||
Revenue equipment |
| |
| | |||
Service, office, and other equipment |
| |
| | |||
Software |
| |
| | |||
Leasehold improvements |
| |
| | |||
| |
| | ||||
Less allowances for depreciation and amortization |
| |
| | |||
PROPERTY, PLANT AND EQUIPMENT, net |
| |
| | |||
GOODWILL |
| |
| | |||
INTANGIBLE ASSETS, net |
| |
| | |||
OPERATING RIGHT-OF-USE ASSETS | | | |||||
DEFERRED INCOME TAXES |
| |
| | |||
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS | — | | |||||
OTHER LONG-TERM ASSETS |
| |
| | |||
TOTAL ASSETS | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Accounts payable | $ | | $ | | |||
Income taxes payable |
| |
| | |||
Accrued expenses |
| |
| | |||
Current portion of long-term debt |
| |
| | |||
Current portion of operating lease liabilities | | | |||||
Current liabilities of discontinued operations | — | | |||||
TOTAL CURRENT LIABILITIES |
| |
| | |||
LONG-TERM DEBT, less current portion |
| |
| | |||
OPERATING LEASE LIABILITIES, less current portion | | | |||||
POSTRETIREMENT LIABILITIES, less current portion |
| |
| | |||
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS | — | | |||||
CONTINGENT CONSIDERATION | | | |||||
OTHER LONG-TERM LIABILITIES |
| |
| | |||
DEFERRED INCOME TAXES |
| |
| | |||
STOCKHOLDERS’ EQUITY | |||||||
Common stock, $ |
| |
| | |||
Additional paid-in capital |
| |
| | |||
Retained earnings |
| |
| | |||
Treasury stock, at cost, 2023: |
| ( |
| ( | |||
Accumulated other comprehensive income |
| |
| | |||
TOTAL STOCKHOLDERS’ EQUITY |
| |
| | |||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
71
ARCBEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands, except share and per share data) | ||||||||||
REVENUES | $ | | $ | | $ | | ||||
OPERATING EXPENSES |
| | | | ||||||
OPERATING INCOME |
| |
| |
| | ||||
OTHER INCOME (COSTS) | ||||||||||
Interest and dividend income |
| |
| |
| | ||||
Interest and other related financing costs |
| ( |
| ( |
| ( | ||||
Other, net |
| |
| ( |
| | ||||
| |
| ( |
| ( | |||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
| |
| |
| | ||||
INCOME TAX PROVISION |
| |
| |
| | ||||
NET INCOME FROM CONTINUING OPERATIONS | | | | |||||||
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | |
| |
| | |||||
NET INCOME | $ | | $ | | $ | | ||||
BASIC EARNINGS PER COMMON SHARE | ||||||||||
Continuing operations | $ | | $ | | $ | | ||||
Discontinued operations | | | | |||||||
$ | | $ | | $ | | |||||
DILUTED EARNINGS PER COMMON SHARE | ||||||||||
Continuing operations | $ | | $ | | $ | | ||||
Discontinued operations | | | | |||||||
$ | | $ | | $ | | |||||
AVERAGE COMMON SHARES OUTSTANDING | ||||||||||
Basic |
| |
| |
| | ||||
Diluted |
| |
| |
| |
The accompanying notes are an integral part of the consolidated financial statements.
72
ARCBEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) | ||||||||||
NET INCOME | $ | | $ | | $ | | ||||
OTHER COMPREHENSIVE INCOME (LOSS), net of tax | ||||||||||
Postretirement benefit plans: | ||||||||||
Net actuarial gain (loss), net of tax of: (2023 – $ |
| ( |
| |
| | ||||
Amortization of unrecognized net periodic benefit cost (credit), net of tax of: (2023 – $ | ||||||||||
Net actuarial gain |
| ( |
| ( |
| ( | ||||
Interest rate swap and foreign currency translation: | ||||||||||
Change in unrealized gain (loss) on interest rate swap, net of tax of: (2023 – $ | ( | | | |||||||
Change in foreign currency translation, net of tax of: (2023 – $ |
| |
| ( |
| | ||||
| ||||||||||
OTHER COMPREHENSIVE INCOME (LOSS), net of tax |
| ( |
| |
| | ||||
TOTAL COMPREHENSIVE INCOME | $ | | $ | | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
73
ARCBEST CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated | |||||||||||||||||||||||
Additional | Other | ||||||||||||||||||||||
Common Stock |
| Paid-In | Retained | Treasury Stock |
| Comprehensive | Total | ||||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Income |
| Equity |
| |||||||
(in thousands) | |||||||||||||||||||||||
Balance at December 31, 2020 | | $ | | $ | | $ | | | $ | ( | $ | | $ | | |||||||||
Net income |
| |
| | |||||||||||||||||||
Other comprehensive income, net of tax |
| |
| | |||||||||||||||||||
Issuance of common stock under share-based compensation plans |
| |
| |
| ( |
| — | |||||||||||||||
Shares withheld for employee tax remittance on share-based compensation |
| ( |
| ( | |||||||||||||||||||
Share-based compensation expense |
| |
| | |||||||||||||||||||
Purchase of treasury stock | | ( | ( | ||||||||||||||||||||
Forward contract for accelerated share repurchase | ( | ( | |||||||||||||||||||||
Dividends declared on common stock |
| ( |
| ( | |||||||||||||||||||
Balance at December 31, 2021 |
| | | | |
| | ( | | | |||||||||||||
Net income |
| |
| | |||||||||||||||||||
Other comprehensive income, net of tax |
| |
| | |||||||||||||||||||
Issuance of common stock under share-based compensation plans |
| |
| |
| ( |
| — | |||||||||||||||
Shares withheld for employee tax remittance on share-based compensation |
| ( |
| ( | |||||||||||||||||||
Share-based compensation expense |
| |
| | |||||||||||||||||||
Purchase of treasury stock | | ( | ( | ||||||||||||||||||||
Forward contract for accelerated share repurchase | | | ( | — | |||||||||||||||||||
Dividends declared on common stock |
| ( |
| ( | |||||||||||||||||||
Balance at December 31, 2022 |
| | | | |
| | ( | | | |||||||||||||
Net income |
| |
| | |||||||||||||||||||
Other comprehensive loss, net of tax | ( | ( | |||||||||||||||||||||
Issuance of common stock under share-based compensation plans | |
| | ( | — | ||||||||||||||||||
Shares withheld for employee tax remittance on share-based compensation | ( | ( | |||||||||||||||||||||
Share-based compensation expense | | | |||||||||||||||||||||
Purchase of treasury stock | | ( | ( | ||||||||||||||||||||
Dividends declared on common stock |
| ( | ( | ||||||||||||||||||||
Balance at December 31, 2023 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
74
ARCBEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) | ||||||||||
OPERATING ACTIVITIES | ||||||||||
Net income | $ | | $ | | $ | | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization |
| |
| |
| | ||||
Amortization of intangibles |
| |
| |
| | ||||
Share-based compensation expense |
| |
| |
| | ||||
Provision for losses on accounts receivable |
| |
| |
| | ||||
Change in deferred income taxes |
| ( |
| ( |
| ( | ||||
(Gain) loss on sale of property and equipment |
| |
| ( |
| ( | ||||
Gain on sale of subsidiary | — | ( | ( | |||||||
Pre-tax gain on sale of discontinued operations | ( | — | — | |||||||
Lease impairment charges | | — | — | |||||||
Change in fair value of contingent consideration | ( | | — | |||||||
Change in fair value of equity investment | ( | — | — | |||||||
Changes in operating assets and liabilities: | ||||||||||
Receivables |
| |
| ( |
| ( | ||||
Prepaid expenses |
| |
| ( |
| ( | ||||
Other assets |
| |
| ( |
| | ||||
Income taxes |
| ( |
| ( |
| | ||||
Operating right-of-use assets and lease liabilities, net | | | | |||||||
Accounts payable, accrued expenses, and other liabilities |
| ( |
| |
| | ||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
| |
| |
| | ||||
INVESTING ACTIVITIES | ||||||||||
Purchases of property, plant and equipment, net of financings |
| ( |
| ( |
| ( | ||||
Proceeds from sale of property and equipment |
| |
| |
| | ||||
Proceeds from sale of discontinued operations | | — | — | |||||||
Business acquisition, net of cash acquired | — | | ( | |||||||
Proceeds from the sale of subsidiary | — | | | |||||||
Purchases of short-term investments |
| ( |
| ( |
| ( | ||||
Proceeds from sale of short-term investments |
| |
| |
| | ||||
Purchase of long-term investments | — | — | ( | |||||||
Capitalization of internally developed software | ( |
| ( |
| ( | |||||
NET CASH USED IN INVESTING ACTIVITIES |
| ( |
| ( |
| ( | ||||
FINANCING ACTIVITIES | ||||||||||
Borrowings under credit facilities |
| — |
| |
| | ||||
Proceeds from notes payable | — | | | |||||||
Payments on long-term debt |
| ( |
| ( |
| ( | ||||
Net change in book overdrafts |
| ( |
| |
| ( | ||||
Deferred financing costs | | ( | ( | |||||||
Payment of common stock dividends |
| ( |
| ( |
| ( | ||||
Purchases of treasury stock | ( | ( | ( | |||||||
Forward contract for accelerated share repurchase |
| — |
| — |
| ( | ||||
Payments for tax withheld on share-based compensation |
| ( |
| ( |
| ( | ||||
NET CASH USED IN FINANCING ACTIVITIES |
| ( |
| ( |
| ( | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| |
| |
| ( | ||||
Cash and cash equivalents of continuing operations at beginning of period |
| |
| |
| | ||||
Cash and cash equivalents of discontinued operations at beginning of period | | | | |||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | | $ | | $ | | ||||
NONCASH INVESTING ACTIVITIES | ||||||||||
Equipment financed | $ | | $ | | $ | | ||||
Accruals for equipment received | $ | | $ | | $ | | ||||
Lease liabilities arising from obtaining right-of-use assets | $ | | $ | | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
75
NOTE A – ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION
Organization and Description of Business
ArcBest Corporation™ (the “Company”) is a multibillion-dollar integrated logistics company that leverages technology and a full suite of shipping and logistics solutions to meet customers’ supply chain needs. The Company, which started over a century ago as a local freight hauler, is now a logistics powerhouse with global reach. The Company’s operations are conducted through its
The Asset-Based segment represented approximately
Financial Statement Presentation
Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Segment Information: The Company uses the “management approach” for determining its reportable segment information. The management approach is based on the way management organizes the reportable segments within the Company for making operating decisions and assessing performance. See Note O for further discussion of segment reporting.
Use of Estimates: 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.
Reclassifications: On February 28, 2023, the Company sold FleetNet America, Inc. (“FleetNet”), a wholly owned subsidiary and reportable operating segment of the Company, for an aggregate adjusted cash purchase price of $
Certain reclassifications have been made to the prior period presentation of other long-term liabilities to conform to the current-year presentation of the contingent consideration liability on a separate line in the consolidated balance sheets. For the years ended December 31, 2022 and 2021, certain reclassifications have been made between operating expenses lines of the Asset-Light segment to conform to the current-year presentation of certain facility rent expenses. There was no impact on total liabilities or total operating expenses as a result of these reclassifications.
76
NOTE B – ACCOUNTING POLICIES
Cash, Cash Equivalents, and Short-Term Investments: Short-term investments that have a maturity of ninety days or less when purchased are considered cash equivalents. Variable rate demand notes are classified as cash equivalents, as the investments may be redeemed on a daily basis with the original issuer. Short-term investments consist of FDIC-insured certificates of deposit and U.S. Treasury securities with original maturities greater than ninety days and remaining maturities less than one year. Interest and dividends related to cash, cash equivalents, and short-term investments are included in interest and dividend income.
Certificates of deposit are valued at cost plus accrued interest, which approximates fair value. Held-to-maturity U.S. Treasury securities are recorded at amortized cost with interest and amortization of premiums and discounts included in interest income. Quarterly, the Company evaluates held-to-maturity securities for any other-than-temporary impairments related to any intention to sell or requirement to sell before its amortized costs are recovered. If a security is considered to be other-than-temporarily impaired, the difference between amortized cost and the amount that is determined to be recoverable is recorded in operating income.
Concentration of Credit Risk: The Company is potentially subject to concentrations of credit risk related to the portion of its cash, cash equivalents, and short-term investments, which is not federally insured, as further discussed in Note C.
The Company’s services are provided primarily to customers throughout the United States and, to a lesser extent, Canada, Mexico, and other international locations. On a consolidated basis, the Company had no single customer representing more than
Receivable Allowances: The Company maintains allowances for credit losses 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 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 credit losses and revenue adjustments. The allowance for credit losses on the Company’s trade accounts receivable totaled $
Property, Plant and Equipment, Including Repairs and Maintenance: Purchases of property, plant and equipment are recorded at cost. For financial reporting purposes, property, plant and equipment is depreciated principally by the straight-line method, using the following useful lives: structures – primarily
Computer Software for Internal Use, Including Web Site Development and Cloud Computing Costs: The Company capitalizes the costs of software acquired from third parties and qualifying internal computer software costs incurred during the application development stage, or during the implementation stage for cloud computing or hosting arrangements. Costs incurred in the preliminary project stage and postimplementation-operation stage, which includes maintenance and training costs, are expensed as incurred. For financial reporting purposes, capitalized software costs are amortized by the
77
straight-line method generally over
Impairment Assessment of Long-Lived Assets: The Company reviews its long-lived assets, including property, plant and equipment, capitalized software, finite-lived intangible assets and right-of-use assets held under operating leases, which are held and used in its operations, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If such an event or change in circumstances is present, the Company will estimate the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted future cash flows is less than the carrying amount of the related asset, the Company will record the asset at the lesser of its carrying amount or fair value and recognize an impairment loss, if any, in operating income. During the third quarter of 2023, the Company evaluated for impairment certain long-lived operating right-of-use assets that were made available for sublease. After determining the carrying values of these asset groups were not recoverable, impairment was measured as the amount by which the carrying value exceeded the fair value of the asset groups, and lease impairment charges of $
Assets to be disposed of are reclassified as assets held for sale at the lower of their carrying amount or fair value less cost to sell. Assets held for sale primarily represent Asset-Based segment nonoperating properties, older revenue equipment, and other equipment. Adjustments to write down assets to fair value less the amount of costs to sell are reported in operating income. Assets held for sale are expected to be disposed of by selling the assets within the next 12 months. Gains and losses on property and equipment are reported in operating income. Assets held for sale of $
Business Combinations: The Company uses the acquisition method of accounting for business combinations, which generally requires that the assets acquired and liabilities assumed be recorded at their respective fair values at the date of acquisition. The excess, if any, of the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree over the fair value of the identifiable net assets acquired are recorded as goodwill. The acquisition date fair value of acquired assets and liabilities are subject to revision during the remeasurement period if information becomes available that warrants further adjustments. Changes to the acquisition date fair value prior to the remeasurement period are recorded as adjustments to goodwill. Acquisition-related expenses are expensed as incurred.
Contingent Consideration: The Company records the estimated fair value of contingent earnout consideration at the acquisition date as part of the purchase price consideration for an acquisition. The fair value of the contingent earnout consideration liability is determined using a Monte Carlo simulation with Level 3 inputs including volatility factors, projected earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and the discount rate. The liability for contingent earnout consideration is remeasured at each quarterly reporting date and any change in fair value as a result of the recurring assessments is recognized in operating income (see Note C).
Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is evaluated for impairment annually or more frequently if indicators of impairment exist. The Company performs its annual assessment of goodwill impairment as of October 1 (see Note F). The Company typically assesses qualitative factors but may also use a quantitative analysis to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative valuation of the reporting unit is prepared to measure the amount of goodwill impairment, if any.
Indefinite-lived intangible assets are also not amortized but rather are evaluated for impairment annually or more frequently if indicators of impairment exist. Consistent with goodwill, the Company typically assesses qualitative factors but may from time to time perform a quantitative assessment to determine if it is more likely than not that the fair value of indefinite-lived intangible assets is less than its carrying value; if applicable, a quantitative analysis is performed if it is determined it is more likely than not the indefinite-lived intangible is impaired.
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The Company amortizes finite-lived intangible assets over their respective estimated useful lives.
Income Taxes: The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities, which are recorded as noncurrent by jurisdiction, are recognized based on the temporary differences between the book value and the tax basis of certain assets and liabilities and the tax effect of operating loss and tax credit carryforwards. Deferred income taxes relate principally to asset and liability basis differences resulting from the timing of depreciation deductions and to temporary differences in the recognition of certain revenues and expenses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. The Company classifies any interest and penalty amounts related to income tax matters as operating expenses.
Management applies considerable judgment in determining the consolidated income tax provision, including valuation allowances on deferred tax assets. The valuation allowance for deferred tax assets is determined by evaluating whether it is more likely than not that the benefits of deferred tax assets will be realized through future reversal of existing taxable temporary differences, taxable income in carryback years in jurisdictions in which they are allowable, projected future taxable income, or tax-planning strategies. Uncertain tax positions, which also require significant judgment, are measured to determine the amounts to be recognized in the financial statements. The income tax provision and valuation allowances are complicated by complex and frequently changing rules administered in multiple jurisdictions, including U.S. federal, state, and foreign governments.
Long-Term Investments: The Company’s long-term investments are recorded in other long-term assets and represent equity investments in private entities without readily determinable fair values. The investments are recorded using the measurement alternative in which the Company’s equity interests are recorded at cost and are adjusted for any impairments or for observable price changes identified in orderly transactions of similar investments of the same issuers. The fair value of the Company’s equity investment was remeasured in second quarter 2023, based on an observable price change which resulted in a $
Book Overdrafts: Issued checks that have not cleared the bank as of December 31 result in book overdraft balances for accounting purposes which are classified within accounts payable in the accompanying consolidated balance sheets. Book overdrafts amounted to $
Insurance Reserves: The Company is self-insured up to certain limits for workers’ compensation, certain third-party casualty claims, and cargo loss and damage claims. Amounts in excess of the self-insured limits are fully insured to levels which management considers appropriate for the Company’s operations. The Company’s claims liabilities have not been discounted.
Liabilities for self-insured workers’ compensation and third-party casualty claims are based on the case reserve amounts plus an estimate of loss development and incurred but not reported (“IBNR”) claims, which is developed from an independent actuarial analysis. The process of determining reserve requirements utilizes historical trends and involves an evaluation of claim frequency and severity, claims management, and other factors. Case reserves are evaluated as loss experience develops and new information becomes available. Adjustments to previously estimated aggregate reserves are reflected in financial results in the periods in which they are made. Aggregate reserves represent an estimate of the costs of claims incurred, and it is possible that the ultimate liability may differ significantly from such estimates.
The Company develops an estimate of self-insured cargo loss and damage claims liabilities based on historical trends and certain event-specific information. Claims liabilities are recorded in accrued expenses and are not offset by insurance receivables which are reported in other accounts receivable.
Loss Contingencies: The Company is involved in various legal actions arising in the ordinary course of business. In assessing loss contingencies, the Company uses significant judgments and assumptions to estimate the likelihood of loss or the incurrence of a liability, and to reasonably estimate the amount of loss. The Company records a liability and expense for loss contingencies when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company’s legal matters are discussed in Note P.
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Long-Term Debt: Long-term debt consists of borrowings outstanding under the revolving credit facility (the “Credit Facility”) of the Company’s Fourth Amended and Restated Credit Agreement (“Credit Agreement”) and notes payable for the financing of revenue equipment, other equipment, and software. The Company also has borrowing capacity under an accounts receivable securitization program. The Company’s long-term debt and financing arrangements are further described in Note I.
Interest Rate Swap Derivative Instruments: The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The Company has an interest rate swap agreement designated as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap instrument is reported as unrealized gain or loss as a component of accumulated other comprehensive income or loss, net of tax, in stockholders’ equity and the change in the unrealized gain or loss on the interest rate swap is reported in other comprehensive income or loss, net of tax, in the consolidated statements of comprehensive income. The unrealized gain or loss is reclassified out of accumulated other comprehensive loss into income in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions.
Leases: The Company leases, primarily under operating lease arrangements, certain facilities used primarily in the Asset-Based segment service center operations, certain facilities and revenue equipment used in the Asset-Light segment operations, and certain other facilities and office equipment. The Company also has a small number of subleases and income leases on owned properties that are immaterial to the consolidated financial statements. Right-of-use assets and lease liabilities for operating leases are recorded on the balance sheet and the related lease expense is recorded on a straight-line basis over the lease term in operating expenses. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. For financial reporting purposes, right-of-use assets held under finance leases are amortized over their estimated useful lives on the same basis as owned assets, and leasehold improvements associated with assets utilized under finance or operating leases are amortized by the straight-line method over the shorter of the remaining lease term or the asset’s useful life. Amortization of assets under finance leases is included in depreciation expense. Obligations under the finance lease arrangements, if any, are included in long-term debt.
The Company elected the short-term lease exemption for all classes of assets to include real property, revenue equipment, and service, office, and other equipment. The Company adopted the policy election as a lessee for all classes of assets to account for each lease component and its related non-lease component(s) as a single lease component. In determining the discount rate, the Company uses ArcBest Corporation’s incremental borrowing rate unless the rate implicit in the lease is readily determinable when entering into a lease as a lessee. The incremental borrowing rate is determined by the price of a fully collateralized loan with similar terms based on current market rates.
An assessment is made on or after the effective date of newly signed contracts as to whether the contract is, or contains, a lease at the inception of a contract. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset; (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period; and (3) whether the Company has the right to direct the use of the asset. The operating right-of-use asset is measured as the initial amount of the operating lease liability, plus any initial direct costs incurred, less any prepayments prior to commencement or lease incentives received. The operating lease liability is initially measured at the present value of the lease payments, discounted using the Company’s secured incremental borrowing rate for the same term as the underlying lease unless the interest rate implicit in the lease is readily determined, then the implicit rate will be used. Lease payments included in the measurement of the lease liability are comprised of the following: (1) the fixed noncancelable lease payments, (2) payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and (3) payments for early termination options unless it is reasonably certain the lease will not be terminated early. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the initial lease liability. Additional payments based on the change in an index or rate are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability.
Supplemental Benefit and Postretirement Health Benefit Plans: The Company recognizes the funded status of the supplemental benefit plan (the “SBP”) and postretirement health benefit plan in the consolidated balance sheet and recognizes changes in the funded status, net of tax, in the year in which they occur as a component of other comprehensive income or loss. The benefit obligations of the SBP and postretirement health benefit plan represent the funded status, as these plans do not have plan assets. Amounts recognized in other comprehensive income or loss are subsequently expensed as components of net periodic benefit cost by amortizing unrecognized net actuarial losses over the average remaining
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active service period of the plan participants and amortizing unrecognized prior service credits over the remaining years of service until full eligibility of the active participants at the time of the plan amendment which created the prior service credit. A corridor approach is not used for determining the amounts of net actuarial losses to be amortized.
The Company has not incurred service cost under the SBP since the accrual of benefits under the plan was frozen on December 31, 2009, however, the Company incurs service cost under the postretirement health benefit plan which is reported within operating expenses in the consolidated statements of operations. The other components of net periodic benefit cost (credit) of the SBP (including pension settlement expense) and the postretirement health benefit plan are reported within the other line item of other income (costs).
The expense and liability related to the postretirement health benefit plan are measured based upon a number of assumptions and using the services of a third-party actuary. Assumptions are made regarding the discount rate, expected retirement age, mortality, employee turnover, and future increases in health care costs. The discount rates used to discount the SBP and postretirement health benefit plan obligations are determined by matching projected cash distributions with appropriate high-quality corporate bond yields in a yield curve analysis. The assumptions used directly impact the net periodic benefit cost (credit) for a particular year. An actuarial gain or loss results when actual experience varies from the assumptions or when there are changes in actuarial assumptions. Actuarial gains and losses are not included in net periodic benefit cost (credit) in the period when they arise but are recognized as a component of other comprehensive income or loss and subsequently amortized as a component of net periodic benefit cost (credit).
The Company uses December 31 as the measurement date for the SBP and postretirement health benefit plan. Plan obligations are also remeasured upon curtailment and upon settlement. Benefit distributions under the SBP individually exceed the annual interest cost of the plan, which triggers settlement accounting. The Company records the related settlement expense when the amount of the benefit to be distributed is fixed, which is generally upon an employee’s termination of employment. There was
Revenue Recognition: Revenues are recognized when or as control of the promised services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenue adjustments occur due to freight bill rating or other billing adjustments. The Company also estimates revenue adjustments based on historical information and current trends, and revenue is recognized accordingly.
Asset-Based Segment
Asset-Based segment revenues consist primarily of less-than-truckload freight delivery. Performance obligations are satisfied upon final delivery of the freight to the specified destination. Revenue is recognized based on the relative transit time in each reporting period with expenses recognized as incurred. A bill-by-bill analysis is used to establish estimates of revenue in transit for recognition in the appropriate period. Because the bill-by-bill methodology utilizes the approximate location of the shipment in the delivery process to determine the revenue to recognize, management believes it to be a reliable method.
Certain contracts may provide for volume-based or other discounts which are accounted for as variable consideration. The Company estimates these amounts based on a historical expectation of discounts to be earned by customers, and revenue is recognized based on the estimates. Management believes that actual amounts will not vary significantly from estimates of variable consideration.
Revenue, purchased transportation expense, and third-party service expenses are reported on a gross basis for certain shipments and services where the Company utilizes a third-party carrier for pickup, linehaul, delivery of freight, or performance of services but remains primarily responsible for fulfilling delivery to the customer and maintains discretion in setting the price for the services.
Asset-Light Segment
Asset-Light segment revenues consist primarily of asset-light logistics services using third-party vendors to provide transportation services. Asset-Light segment revenue is generally recognized based on the relative transit time in each reporting period using estimated standard delivery times for freight in transit at the end of the reporting period. Purchased transportation expense is recognized as incurred consistent with the recognition of revenue.
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Revenue and purchased transportation expense are reported on a gross basis for shipments and services where the Company utilizes a third-party carrier for pickup and delivery but remains primarily responsible to the customer for delivery and maintains discretion in setting the price for the service.
Other Recognition and Disclosure
Payment terms with customers may vary depending on the service provided, location or specific agreement with the customer. The term between invoicing and when payment is due is not significant. For certain services, payment is required before the services are provided to the customer.
The Company expenses sales commissions when incurred because the amortization period is
The Company has elected
Comprehensive Income or Loss: Comprehensive income or loss consists of net income and other comprehensive income or loss, net of tax. Other comprehensive income or loss refers to revenues, expenses, gains, and losses that are not included in net income for the period, but rather are recorded directly to stockholders’ equity. The Company reports the components of other comprehensive income or loss, net of tax, by their nature and discloses the tax effect allocated to each component in the consolidated statements of comprehensive income. The accumulated balance of other comprehensive income or loss is displayed separately in the consolidated statements of stockholders’ equity and the components of the balance are reported in Note L. The changes in accumulated other comprehensive income or loss, net of tax, and the significant reclassifications out of accumulated other comprehensive income or loss are disclosed, by component, in Note L.
Accelerated Share Repurchase: On November 2, 2021, the Company entered into a fixed dollar accelerated share repurchase program (“ASR”) with a third-party financial institution to repurchase the Company’s common stock pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. Under the ASR, the Company paid $
Earnings Per Share: Basic earnings per share is calculated by dividing net income by the daily weighted number of shares of the Company’s common stock outstanding for the period. Diluted earnings per share is calculated using the treasury stock method. Under this method, the denominator used in calculating diluted earnings per share includes the impact of unvested restricted equity awards.
Share-Based Compensation: The fair value of restricted stock awards is determined based upon the closing market price of the Company’s common stock on the date of grant, adjusted for the present value of dividends which are not payable with respect to unvested restricted stock units (“RSUs”). The RSUs generally vest over a specified time beginning on the grant date. RSUs granted in 2023 and 2022 follow a
Share-based awards are amortized to compensation expense on a straight-line basis over the vesting period of awards or over the period to which the recipient first becomes eligible for retirement, whichever is shorter, with vesting accelerated upon death or disability. The Company recognizes forfeitures as they occur, and the income tax effects of awards are recognized in the statement of operations when awards vest or are settled.
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Fair Value Measurements: The Company discloses the fair value measurements of its financial assets and liabilities. Fair value measurements are disclosed in accordance with the following hierarchy of valuation approaches 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. |
Environmental Matters: The Company expenses environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. 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. The estimated liability is not reduced for possible recoveries from insurance carriers or other third parties.
Exit or Disposal Activities: The Company recognizes liabilities for costs associated with exit or disposal activities when the liability is incurred.
Accounting Pronouncements Not Yet Adopted
Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, was amended in November 2023 through the issuance of Accounting Standards Update (“ASU’) No. 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 will require enhanced disclosures of significant segment expenses on an annual and interim basis. ASU 2023-07, which is effective for fiscal years beginning after December 15, 2023, is not expected to have a significant impact on the Company’s disclosures.
ASC Topic 740, Income Taxes, was amended in December 2023 through the issuance of ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), to improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, while early adoption is permitted. The Company is currently assessing the amendment’s impact on the Company’s disclosures.
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NOTE C – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial Instruments
The following table presents the components of cash and cash equivalents and short-term investments:
| December 31 |
| December 31 |
| |||
2023 | 2022 |
| |||||
(in thousands) | |||||||
Cash and cash equivalents | |||||||
Cash deposits(1) | $ | | $ | | |||
Variable rate demand notes(1)(2) |
| — |
| | |||
Money market funds(3) |
| |
| | |||
Total cash and cash equivalents | $ | | $ | | |||
Short-term investments | |||||||
Certificates of deposit(1) | $ | | $ | | |||
U.S. Treasury securities(4) | — | | |||||
Total short-term investments | $ | | $ | |
(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. U.S. Treasury securities included in short-term investments are held-to-maturity investments with maturity dates of less than one year. |
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 and short-term investments in accounts and certificates of deposit which are primarily FDIC-insured or in direct obligations of the U.S. government. However, certain cash deposits and certificates of deposit may exceed federally insured limits. At December 31, 2023 and 2022, cash deposits and short-term investments totaling $
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Fair value and carrying value disclosures of financial instruments as of December 31 are presented in the following table:
| 2023 |
| 2022 |
| |||||||||
(in thousands) | |||||||||||||
Carrying |
| Fair |
| Carrying |
| Fair | |||||||
Value |
| Value |
| Value |
| Value | |||||||
Credit Facility(1) | $ | | $ | | $ | | $ | | |||||
Notes payable(2) |
| |
| |
| |
| | |||||
New England Pension Fund withdrawal liability(3) | | | | | |||||||||
$ | | $ | | $ | | $ | |
(1) | The revolving credit facility (the “Credit Facility”) carries a variable interest rate based on Secured Overnight Financing Rate (“SOFR”), plus a margin, 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). |
(3) | 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. The fair value of the outstanding withdrawal liability is equal to the present value of the future withdrawal liability payments, discounted at an interest rate of |
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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:
December 31, 2023 | |||||||||||||
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) | $ | | $ | | $ | — | $ | — | |||||
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) |
| |
| |
| — |
| — | |||||
Interest rate swap(3) | | — | | — | |||||||||
$ | | $ | | $ | | $ | — | ||||||
Liabilities: |
| ||||||||||||
Contingent consideration(4) | | — | — | | |||||||||
$ | | $ | — | $ | — | $ | |
December 31, 2022 | |||||||||||||
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) | $ | | $ | | $ | — | $ | — | |||||
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) |
| |
| |
| — |
| — | |||||
Interest rate swap(3) | | — | | — | |||||||||
$ | | $ | | $ | | $ | — | ||||||
Liabilities: |
| ||||||||||||
Contingent consideration(4) | | — | — | | |||||||||
$ | | $ | — | $ | — | $ | |
(1) | Included in cash and cash equivalents. |
(2) | Nonqualified deferred compensation plan investments consist of U.S. and international equity mutual funds, government and corporate bond mutual funds, and money market funds which are held in a trust with a third-party brokerage firm. Included in other long-term assets, with a corresponding liability reported within other long-term liabilities. |
(3) | Included in other long-term assets. The fair value of the interest rate swap was determined by discounting future cash flows and receipts based on expected interest rates observed in market interest rate curves adjusted for estimated credit valuation considerations reflecting nonperformance risk of the Company and the counterparty, which are generally considered to be in Level 3 of the fair value hierarchy. However, the Company assessed Level 3 inputs as insignificant to the valuation at December 31, 2023 and 2022 and considers the interest rate swap valuation in Level 2 of the fair value hierarchy. |
(4) | Included as a long-term liability, based on the December 31, 2023 remeasurement as the 2023 target was not achieved. As part of the Agreement and Plan of Merger (the “Merger Agreement”) of MoLo, executed on November 1, 2021, certain additional cash consideration is required to be paid by the Company based on the achievement of certain incremental targets of adjusted EBITDA for each of the years ended December 31, 2023, 2024, and 2025 (see Note E). The estimated fair value of contingent consideration is determined by assessing Level 3 inputs. The Level 3 assessments utilize a Monte Carlo simulation with inputs including scenarios of estimated revenues and adjusted EBITDA to be achieved for the applicable performance periods, volatility factors applied to the simulations, and the discount rate applied, which was |
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The following table provides the changes in fair value of the liabilities measured at fair value using inputs categorized in Level 3 of the fair value hierarchy:
Contingent Consideration | ||||
(in thousands) | ||||
Balance at December 31, 2022 | $ | | ||
Change in fair value included in operating income | ( | |||
Balance at December 31, 2023 | $ | |
Assets Measured at Fair Value on a Nonrecurring Basis
The Company remeasures certain assets on a nonrecurring basis upon the occurrence of certain events. During the year ended December 31, 2023, the Company remeasured the fair value of its equity investments in private entities upon an observable price change and remeasured certain long-lived operating lease right-of-use assets and leasehold improvements for which impairment charges were recognized during the period.
The following table provides the change in fair value of equity investments on a nonrecurring basis using inputs categorized in Level 3 of the fair value hierarchy:
Equity Investment(1) |
| |||
(in thousands) | ||||
Balance at December 31, 2022 | $ | | ||
| ||||
Balance at December 31, 2023 | $ | |
(1) | Represents the Company’s equity investment in Phantom Auto, a provider of human-centered remote operation software. The equity investment is accounted for as a nonmarketable equity security without a readily determinable value using the measurement alternative, which allows for the investment to be recorded at cost, less any impairment and adjusted for observable price changes in orderly transactions for an identical or similar equity security of the same issuer. The $ |
The following table provides the changes in the long-lived assets measured on a nonrecurring basis for which impairment charges were recognized during the year ended December 31, 2023. The fair value measurements used inputs categorized in Level 3 of the fair value hierarchy.
Lease | ||||||||||
Carrying Value |
| Impairment Charges(1) |
| Fair Value |
| |||||
(in thousands) | ||||||||||
Operating right-of-use assets | $ | | $ | ( | $ | | ||||
Leasehold improvements | | ( | | |||||||
$ | | $ | ( | $ | |
(1) | During the third quarter of 2023, the Company recorded impairment charges of $ |
There were
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NOTE D – DISCONTINUED OPERATIONS
On February 28, 2023, the Company sold FleetNet, a wholly owned subsidiary of the Company, for an aggregate adjusted cash purchase price of $
The following table summarizes the financial results from discontinued operations:
Year Ended | |||||||||
December 31 | |||||||||
2023 | 2022 | 2021 | |||||||
(in thousands) | |||||||||
Revenues | $ | | $ | | $ | | |||
Operating expenses | |||||||||
Gain on sale of business(1) | ( | — | — | ||||||
Other | | | | ||||||
( | | | |||||||
Operating income | | | | ||||||
Other income, net(2) | | | | ||||||
Income from discontinued operations before income taxes | | | | ||||||
Income tax provision | | | | ||||||
Income from discontinued operations, net of tax | $ | | $ | | $ | |
(1) | The gain recognized during the year ended December 31, 2023 includes post-closing adjustments, including the resolution of certain post-close contingencies in the second quarter of 2023. The total pre-tax gain of $ |
(2) | Includes interest income, net of interest expense, of which the amounts are immaterial for all periods presented. |
The following table summarizes the assets and liabilities from discontinued operations:
December 31, 2022 | ||||
(in thousands) | ||||
Cash and cash equivalents | $ | | ||
Accounts receivable, net | | |||
Other current assets | | |||
Total current assets of discontinued operations | $ | | ||
Property, plant and equipment, net | | |||
Goodwill | | |||
Intangible assets, net | | |||
Other long-term assets | | |||
Total long-term assets of discontinued operations | $ | | ||
Accounts payable | | |||
Income taxes payable | | |||
Accrued expenses | | |||
Total current liabilities of discontinued operations | $ | | ||
Deferred tax liability | | |||
Total long-term liabilities of discontinued operations | $ | |
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Cash flows from discontinued operations of FleetNet were as follows:
Year Ended | |||||||
December 31 | |||||||
| 2023 |
| 2022 |
| |||
(in thousands) | |||||||
Net cash provided by operating activities(1) | $ | | $ | | |||
Net cash used in investing activities(2) | ( | ( | |||||
Net cash provided by (used in) financing activities | ( | | |||||
Net increase (decrease) in cash and cash equivalents | $ | ( | $ | |
(1) | Includes depreciation and amortization expense of $ |
(2) | Includes purchases of property, plant and equipment of $ |
NOTE E – ACQUISITION
On November 1, 2021 (the “acquisition date”), the Company acquired MoLo, a Chicago-based truckload freight brokerage company, pursuant to the Merger Agreement dated September 29, 2021. Net cash consideration related to the transaction totaled $
The results of MoLo’s operations subsequent to the acquisition date have been included in the accompanying consolidated financial statements, with the acquired operations included within the Asset-Light operating segment (see Note O). The acquisition of MoLo enhances the scale of the Company’s truckload brokerage services by providing additional truckload capacity, support, and expertise in the Company’s Asset-Light operations and increasing cross-selling potential.
In the year of acquisition, operating revenues of $
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NOTE F – GOODWILL AND INTANGIBLE ASSETS
December 31, 2022 and 2021 goodwill balances have been adjusted to reclassify $
Goodwill balances were as follows:
| Goodwill |
| ||
(in thousands) | ||||
Balances at December 31, 2021 | $ | | ||
Purchase accounting adjustments(1) |
| | ||
Balances at December 31, 2023 and 2022 | $ | | ||
Accumulated impairment at December 31, 2023 and 2022 | $ | ( |
(1) | Measurement period purchase accounting adjustments represent adjustments to the acquired balance of working capital and goodwill related to the November 1, 2021 acquisition of MoLo. |
The annual impairment evaluation of the goodwill balance of the Asset-Light reporting unit was performed as of October 1, 2023, and it was determined that there was
Intangible assets consisted of the following:
December 31, 2023 | December 31, 2022 |
| |||||||||||||||||||
Weighted-Average | Accumulated | Net | Accumulated | Net |
| ||||||||||||||||
| Amortization Period |
| Cost |
| Amortization |
| Value |
| Cost |
| Amortization |
| Value |
| |||||||
(in years) | (in thousands) | (in thousands) |
| ||||||||||||||||||
Finite-lived intangible assets | |||||||||||||||||||||
Customer relationships |
| $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Other | | | | | | | |||||||||||||||
|
| |
| |
| | |
| |
| | ||||||||||
Indefinite-lived intangible asset | |||||||||||||||||||||
Trade name |
| N/A |
| |
| N/A |
| | |
| N/A |
| | ||||||||
| |||||||||||||||||||||
Total intangible assets |
| N/A | $ | | $ | | $ | | $ | | $ | | $ | |
The annual impairment evaluation of the indefinite-lived intangible asset was performed as of October 1, 2023 and 2022, and it was determined that there was
As of December 31, 2023, the future amortization for intangible assets acquired through business acquisitions were as follows:
| Amortization of |
| ||
Intangible Assets |
| |||
(in thousands) | ||||
2024 | $ | | ||
2025 |
| | ||
2026 |
| | ||
2027 |
| | ||
2028 | | |||
Thereafter | | |||
Total amortization | $ | |
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NOTE G – INCOME TAXES
Significant components of the provision or benefit for income taxes for the years ended December 31 were as follows:
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) |
| |||||||||
Current provision on continuing operations: |
|
|
|
|
|
| ||||
Federal | $ | | $ | | $ | | ||||
State |
| |
| |
| | ||||
Foreign |
| |
| |
| | ||||
| |
| |
| | |||||
Deferred benefit on continuing operations: | ||||||||||
Federal |
| ( |
| ( |
| ( | ||||
State |
| ( |
| ( |
| ( | ||||
Foreign |
| ( |
| ( |
| | ||||
| ( |
| ( |
| ( | |||||
Total provision for income taxes on continuing operations | $ | | $ | | $ | | ||||
Current provision on discontinued operations: |
|
|
|
|
|
| ||||
Federal | $ | | $ | | $ | | ||||
State |
| |
| |
| | ||||
| |
| |
| | |||||
Deferred provision on discontinued operations: | ||||||||||
Federal |
| — |
| |
| | ||||
State |
| — |
| |
| | ||||
| — |
| |
| | |||||
Total provision for income taxes on discontinued operations | $ | | $ | | $ | | ||||
Total provision for income taxes | $ | | $ | | $ | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the deferred tax benefit on continuing operations for the years ended December 31 were as follows:
2023 | 2022 | 2021 |
| |||||||
(in thousands) |
| |||||||||
Amortization, depreciation, and basis differences for property, plant and equipment and other long-lived assets(1) |
| $ | |
| $ | |
| $ | | |
Amortization of intangibles |
| |
| ( |
| ( | ||||
Changes in reserves for workers’ compensation, third-party casualty, and cargo claims |
| ( |
| ( |
| ( | ||||
Revenue recognition |
| ( |
| |
| ( | ||||
Allowance for credit losses |
| |
| ( |
| | ||||
Nonunion pension and other retirement plans |
| ( |
| ( |
| ( | ||||
Multiemployer pension fund withdrawal | | | | |||||||
Federal and state net operating loss carryforwards utilized (generated) |
| ( |
| |
| ( | ||||
State depreciation adjustments |
| ( |
| ( |
| | ||||
Share-based compensation |
| |
| |
| ( | ||||
Valuation allowance increase (decrease) |
| |
| ( |
| | ||||
Other accrued expenses |
| ( |
| ( |
| ( | ||||
Prepaid expenses | | ( | ( | |||||||
Operating lease right-of-use assets/liabilities – net | ( | ( | ( | |||||||
Other |
| |
| ( |
| | ||||
Deferred tax benefit | $ | ( | $ | ( | $ | ( |
(1) | The Tax Cuts and Jobs Act, enacted in December 2017, allowed first year bonus depreciation at 100% for assets placed into service between September 27, 2017 and January 1, 2023. Due to an increase in the purchase of assets eligible for 100% depreciation, the deferred tax expense related to the tax depreciation expense in excess of book depreciation increased in 2022, compared to 2021. |
91
Significant components of the deferred tax assets and liabilities of continuing operations at December 31 were as follows:
2023 | 2022 |
| |||||
(in thousands) |
| ||||||
Deferred tax assets: |
|
|
|
| |||
Accrued expenses | $ | | $ | | |||
Operating lease right-of-use liabilities | | | |||||
Supplemental pension liabilities | | | |||||
Multiemployer pension fund withdrawal | | | |||||
Postretirement liabilities other than pensions |
| |
| | |||
Share-based compensation |
| |
| | |||
Federal and state net operating loss carryovers |
| |
| | |||
Receivable allowances | | | |||||
Other |
| |
| | |||
Total deferred tax assets |
| |
| | |||
Valuation allowance |
| ( |
| ( | |||
Total deferred tax assets, net of valuation allowance |
| |
| | |||
Deferred tax liabilities: | |||||||
Amortization, depreciation, and basis differences for property, plant and equipment, and other long-lived assets |
| |
| | |||
Operating lease right-of-use assets | | | |||||
Intangibles |
| |
| | |||
Prepaid expenses |
| |
| | |||
Total deferred tax liabilities |
| |
| | |||
Net deferred tax liabilities | $ | ( | $ | ( |
Reconciliation between the effective income tax rate, as computed on income from continuing operations before income taxes, and the statutory federal income tax rate for the years ended December 31 is presented in the following table:
2023 | 2022 | 2021 |
| |||||||
(in thousands, except percentages) |
| |||||||||
Income tax provision at the statutory federal rate of |
| $ | |
| $ | |
| $ | | |
Federal income tax effects of: |
| |||||||||
State income taxes |
| ( |
| ( |
| ( | ||||
Nondeductible expenses |
| |
| |
| | ||||
Life insurance proceeds and changes in cash surrender value |
| ( |
| |
| ( | ||||
Alternative fuel credit |
| ( |
| ( |
| — | ||||
Net increase (decrease) in valuation allowances |
| |
| ( |
| | ||||
Net increase in uncertain tax positions | — | — | | |||||||
Settlement of share-based compensation | ( | ( | ( | |||||||
Foreign tax credits generated | ( | ( | ( | |||||||
Federal research and development tax credits | ( | | ( | |||||||
Other |
| ( |
| |
| ( | ||||
Federal income tax provision |
| |
| |
| | ||||
State income tax provision |
| |
| |
| | ||||
Foreign income tax provision |
| |
| |
| | ||||
Total provision for income taxes | $ | | $ | | $ | | ||||
Effective tax rate |
| | % |
| | % |
| | % |
The Company's total effective tax rate was
Income taxes paid, excluding income tax refunds, totaled $
92
Under Accounting Standards Codification Topic 718, Compensation – Stock Compensation, the Company may experience volatility in its income tax provision as a result of recording all excess tax benefits and tax deficiencies in the income statement upon settlement of awards, which occurs primarily during the second quarter of each year. The 2023, 2022, and 2021 tax rates reflect a tax benefit of
At December 31, 2023, the Company had gross federal net operating loss carryforwards of $
As the Canadian tax rate is now higher than the U.S. tax rate, it is unlikely that foreign tax credit carryforwards will be useable, as U.S. taxes will be paid at a lower rate than the tax rates in Canada. Thus, the foreign tax credit carryover is fully reserved, resulting in valuation allowances of $
Consolidated federal income tax returns filed for tax years through 2019 are closed by the applicable statute of limitations. The Company is not under examination by any federal, state, or foreign taxing authorities at December 31, 2023.
At December 31, 2023 and 2022, there was a reserve for uncertain tax positions of $
For 2023, 2022, and 2021, interest paid or accrued related to foreign and state income taxes was immaterial.
NOTE H – LEASES
The Company has operating lease arrangements for certain facilities and revenue equipment used in the Asset-Based and Asset-Light segment operations and certain other facilities and office equipment. Current operating leases have remaining terms of
The components of operating lease expense were as follows:
Year Ended December 31 | |||||||||
| 2023 |
| 2022 |
| 2021 | ||||
(in thousands) | |||||||||
Operating lease expense | $ | | $ | | $ | | |||
Variable lease expense | | | | ||||||
Sublease income | ( | ( | ( | ||||||
Total operating lease expense(1) | $ | | $ | | $ | |
(1) | Operating lease expense excludes short-term leases with a term of 12 months or less. |
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The operating cash flows from operating lease activity were as follows:
Year Ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) | ||||||||||
Noncash change in operating right-of-use assets | $ | | $ | | $ | | ||||
Change in operating lease liabilities | ( | ( | ( | |||||||
Operating right-of-use-assets and lease liabilities, net | $ | | $ | | $ | | ||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | ( | $ | ( | $ | ( |
Supplemental balance sheet information related to operating leases was as follows:
| December 31, 2023 | ||||||||
(in thousands, except lease term and discount rate) | |||||||||
Land and | Equipment | ||||||||
Total | Structures | and Others | |||||||
Operating right-of-use assets (long-term) | $ | | $ | | $ | | |||
Operating lease liabilities (current) | $ | | $ | | $ | | |||
Operating lease liabilities (long-term) |
| | | | |||||
$ | | $ | | $ | | ||||
Weighted-average remaining lease term (in years) | |||||||||
Weighted-average discount rate |
| December 31, 2022 |
| ||||||||
(in thousands, except lease term and discount rate) | ||||||||||
Land and | Equipment | |||||||||
Total | Structures | and Others | ||||||||
Operating right-of-use assets (long-term) | $ | | $ | | $ | | ||||
Operating lease liabilities (current) | $ | | $ | | $ | | ||||
Operating lease liabilities (long-term) |
| | | | ||||||
$ | | $ | | $ | | |||||
Weighted-average remaining lease term (in years) | ||||||||||
Weighted-average discount rate |
Maturities of operating lease liabilities at December 31, 2023 were as follows:
Equipment | ||||||||||
Land and | and | |||||||||
| Total |
| Structures(1) |
| Other |
| ||||
| (in thousands) | |||||||||
2024 | $ | | $ | | $ | | ||||
2025 |
| |
| |
| | ||||
2026 |
| |
| |
| — | ||||
2027 |
| |
| |
| — | ||||
2028 |
| |
| |
| — | ||||
Thereafter |
| |
| |
| — | ||||
Total lease payments | | | | |||||||
Less imputed interest | ( | ( | ( | |||||||
$ | | $ | | $ | |
(1) | Excludes future minimum lease payments for leases which were executed but had not yet commenced as of December 31, 2023, of $ |
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Lease Impairment Charges
Long-lived assets, including operating right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. During the third quarter of 2023, the Company evaluated for impairment certain long-lived operating right-of-use assets that were made available for sublease. The assets evaluated for impairment included the operating right-of-use assets and leasehold improvements for a service center within the Asset-Based segment from which operations were relocated to a purchased facility; certain office spaces within the Asset-Light segment that have been vacated as a cost reduction measure in light of ongoing market changes impacting the Asset-Light business and changing employee work location trends; and certain leased facilities reported within “Other and eliminations” utilized for the service center operations of a freight handling pilot location, as operations transitioned back to the owned Asset-Based service center facility where they had previously been located, following the pause of the hardware pilot program at ABF Freight.
After determining the carrying values of these asset groups were not recoverable, impairment was measured and lease impairment charges were recognized for the amount by which the carrying value exceeded the fair value of the asset groups. To estimate the fair value of the asset groups, the Company relied on a discounted cash flow method utilizing market-participant discount rates estimated with Level 3 inputs (see Note C).
As a result of these evaluations, the Company recognized $
NOTE I – LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-Term Debt Obligations
Long-term debt consisted of borrowings outstanding under the Company’s revolving credit facility, which is further described in Financing Arrangements within this Note, and notes payable related to the financing of revenue equipment (tractors and trailers used primarily in Asset-Based segment operations) and certain other equipment as follows:
December 31 | December 31 | ||||||
| 2023 |
| 2022 |
| |||
(in thousands) | |||||||
Credit Facility (interest rate of | $ | | $ | | |||
Notes payable (weighted-average interest rate of |
| |
| | |||
| |
| | ||||
Less current portion |
| |
| | |||
Long-term debt, less current portion | $ | | $ | |
(1) | The interest rate swap mitigates interest rate risk by effectively converting the $ |
95
Scheduled maturities of long-term debt obligations as of December 31, 2023 were as follows:
|
|
| Credit |
| Notes | |||||
Total | Facility(1) | Payable | ||||||||
(in thousands) | ||||||||||
2024 | $ | | $ | | $ | | ||||
2025 |
| |
| | | |||||
2026 |
| |
| | | |||||
2027 |
| |
| | | |||||
2028 |
| | — | | ||||||
Total payments |
| |
| | | |||||
Less amounts representing interest |
| |
| |
| | ||||
Long-term debt | $ | | $ | | $ | |
(1) | The future interest payments included in the scheduled maturities due are calculated using variable interest rates based on the SOFR swap curve, plus the anticipated applicable margin, exclusive of payments on the interest rate swap. |
Assets securing notes payable at December 31 were included in property, plant and equipment as follows:
| 2023 |
| 2022 |
| |||
(in thousands) |
| ||||||
Revenue equipment |
| $ | |
| $ | | |
Service, office, and other equipment | | | |||||
Total assets securing notes payable |
| |
| | |||
Less accumulated depreciation(1) |
| |
| | |||
Net assets securing notes payable | $ | | $ | |
(1) | Depreciation of assets securing notes payable is included in depreciation expense. |
The Company’s long-term debt obligations have a weighted-average interest rate of
Financing Arrangements
Credit Facility
The Company has a revolving credit facility (the “Credit Facility”) under its Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), which was amended and restated in October 2022. The amendment, among other things, increased the aggregate amount of the swing line facility from $
The Credit Facility has an initial maximum credit amount of $
Principal payments under the Credit Facility are due upon maturity of the facility on October 7, 2027; 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 ranging from
96
pay a fee on unused commitments. 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, consolidations, and sales of assets. The Company was in compliance with the covenants under the Credit Agreement at December 31, 2023.
Interest Rate Swap
As noted in the table above, the Company has an interest rate swap agreement with a $
The unrealized gain or loss on the interest rate swap instruments in effect at the balance sheet date was reported as a component of accumulated other comprehensive income, net of tax, in stockholders’ equity at December 31, 2023 and 2022, and the change in the unrealized gain or loss on the interest rate swap for the years ended December 31, 2023 and 2022 was reported in other comprehensive income (loss), net of tax, in the consolidated statements of comprehensive income. The interest rate swap is 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 agreement at December 31, 2023.
Accounts Receivable Securitization Program
The Company’s accounts receivable securitization program, which matures on July 1, 2024, provides available cash proceeds of $
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 amended accounts receivable securitization program bear interest based upon SOFR, 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 December 31, 2023.
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 December 31, 2023, standby letters of credit of $
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Letter of Credit Agreements and Surety Bond Programs
As of both December 31, 2023 and 2022, the Company had letters of credit outstanding of $
Notes Payable
The Company has financed the purchase of certain revenue equipment, other equipment, and software through promissory note arrangements. During the year ended December 31, 2023 and 2022, the Company entered into notes payable arrangements, primarily for revenue equipment, of $
NOTE J – ACCRUED EXPENSES
December 31 | |||||||
| 2023 |
| 2022 | ||||
(in thousands) | |||||||
Workers’ compensation, third-party casualty, and loss and damage claims reserves | $ | | $ | | |||
Accrued vacation pay |
| |
| | |||
Accrued compensation, including retirement benefits | | | |||||
Taxes other than income |
| |
| | |||
Other |
| |
| | |||
Total accrued expenses | $ | | $ | |
NOTE K – EMPLOYEE BENEFIT PLANS
Supplemental Benefit and Postretirement Health Benefit Plans
The Company has an unfunded supplemental benefit plan (the “SBP”) which was designed to supplement benefits under the Company’s legacy nonunion defined benefit pension plan (for which plan termination and liquidation was completed in 2019) for designated executive officers. The SBP was closed to new entrants, and a cap was placed on the maximum payment per participant in the SBP effective January 1, 2006. In place of the SBP, eligible officers of the Company appointed after 2005 participate in a long-term cash incentive plan (see Cash Long-Term Incentive Compensation Plan section within this Note). Effective December 31, 2009, the accrual of benefits for remaining participants under the SBP was frozen. With the exception of early retirement penalties that may apply in certain cases, the valuation inputs for calculating the frozen SBP benefits to be paid to participants, including final average salary and the interest rate, were frozen at December 31, 2009. The SBP did
The Company sponsors an insured postretirement health benefit plan that provides supplemental medical benefits and dental and vision benefits primarily to certain officers of the Company and certain subsidiaries. New entrants have not been added to the postretirement health benefit plan since January 1, 2017.
98
The following table discloses the changes in benefit obligations and plan assets of the Company’s nonunion defined benefit plans for years ended December 31, the measurement date of the plans:
Supplemental | Postretirement |
| |||||||||||
Benefit Plan | Health Benefit Plan |
| |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
(in thousands) |
| ||||||||||||
Change in benefit obligations | |||||||||||||
Benefit obligations, beginning of year | $ | | $ | | $ | | $ | | |||||
Service cost |
| — |
| — |
| |
| | |||||
Interest cost |
| |
| |
| |
| | |||||
Actuarial (gain) loss (1) |
| |
| ( |
| |
| ( | |||||
Benefits paid |
| — |
| — |
| ( |
| ( | |||||
Benefit obligations, end of year |
| |
| |
| |
| | |||||
Change in plan assets | |||||||||||||
Fair value of plan asset, beginning of year |
| — |
| — |
| — |
| — | |||||
Employer contributions |
| — |
| — |
| |
| | |||||
Benefits paid |
| — |
| — |
| ( |
| ( | |||||
Fair value of plan assets, end of year |
| — |
| — |
| — |
| — | |||||
Funded status at period end | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Accumulated benefit obligation | $ | | $ | | $ | | $ | |
(1) | The actuarial losses on the SBP and postretirement health benefit plan for 2023 were primarily related to decreases in the discount rates used to remeasure the plans’ obligations at December 31, 2023 versus the prior year, and the actuarial gains for 2022 were primarily related to increases in the discount rates used in the remeasurement at December 31, 2022. |
Amounts recognized in the consolidated balance sheets at December 31 consisted of the following:
Supplemental | Postretirement |
| |||||||||||
Benefit Plan | Health Benefit Plan |
| |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
| |||||||||||||
Current portion of pension and postretirement liabilities | $ | — | $ | — | $ | ( | $ | ( | |||||
Pension and postretirement liabilities, less current portion |
| ( |
| ( |
| ( |
| ( | |||||
Liabilities recognized | $ | ( | $ | ( | $ | ( | $ | ( |
The following is a summary of the components of net periodic benefit cost for the Company’s nonunion benefit plans for the years ended December 31:
Supplemental | Postretirement | ||||||||||||||||||
Benefit Plan | Health Benefit Plan | ||||||||||||||||||
| 2023 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| 2021 |
| |||||||
(in thousands) | |||||||||||||||||||
Service cost | $ | — | $ | — | $ | — | $ | | $ | | $ | | |||||||
| |
| |
| |
| |
| |
| | ||||||||
| ( |
| |
| |
| ( |
| ( |
| ( | ||||||||
Net periodic benefit cost (credit) | $ | | $ | | $ | | $ | ( | $ | ( | $ | |
(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. |
Included in accumulated other comprehensive loss at December 31 were the following pre-tax amounts that have not yet been recognized in net periodic benefit cost:
Supplemental | Postretirement |
| |||||||||||
Benefit Plan | Health Benefit Plan |
| |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
| |||||||||||||
Unrecognized net actuarial gain | $ | ( | $ | ( | $ | ( | $ | ( |
99
The discount rate is determined by matching projected cash distributions with appropriate high-quality corporate bond yields in a yield curve analysis. Weighted-average assumptions used to determine nonunion benefit obligations at December 31 were as follows:
Supplemental | Postretirement |
| |||||||
Benefit Plan | Health Benefit Plan |
| |||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |
Discount rate | % | | % | % | | % |
Weighted-average assumptions used to determine net periodic benefit cost for the Company’s nonunion benefit plans for the years ended December 31 were as follows:
Supplemental | Postretirement |
| |||||||||||
Benefit Plan | Health Benefit Plan |
| |||||||||||
| 2023 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| 2021 |
| |
Discount rate | | % | | % | | % | | % | | % | | % |
The assumed health care cost trend rates for the Company’s postretirement health benefit plan at December 31 were as follows:
| 2023 |
| 2022 |
| |
Health care cost trend rate assumed for next year(1) | | % | | % | |
Rate to which the cost trend rate is assumed to decline | | % | | % | |
Year that the rate reaches the cost trend assumed rate |
|
|
|
(1) | At each December 31 measurement date, health care cost rates for the following year are based on known premiums for the fully insured postretirement health benefit plan. Therefore, the first year of assumed health care cost trend rates presented as of December 31, 2023 and 2022 are for 2025 and 2024, respectively. |
Estimated future benefit payments from the Company’s SBP and postretirement health benefit plans, which reflect expected future service as appropriate, as of December 31, 2023 are as follows:
| Supplemental |
| Postretirement |
| |||
Benefit | Health |
| |||||
Plan | Benefit Plan |
| |||||
| |||||||
2024 | $ | — | $ | | |||
2025 | $ | — | $ | | |||
2026 | $ | — | $ | | |||
2027 | $ | — | $ | | |||
2028 | $ | | $ | | |||
2029-2033 | $ | — | $ | |
Deferred Compensation Plans
The Company has deferred salary agreements with certain executives for which liabilities of $
The Company maintains a Voluntary Savings Plan (“VSP”), a nonqualified deferred compensation program for the benefit of certain executives of the Company and certain subsidiaries. Eligible employees may defer receipt of a portion of their salary and incentive compensation into the VSP by making an election prior to the beginning of the year in which the salary compensation is payable and, for incentive compensation, by making an election at least
100
fair value of the aggregate participant balances, based on quoted prices of the mutual fund investments, as both an asset and a liability of the Company. As of December 31, 2023 and 2022, VSP balances of $
Defined Contribution Plans
The Company and its subsidiaries have defined contribution 401(k) plans that cover substantially all nonunion employees. The plans permit participants to defer a portion of their salary up to a maximum of
Long-Term Incentive Compensation Plan
The Company maintains a performance-based Long-Term Incentive Compensation Plan (“LTIP”) for certain officers of the Company or its subsidiaries. The LTIP incentive, which is earned over
Other Plans
Other long-term assets include $
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 Labor Management Relations Act of 1947 (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 2023 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 multiemployer plans to which ABF Freight primarily contributes are jointly-trusteed (half of the trustees of each plan are selected by the participating employers, the other half by the IBT) and cover collectively bargained employees of multiple unrelated employers. Due to the inherent nature of multiemployer plans, there are risks associated with participation in these plans that differ from single-employer plans. Assets received by the plans are not segregated by employer, and contributions made by one employer can be and are used to provide benefits to current and former employees of other employers. If a participating employer in a multiemployer pension plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If a participating employer in a multiemployer pension plan completely withdraws from the plan, it owes to the plan its proportionate share of the plan’s unfunded vested benefits, referred to as a withdrawal liability. A complete withdrawal generally occurs when the employer permanently ceases to have an obligation to contribute to the plan. Withdrawal liability is also owed in the event the employer withdraws from a plan in connection with a mass withdrawal, which generally occurs when all or substantially all employers withdraw from the plan pursuant to an agreement in a relatively short period of time. Were ABF Freight to completely withdraw from certain multiemployer pension plans, whether in connection with a mass
101
withdrawal or otherwise, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan.
Pension Plans
The
The PPA requires that “endangered” (generally less than
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 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 2023 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. Certain multiemployer pension plans to which ABF Freight contributes, including the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”), have applied for or received funds under the SFA Program which could allow them to avoid insolvency and improve their funded status. Under the American Rescue Plan Act and in accordance with regulations of the PBGC, the plans receiving funding under the SFA Program are not permitted to reduce employer contributions to their funds. The Company will continue to evaluate the impact of the assistance provided by the SFA Program on ABF Freight’s multiemployer pension plan contributions. Through the term of the 2023 ABF NMFA, 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.
Based on the most recent funding information the Company has received, approximately
102
considered in the analysis of individually significant funds to be separately disclosed was after the financial assistance from the SFA Program.
Significant multiemployer pension funds and key participation information were as follows:
Pension | FIP/RP |
| |||||||||||||||||
Protection Act | Status | Contributions(d) | |||||||||||||||||
EIN/Pension | Zone Status(b) | Pending/ | (in thousands) | Surcharge | |||||||||||||||
Legal Name of Plan |
| Plan Number(a) |
| 2023 |
| 2022 |
| Implemented(c) |
| 2023 |
| 2022 |
| 2021 |
| Imposed(e) | |||
Central States, Southeast and Southwest Areas Pension Plan(1)(2) |
| 36-6044243 |
| Critical |
| Critical and Declining |
| Implemented(3) | $ | | $ | | $ | |
| No | |||
Western Conference of Teamsters Pension Plan(4) |
| 91-6145047 |
| Green |
| Green |
| No |
| |
| |
| |
| No | |||
Central Pennsylvania Teamsters Defined Benefit Plan(1)(4) |
| 23-6262789 |
| Green |
| Green |
| No |
| |
| |
| |
| No | |||
I. B. of T. Union Local No. 710 Pension Fund(5)(6) |
| 36-2377656 |
| Green(7) |
| Green(7) |
| No |
| |
| |
| |
| No | |||
New England Teamsters Pension Fund(8)(9) |
| 04-6372430 |
| Critical and Declining(10) |
| Critical and Declining(10) |
| Implemented(11) |
| |
| |
| | No | ||||
All other plans in the aggregate |
| |
| |
| | |||||||||||||
Total multiemployer pension contributions paid(12) | $ | | $ | | $ | |
Table Heading Definitions
(a) | The “EIN/Pension Plan Number” column provides the Federal Employer Identification Number (“EIN”) and the three-digit plan number, if applicable. |
(b) | Unless otherwise noted, the most recent PPA zone status available in 2023 and 2022 is for the plan’s year-end status at December 31, 2022 and 2021, respectively, and prior to financial assistance from the Pension Relief Act. The zone status is based on information received from the plan and was certified by the plan’s actuary. Green zone funds are those that are in neither endangered, critical, or critical and declining status and generally have a funded percentage of at least |
(c) | The “FIP/RP Status Pending/Implemented” column indicates if a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”), if applicable, is pending or has been implemented. |
(d) | Amounts reflect contributions made in the respective year and differ from amounts expensed during the year. |
(e) | The surcharge column indicates if a surcharge was paid by ABF Freight to the plan. |
Table Footnotes
(1) | ABF Freight System, Inc. was listed by the plan as providing more than |
(2) | Information for this fund was obtained from the 2022 annual funding notice, other notices received from the plan such as the 2023 notice of critical status, and the Form 5500 filed for the plan years ended December 31, 2022 and 2021. |
(3) | Adopted a rehabilitation plan effective March 25, 2008 as updated. Utilized amortization extension granted by the IRS effective December 31, 2003. |
(4) | Information for this fund was obtained from the annual funding notice, other notices received from the plan, and the Form 5500 filed for the plan years ended December 31, 2022 and 2021. |
(5) | The Company was listed by the plan as providing more than |
(6) | Information for this fund was obtained from the annual funding notice, other notices received from the plan, and the Form 5500 filed for the plan years ended January 31, 2023 and 2022. |
(7) | PPA zone status relates to plan years February 1, 2022 – January 31, 2023 and February 1, 2021 – January 31, 2022. |
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(8) | Contributions include $ |
(9) | Information for this fund was obtained from the annual funding notice, other notices received from the plan, and the Form 5500 filed for the plan years ended September 30, 2022 and 2021. |
(10) | PPA zone status relates to plan years October 1, 2022 – September 30, 2023 and October 1, 2021 – September 30, 2022. |
(11) | Adopted a rehabilitation plan effective January 1, 2009. The plan has been subsequently reviewed and restated effective January 1, 2023. |
(12) | Contribution levels can be impacted by several factors such as changes in business levels and the related time worked by contractual employees, contractual rate increases for pension benefits, and the specific funding structure, which differs among funds. The current and prior collective bargaining agreements and the related supplemental agreements provided for contributions to multiemployer pension plans to be frozen at the current rates for each fund, although certain funds have imposed contribution increases under their rehabilitation or funding improvement plans. The year-over-year changes in multiemployer pension plan contributions presented above were influenced by changes in Asset-Based shipment levels. |
For 2023, 2022, and 2021, approximately one-half of ABF Freight’s multiemployer pension contributions were made to the Central States Pension Plan. The funded percentages of the Central States Pension Plan, as set forth in information provided by the Central States Pension Plan, were
The funding notices for the 2022 plan year for the Western Pennsylvania Teamsters and Employers Pension Fund, the New York State Teamsters Conference Pension and Retirement Fund, and the Trucking Employees of North Jersey Welfare Fund, Inc. – Pension Fund reflected the reinstatement of benefits previously suspended due to the significantly improved status of each fund due to the funding provided by the SFA Program; however, these funds will be deemed to be in critical status through the end of 2051. The Company also previously received notice that the PBGC will provide financial assistance (by paying retiree benefits not to exceed the PBGC guarantee limits) to the Road Carriers Local 707 Pension Fund, which was declared insolvent; however, this fund received SFA Program funding during 2022. Approximately
ABF Freight has not received any other notification of plan reorganization or plan insolvency with respect to any multiemployer pension plan to which it contributes.
Health and Welfare Plans
ABF Freight contributes to
Higher benefit contribution rates following the 2023 ABF NMFA ratification and more hours worked to maintain capacity in the first half of the year and to service higher business levels in the second half of the year, resulted in an increase in contributions to health and welfare plans in 2023, compared to 2022. In 2022, more hours worked by ABF Freight’s contractual employees, as well as the hiring of additional contractual employees to service higher shipment levels resulted in an increase in contributions to multiemployer health and welfare plans in 2022, compared to 2021. Other than changes to benefit contribution rates and variances in rates and time worked, there have been no other significant items that affect the comparability of the Company’s 2023, 2022, and 2021 multiemployer health and welfare plan contributions.
104
NOTE L – STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Income
Components of accumulated other comprehensive income were as follows at December 31:
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) |
| |||||||||
Pre-tax amounts: | ||||||||||
Unrecognized net periodic benefit credit | $ | | $ | | $ | | ||||
Interest rate swap | | | | |||||||
Foreign currency translation |
| ( |
| ( |
| ( | ||||
Total | $ | | $ | | $ | | ||||
After-tax amounts: | ||||||||||
Unrecognized net periodic benefit credit | $ | | $ | | $ | | ||||
Interest rate swap | | | | |||||||
Foreign currency translation |
| ( |
| ( |
| ( | ||||
Total | $ | | $ | | $ | |
The following is a summary of the changes in accumulated other comprehensive income, net of tax, by component:
Unrecognized | Interest |
| Foreign | ||||||||||
Net Periodic | Rate | Currency | |||||||||||
| Total |
| Benefit Credit |
| Swap |
| Translation | ||||||
(in thousands) | |||||||||||||
Balances at December 31, 2021 | $ | | $ | | $ | | $ | ( | |||||
Other comprehensive income (loss) before reclassifications | | | | ( | |||||||||
Amounts reclassified from accumulated other comprehensive income | ( | ( | — | — | |||||||||
Net current-period other comprehensive income (loss) | | | | ( | |||||||||
Balances at December 31, 2022 | $ | | $ | | $ | | $ | ( | |||||
Other comprehensive income (loss) before reclassifications |
| ( |
| ( | ( |
| | ||||||
Amounts reclassified from accumulated other comprehensive income |
| ( |
| ( | — |
| — | ||||||
Net current-period other comprehensive income (loss) |
| ( |
| ( | ( |
| | ||||||
Balances at December 31, 2023 | $ | | $ | | $ | | $ | ( |
The following is a summary of the significant reclassifications out of accumulated other comprehensive income by component for the years ended December 31:
Unrecognized Net Periodic | |||||||
Benefit Credit |
| ||||||
| 2023 |
| 2022 |
| |||
(in thousands) |
| ||||||
Amortization of net actuarial gain, pre-tax(1) | $ | | $ | | |||
Tax expense | ( |
| ( | ||||
Total, net of tax | $ | | $ | |
(1) | Included in the computation of net periodic benefit credit of the Company’s supplemental benefit plan (“SBP”) and postretirement health benefit plan (see Note K). |
105
Dividends on Common Stock
The following table is a summary of dividends declared during the applicable quarter:
2023 | 2022 | ||||||||||||
| Per Share |
| Amount |
| Per Share |
| Amount |
| |||||
(in thousands, except per share data) | |||||||||||||
First quarter | $ | $ | $ | | $ | | |||||||
Second quarter | $ | $ | $ | | $ | | |||||||
Third quarter | $ | $ | $ | | $ | | |||||||
Fourth quarter | $ | $ | $ | | $ | |
On February 2, 2024, the Company’s Board of Directors declared a dividend of $
Treasury Stock
The Company has a program to repurchase its common stock in the open market or in privately negotiated transactions (the “share repurchase program”). The share repurchase 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.
In February 2023, the Board of Directors reauthorized the share repurchase program and increased the total amount available for purchases of the Company’s common stock under the program to $
NOTE M – SHARE-BASED COMPENSATION
Stock Awards
The Company had outstanding RSUs granted under the ArcBest Corporation Ownership Incentive Plan (the “Ownership Incentive Plan”) as of December 31, 2023 and 2022. The Ownership Incentive Plan provides for the granting of
Restricted Stock Units
A summary of the Company’s RSU award program is presented below:
Weighted-Average | ||||||
| Grant Date | |||||
Units | Fair Value |
| ||||
Outstanding – January 1, 2023 | | $ | | |||
Granted | | $ | | |||
Vested | ( | $ | | |||
Forfeited(1) | ( | $ | | |||
Outstanding – December 31, 2023 | | $ | |
(1) | Forfeitures are recognized as they occur. |
106
The Compensation Committee of the Company’s Board of Directors granted RSUs during the years ended December 31 as follows:
k
Weighted-Average |
| |||||
Grant Date |
| |||||
| Units |
| Fair Value |
| ||
2023 |
| | $ | | ||
2022 |
| | $ | | ||
2021 |
| | $ | |
The fair value of restricted stock awards that vested in 2023, 2022, and 2021 was $
NOTE N – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands, except share and per share data) |
| |||||||||
Basic | ||||||||||
Numerator: | ||||||||||
Net income from continuing operations | $ | | $ | | $ | | ||||
Net income from discontinued operations |
| |
| |
| | ||||
Net income | $ | | $ | | $ | | ||||
Denominator: | ||||||||||
Weighted-average shares |
| |
| |
| | ||||
Basic earnings per common share | ||||||||||
Continuing operations | $ | | $ | | $ | | ||||
Discontinued operations | | | | |||||||
Total basic earnings per common share(1) | $ | | $ | | $ | | ||||
Diluted | ||||||||||
Numerator: | ||||||||||
Net income from continuing operations | $ | | $ | | $ | | ||||
Net income from discontinued operations |
| |
| |
| | ||||
Net income | $ | | $ | | $ | | ||||
Denominator: | ||||||||||
Weighted-average shares | |
| |
| | |||||
Effect of dilutive securities |
| |
| |
| | ||||
Adjusted weighted-average shares and assumed conversions |
| |
| |
| | ||||
Diluted earnings per common share | ||||||||||
Continuing operations | $ | | $ | | $ | | ||||
Discontinued operations | | | | |||||||
Total diluted earnings per common share(1) | $ | | $ | | $ | |
(1) | Earnings per common share is calculated in total and may not equal the sum of earnings per common share from continuing operations and discontinued operations due to rounding. |
107
NOTE O – 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 (loss), and key operating statistics to evaluate performance and allocate resources to the Company’s operations.
On February 28, 2023, the Company sold FleetNet, a wholly owned subsidiary and reportable operating segment of the Company. Following the sale, FleetNet is reported as discontinued operations. As such, historical results of FleetNet have been excluded from both continuing operations and segment results for all periods presented, and reclassifications have been made to the prior-period financial statements to conform to the current-year presentation.
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. The Asset-Based segment provides services to the Asset-Light segment, including freight transportation related to managed transportation solutions and other services. |
As previously discussed in Note A, the Asset-Based segment’s contractual employees are covered under the 2023 ABF NMFA, which was implemented on July 16, 2023, effective retroactive to July 1, 2023, and will remain in effect through June 30, 2028. The major economic provisions of the 2023 ABF NMFA include wage and mileage rate increases in each year of the contract, with the initial increase effective retroactive to July 1, 2023; profit-sharing bonuses upon the Asset-Based segment’s achievement of certain annual operating ratios for any full calendar year under the contract; an additional paid holiday; two additional paid sick days; and a new non-CDL employee classification. The 2023 ABF NMFA and the related supplemental agreements provide for annual contribution rate increases to multiemployer health and welfare and pension funds to which ABF Freight contributed under the previous agreement.
● | The Asset-Light segment includes the results of operations of the Company’s service offerings in truckload, ground expedite, dedicated, intermodal, household goods moving, managed transportation, warehousing and distribution, and international freight transportation for air, ocean, and ground. The Asset-Light segment provides services to the Asset-Based segment. |
The Company’s other business activities and operations that are not reportable segments include ArcBest Corporation (the parent holding company) and certain 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 operating 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 Company’s Board of Directors, and certain technology investments. Shared services costs attributable to the reportable operating segments are predominantly allocated based upon estimated and planned resource utilization-related metrics such as estimated shipment levels 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 reportable 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.
108
The following table reflects reportable operating segment information from continuing operations for the years ended December 31:
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) |
| |||||||||
REVENUES | ||||||||||
Asset-Based | $ | | $ | | $ | | ||||
Asset-Light |
| |
| |
| | ||||
Other and eliminations |
| ( |
| ( |
| ( | ||||
Total consolidated revenues | $ | | $ | | $ | | ||||
OPERATING EXPENSES | ||||||||||
Asset-Based | ||||||||||
Salaries, wages, and benefits | $ | | $ | | $ | | ||||
Fuel, supplies, and expenses |
| |
| |
| | ||||
Operating taxes and licenses |
| |
| |
| | ||||
Insurance |
| |
| |
| | ||||
Communications and utilities |
| |
| |
| | ||||
Depreciation and amortization |
| |
| |
| | ||||
Rents and purchased transportation |
| |
| |
| | ||||
Shared services | | | | |||||||
(Gain) loss on sale of property and equipment and lease impairment charges(1) |
| |
| ( |
| ( | ||||
Innovative technology costs(2) | | | | |||||||
Other |
| |
| |
| | ||||
Total Asset-Based |
| |
| |
| | ||||
Asset-Light | ||||||||||
Purchased transportation |
| |
| |
| | ||||
Supplies and expenses(3) |
| |
| |
| | ||||
Depreciation and amortization(4) |
| |
| |
| | ||||
Shared services | | | | |||||||
Contingent consideration(5) | ( | | — | |||||||
Lease impairment charges(6) | | — | — | |||||||
Legal settlement(7) | | — | — | |||||||
Gain on sale of subsidiary(8) | — | ( | ( | |||||||
Other(3) | |
| |
| | |||||
Total Asset-Light |
| |
| |
| | ||||
Other and eliminations |
| ( |
| ( |
| ( | ||||
Total consolidated operating expenses | $ | | $ | | $ | | ||||
OPERATING INCOME (LOSS) | ||||||||||
Asset-Based | $ | | $ | | $ | | ||||
Asset-Light |
| ( |
| |
| | ||||
Other and eliminations(9) |
| ( |
| ( |
| ( | ||||
Total consolidated operating income | $ | | $ | | $ | | ||||
OTHER INCOME (COSTS) | ||||||||||
Interest and dividend income | $ | | $ | | $ | | ||||
Interest and other related financing costs |
| ( |
| ( |
| ( | ||||
Other, net(10) |
| |
| ( |
| | ||||
Total other income (costs) |
| |
| ( |
| ( | ||||
INCOME BEFORE INCOME TAXES | $ | | $ | | $ | |
(1) | For 2023, includes a $ |
(2) | Represents costs associated with the freight handling pilot test program at ABF Freight, for which the decision was made to pause the pilot during third quarter 2023. |
(3) | For 2022 and 2021, amounts have been adjusted from those previously reported to reclass certain facility rent expense between line items within the Asset-Light segment. Adjustments made are not material. |
(4) | Depreciation and amortization includes amortization of intangibles associated with acquired businesses. |
(5) | Represents the change in fair value of the contingent earnout consideration to the MoLo acquisition (see Note C). |
(6) | Represents noncash lease-related impairment charges for certain Asset-Light office spaces that were made available for sublease. |
(7) | Represents estimated expenses to settle a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act. |
(8) | Gain recognized relates to the sale of the labor services portion of the Asset-Light segment’s moving business in second quarter 2021, including the contingent amount recognized in second quarter 2022 when the funds were released from escrow. |
109
(9) | For 2023, “Other and eliminations” includes $ |
(10) | Includes the components of net periodic benefit cost (credit) other than service cost related to the Company’s SBP and postretirement plans (see Note K) and proceeds and changes in cash surrender value of life insurance policies. For 2023, includes a $ |
The following table reflects information about revenues from customers and intersegment revenues for the years ended December 31:
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) |
| |||||||||
Revenues from customers | ||||||||||
Asset-Based | $ | | $ | | $ | | ||||
Asset-Light |
| |
| |
| | ||||
Other |
| |
| |
| | ||||
Total consolidated revenues | $ | | $ | | $ | | ||||
Intersegment revenues | ||||||||||
Asset-Based | $ | | $ | | $ | | ||||
Asset-Light | | | | |||||||
Other and eliminations | ( | ( | ( | |||||||
Total intersegment revenues | $ | — | $ | — | $ | — | ||||
Total segment revenues | ||||||||||
Asset-Based | $ | | | $ | | |||||
Asset-Light | | | | |||||||
Other and eliminations | ( | ( | ( | |||||||
Total consolidated revenues | $ | | $ | | $ | |
110
The following table provides capital expenditure and depreciation and amortization information by reportable operating segment from continuing operations:
For the year ended December 31 | ||||||||||
| 2023 |
| 2022 |
| 2021 | |||||
(in thousands) | ||||||||||
CAPITAL EXPENDITURES, GROSS | ||||||||||
Asset-Based(1) | $ | | $ | | $ | | ||||
Asset-Light | | | | |||||||
Other and eliminations(2)(3) |
| |
| |
| | ||||
$ | | $ | | $ | |
For the year ended December 31 | ||||||||||
2023 |
| 2022 |
| 2021 | ||||||
(in thousands) | ||||||||||
DEPRECIATION AND AMORTIZATION EXPENSE(2) | ||||||||||
Asset-Based | $ | | $ | | $ | | ||||
Asset-Light(4) | | | | |||||||
Other and eliminations(2) |
| |
| |
| | ||||
$ | | $ | | $ | |
(1) | Includes assets acquired through notes payable of $ |
(2) | Other and eliminations includes certain assets held for the benefit of multiple segments, including information systems equipment. For 2022, also includes the purchase of a property for $ |
(3) | Includes assets acquired through notes payable of $ |
(4) | Includes amortization of intangibles of $ |
A table of assets by reportable operating segment has not been presented as segment assets are not included in reports regularly provided to management nor does management consider segment assets for assessing segment operating performance or allocating resources.
The Company incurred research and development costs of $
The following table presents operating expenses by category on a consolidated basis:
| For the year ended December 31 |
| ||||||||
| 2023 |
| 2022 |
| 2021 |
| ||||
(in thousands) | ||||||||||
OPERATING EXPENSES | ||||||||||
Salaries, wages, and benefits | $ | | $ | | $ | | ||||
Rents, purchased transportation, and other costs of services |
| |
| |
| | ||||
Fuel, supplies, and expenses(1) |
| |
| |
| | ||||
Depreciation and amortization(2) |
| |
| |
| | ||||
Contingent consideration(3) | ( | | — | |||||||
Lease impairment charges(4) | | — | — | |||||||
Other(1)(5) |
| |
| |
| | ||||
$ | | $ | | $ | |
(1) | For 2022 and 2021, amounts have been adjusted from those previously reported to reclass certain facility rent expense between line items within the Asset-Light segment. Adjustments made are not material. |
(2) | Includes amortization of intangibles assets. |
(3) | Represents the change in fair value of the contingent earnout consideration related to the MoLo acquisition (see Notes C and E). |
(4) | Represents noncash lease-related impairment charges for a freight handling pilot facility, a service center, and office spaces that were made available for sublease. |
(5) | For 2023, includes estimated expenses of $ |
111
the Asset-Based segment and the sale of replaced equipment and a like-kind exchange of a service center property in the prior year. For 2021, includes a $ |
NOTE P – 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.
Legal Proceedings
In January 2023, the Company and MoLo were named as defendants in lawsuits related to an auto accident which involved a MoLo contract carrier. The accident occurred prior to the Company’s acquisition of MoLo on November 1, 2021. The Company intends to vigorously defend against these lawsuits. The Company believes that a loss related to this matter is reasonably possible. The Company cannot estimate the amount or a range of reasonably possible losses for this matter, if any, at this time; however, it is reasonably possible that such amounts could be material to the Company’s financial condition, results of operations, or cash flows. The Company will pursue recovery for its losses, if any, against all available sources, including, but not limited to, insurance and any potentially responsible third parties.
Environmental Matters
The Company’s subsidiaries store fuel for use in tractors and trucks in underground tanks 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 of 1980, as amended, 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. The Company maintains a reserve within accrued expenses for estimated environmental cleanup costs of properties currently or previously operated by the 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.
On March 20, 2023, ABF Freight entered into a consent decree with the EPA (the “Consent Decree”) to resolve alleged compliance issues under the federal Clean Water Act (the “CWA”) and, as a result, paid civil penalties of $
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Other Events
During second quarter 2023, the Company received a Notice of Assessment from a state regarding an ongoing sales and use tax audit for the trailing time period of December 1, 2018 to March 31, 2021. This notice is in addition to the February 2021 Notice of Assessment from that state pertaining to uncollected sales and use tax, including interest and penalties, for the period of September 1, 2016 to November 30, 2018. The Company does not agree with the basis of these assessments and filed an appeal for the 2023 assessment in October 2023 on the same legal basis as the appeal filed in May 2021 for the earlier assessment. The Company has previously accrued an amount related to these assessments consistent with applicable accounting guidance, but if the state prevails in its position, the Company may owe additional tax. Management does not believe the resolution of this matter will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
During fourth quarter 2023, the Company tentatively settled a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act for approximately $
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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.CONTROLS AND PROCEDURES
An evaluation was performed by the Company’s management, under the supervision and with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2023. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that the Company files under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on such evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2023 at the reasonable assurance level.
There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s assessment of internal control over financial reporting and the report of the independent registered public accounting firm appear on the following pages.
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MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
(i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
(ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the Board of Directors of the Company; and | |
(iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted its evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal control over financial reporting, based on our evaluation, we have concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023.
The Company’s independent registered public accounting firm Ernst & Young LLP, who has also audited the Company’s consolidated financial statements, has issued a report on the Company’s internal control over financial reporting. This report appears on the following page.
115
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of ArcBest Corporation
Opinion on Internal Control Over Financial Reporting
We have audited ArcBest Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, ArcBest Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in Part IV, Index at Item 15(a)(2) and our report dated February 23, 2024, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 23, 2024
116
ITEM 9B.OTHER INFORMATION
(a) | None. |
(b) | During the three months ended December 31, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) |
ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is contained in the Company’s Definitive Proxy Statement to be filed within 120 days after December 31, 2023, pursuant to Regulation 14A of the Exchange Act in connection with the Company’s Annual Stockholders’ Meeting to be held April 26, 2024 and is incorporated herein by reference.
ITEM 11.EXECUTIVE COMPENSATION
The information required by this item is contained in the Company’s Definitive Proxy Statement to be filed within 120 days after December 31, 2023, pursuant to Regulation 14A of the Exchange Act in connection with the Company’s Annual Stockholders’ Meeting to be held April 26, 2024 and is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is contained in the Company’s Definitive Proxy Statement to be filed within 120 days after December 31, 2023, pursuant to Regulation 14A of the Exchange Act in connection with the Company’s Annual Stockholders’ Meeting to be held April 26, 2024 and is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is contained in the Company’s Definitive Proxy Statement to be filed within 120 days after December 31, 2023, pursuant to Regulation 14A of the Exchange Act in connection with the Company’s Annual Stockholders’ Meeting to be held April 26, 2024 and is incorporated herein by reference.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is contained in the Company’s Definitive Proxy Statement to be filed within 120 days after December 31, 2023, pursuant to Regulation 14A of the Exchange Act in connection with the Company’s Annual Stockholders’ Meeting to be held April 26, 2024 and is incorporated herein by reference.
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PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)Financial Statements
A list of the financial statements filed as a part of this Annual Report on Form 10-K is set forth in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated by reference.
(a)(2) Financial Statement Schedules
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ARCBEST CORPORATION
On February 28, 2023, the Company sold FleetNet America, Inc. (“FleetNet”), a wholly owned subsidiary and reportable operating segment of the Company. The sale of FleetNet was accounted for as discontinued operations. As such, reclassifications have been made to the balances, additions, and deductions below to exclude the impact of FleetNet. (See Note D to the Company’s consolidated financial statements included in Part II, Item 8 of the Annual Report on Form 10-K).
| ||||||||||||||||
Balances at | Additions | Balances at | ||||||||||||||
Beginning of | Charged to Costs | Charged to | End of | |||||||||||||
Description |
| Period |
| and Expenses |
| Other Accounts |
| Deductions |
| Period |
| |||||
(in thousands) |
| |||||||||||||||
Year Ended December 31, 2023 | ||||||||||||||||
Deducted from asset accounts: | ||||||||||||||||
Allowance for credit losses and revenue adjustments | $ | | $ | | $ | | (a) | $ | | (b) | $ | | ||||
Allowance for other accounts receivable | $ | | $ | | (c) | $ | — | $ | — | $ | | |||||
Allowance for deferred tax assets | $ | | $ | — | $ | — | $ | ( | (d) | $ | | |||||
Year Ended December 31, 2022 | ||||||||||||||||
Deducted from asset accounts: | ||||||||||||||||
Allowance for credit losses and revenue adjustments | $ | | $ | | $ | | (a) | $ | | (b) | $ | | ||||
Allowance for other accounts receivable | $ | | $ | | (c) | $ | — | $ | — | $ | | |||||
Allowance for deferred tax assets | $ | | $ | — | $ | — | $ | | (d) | $ | | |||||
Year Ended December 31, 2021 | ||||||||||||||||
Deducted from asset accounts: | ||||||||||||||||
Allowance for credit losses and revenue adjustments | $ | | $ | | $ | | (a)(e) | $ | | (b) | $ | | ||||
Allowance for other accounts receivable | $ | | $ | | (c) | $ | — | $ | — | $ | | |||||
Allowance for deferred tax assets | $ | | $ | — | $ | — | $ | ( | (d) | $ | |
(a) | Change in allowance due to recoveries of amounts previously written off and revenue adjustments. |
(b) | Includes uncollectible accounts written off and revenue adjustments. |
(c) | Charged to workers’ compensation expense. |
(d) | Change in allowance due to changes in expectations of realization of certain federal and state net operating losses and federal and state deferred tax assets. |
(e) | Includes allowance assumed in the acquisition of MoLo Solutions, LLC. (See Note E to the Company’s consolidated financial statements included in Part II, Item 8 of the Annual Report on Form 10-K). |
118
(a)(3) Exhibits
Exhibit | ||
2.1 | ||
2.2 | ||
2.3 | ||
2.4 | ||
3.1 | ||
3.2 | ||
4.1* | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5# | ||
10.6# | ||
10.7# |
119
10.8# | ||
10.9# | ||
10.10# | ||
10.11#* | ||
10.12# | ||
10.13# | ||
10.14# | ||
10.15# | ||
10.16# | ||
10.17# | ||
10.18# | ||
10.19# | ||
10.20# | ||
10.21# | ||
10.22# | ||
10.23# | ||
10.24# | ||
10.25# |
120
10.26# | ||
10.27# | ||
10.28# | ||
10.29# | ||
10.30# | ||
10.31# | ||
10.32# | ||
10.33# | ||
10.34# | ||
10.35# | ||
10.36# | ||
10.37# | ||
10.38# | ||
10.39# | ||
10.40# | ||
10.41# | ||
10.42# |
121
10.43 | ||
10.44 | ||
10.45 | ||
10.46 | ||
21* | ||
23* | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | |
31.1* | ||
31.2* | ||
32** | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
97#* | ||
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. |
(b) Exhibits
See Item 15(a)(3) above.
ITEM 16.FORM 10-K SUMMARY
None.
122
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ARCBEST CORPORATION | |||
Date: | February 23, 2024 | By: | /s/ Judy R. McReynolds |
Judy R. McReynolds | |||
Chairman, President and Chief Executive Officer | |||
(Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Judy R. McReynolds | Chairman, President and Chief Executive Officer | February 23, 2024 | ||
Judy R. McReynolds | (Principal Executive Officer) | |||
/s/ J. Matthew Beasley | Chief Financial Officer (Principal Financial Officer) | February 23, 2024 | ||
J. Matthew Beasley | ||||
/s/ Jason T. Parks | Vice President – Controller and Chief Accounting | February 23, 2024 | ||
Jason T. Parks | Officer (Principal Accounting Officer) | |||
/s/ Salvatore A. Abbate | Director | February 23, 2024 | ||
Salvatore A. Abbate | ||||
/s/ Eduardo F. Conrado | Director | February 23, 2024 | ||
Eduardo F. Conrado | ||||
/s/ Fredrik J. Eliasson | Director | February 23, 2024 | ||
Fredrik J. Eliasson | ||||
/s/ Michael P. Hogan | Director | February 23, 2024 | ||
Michael P. Hogan | ||||
/s/ Kathleen D. McElligott | Director | February 23, 2024 | ||
Kathleen D. McElligott | ||||
/s/ Craig E. Philip | Director | February 23, 2024 | ||
Craig E. Philip | ||||
/s/ Steven L. Spinner | Director | February 23, 2024 | ||
Steven L. Spinner | ||||
/s/ Janice E. Stipp | Director | February 23, 2024 | ||
Janice E. Stipp |
123
DESCRIPTION OF COMMON STOCK
General
ArcBest Corporation (“ArcBest,” “we,” “us,” or “our”) is incorporated in the state of Delaware. The rights of ArcBest’s stockholders are generally covered by Delaware law and our Second Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) and Seventh Amended and Restated Bylaws (“Bylaws”) (each as amended and restated in effect as of the date hereof). The terms of our common stock are therefore subject to Delaware law, including the Delaware General Corporation Law (the “DGCL”), and the common and constitutional law of Delaware.
This exhibit describes the general terms of our common stock. This is a summary and does not purport to be complete. Our Certificate of Incorporation and Bylaws as they exist on the date of this Annual Report on Form 10-K are incorporated by reference or filed as an exhibit to the Annual Report on Form 10-K of which this exhibit is a part, and amendments or restatements of each will be filed with the Securities and Exchange Commission (the “SEC”) in future periodic or current reports in accordance with the rules of the SEC. You are encouraged to read those documents.
For more detailed information about the rights of our common stock, you should refer to our Certificate of Incorporation, Bylaws and the applicable provisions of Delaware law, including the DGCL.
Authorized Capital Stock
Our authorized capital stock is 80,000,000 shares. Those shares consist of: (1) 10,000,000 shares of preferred stock, par value $0.01 per share, none of which are outstanding; and (2) 70,000,000 shares of common stock, par value $0.01 per share, of which 23,520,701 shares were outstanding as of February 19, 2024.
Common Stock
Dividends
Subject to the rights of any then outstanding shares of preferred stock that we may issue, the holders of our common stock may receive such dividends as our board of directors (“Board”) may declare in its discretion out of legally available funds.
Fully Paid
All outstanding shares of common stock are fully paid and non-assessable. Any additional shares of common stock that we issue will also be fully paid and non-assessable.
Voting Rights
Subject to any special voting rights of any series of preferred stock that we may issue in the future, the holders of our common stock may vote one vote for each share held in the election of directors and on all other matters voted upon by our stockholders. Under our Bylaws, unless otherwise required by our Certificate of Incorporation or Delaware law, action by our stockholders is taken by the affirmative vote of the holders of a majority of the votes cast, except for elections of directors, which are determined
1
by a plurality of the votes cast, at a meeting of stockholders at which a quorum is present. Holders of common stock may not cumulate their votes in the elections of directors.
Other Rights
We will notify common stockholders of any stockholders’ meetings according to applicable law. If we liquidate, dissolve or wind-up our business, either voluntarily or not, holders of our common stock will share equally in our net assets upon liquidation after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding. The holders of common stock have no preemptive rights to purchase shares of our common stock. Shares of common stock are not subject to any redemption or sinking fund provisions and are not convertible into any of our other securities.
Preferred Stock
Our Board can, without approval of our stockholders, issue one or more series of preferred stock. Subject to the provisions of our Certificate of Incorporation and limitations prescribed by law, our Board may adopt resolutions to issue the shares of preferred stock, to fix the number of shares, and to change the number of shares constituting any series and establish the voting powers, designations, preferences and relative participating, optional or other special rights, qualifications, limitations or restrictions thereof, including dividend rights (including whether dividends are cumulative), dividend rates, terms of redemption (including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the shares constituting any series of preferred stock, in each case without any further action or vote by our stockholders. Under certain circumstances, preferred stock could restrict dividend payments to holders of our common stock. No shares of our preferred stock are currently outstanding. The preferred stock will, when issued, be fully paid and non-assessable.
Undesignated or “blank check” preferred stock may enable our Board to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and to thereby protect the continuity of our management. The issuance of shares of preferred stock may adversely affect the rights of the holders of our common stock or any existing preferred stock. For example, any preferred stock issued may rank prior to our common stock or any existing preferred stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock or any existing preferred stock. As a result, the issuance of shares of preferred stock may discourage bids for our common stock or may otherwise adversely affect the market price of our common stock or any existing preferred stock.
Anti-Takeover Provisions
Certain provisions in our Certificate of Incorporation and Bylaws may encourage persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with the Board rather than pursue non-negotiated takeover attempts.
Blank Check Preferred Stock
As discussed herein, our Certificate of Incorporation authorizes the issuance of blank check preferred stock from time to time in one or more series. The Board can set the powers, voting powers, designations, preferences and relative, participating, optional or other rights, if any, of each series of preferred stock and the qualifications, limitations or restrictions, if any, of such preferences and/or rights relating to such preferred stock and could issue such stock in either private or public transactions. In some circumstances, the blank check preferred stock could be issued and have the effect of preventing a merger, tender offer or other takeover attempt that the Board opposes.
2
Business Combinations Under the DGCL
We are a Delaware corporation and are subject to Section 203 of the DGCL. Section 203 prevents a person who, together with any affiliates or associates of such person, beneficially owns, directly or indirectly, 15% or more of our outstanding voting stock (an “interested stockholder”) from engaging in certain business combinations with us for three years following the date that the interested stockholder became an interested stockholder. These restrictions do not apply if:
● | before the person became an interested stockholder, our Board approved either the business combination or the transaction in which the interested stockholder became an interested stockholder; |
● | upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of our outstanding voting stock at the time the transaction commenced, excluding stock held by directors who are also officers of the corporation and stock held by certain employee stock plans; or |
● | at or subsequent to such time the interested stockholder became an interested stockholder, the business combination is approved by our Board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
In general, Section 203 defines a “business combination” to include (1) any merger or consolidation involving the corporation or any majority-owned subsidiary of the corporation and an interested stockholder; (2) any sale, lease, transfer, pledge or other disposition involving an interested stockholder of 10% or more of the assets of the corporation; (3) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation or any majority-owned subsidiary of the corporation of any stock of the corporation or such subsidiary to an interested stockholder; (4) any transaction involving the corporation or any majority-owned subsidiary of the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation or any such subsidiary beneficially owned by the interested stockholder; or (5) the receipt by an interested stockholder of any loans, guarantees, pledges or other financial benefits provided by or through the corporation or any majority-owned subsidiary of the corporation.
Choice of Forum
Our Bylaws provide that unless ArcBest consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of ArcBest, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of ArcBest to ArcBest or ArcBest’s stockholders, (iii) any action asserting a claim against ArcBest or any director or officer or other employee of ArcBest arising pursuant to any provision of the DGCL or our Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim against ArcBest or any director or officer or other employee of ArcBest governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware or, if the Court of Chancery does not have jurisdiction, a state court located within the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware.
3
Special Certificate of Incorporation and Bylaw Provisions
Election of Directors; Resignation Policy
Our Bylaws provide that all directors are to be elected annually by a plurality vote. Without changing the requirement for a plurality vote in the election of directors, our Bylaws also provide that any director in an uncontested election who does not receive the affirmative vote of a majority of the votes cast must promptly tender his or her resignation to the Board following certification of the stockholder vote. The Nominating/Corporate Governance Committee will consider any resignation tendered under this policy and recommend to the Board whether to accept or reject it, and the Board will act on such resignation within 90 days following the certification of the election results.
Advance Notice Requirements
Our Bylaws contain provisions requiring that advance notice be delivered to the secretary of ArcBest of any business to be brought by a stockholder before an annual or special meeting of stockholders, including the nomination and election of directors. Generally, such advance notice provisions provide that the stockholder must give written notice to the secretary of ArcBest not earlier than 120 days and not later than 90 days prior to the first anniversary date of the annual meeting for the preceding year in the case of an annual meeting and not later than the close of business on the tenth day following the first day on which the date of the special meeting is publicly announced in the case of a special meeting. The notice must set forth specific information regarding such stockholder and such business or director nominee, as described in our Bylaws. Such requirement is in addition to those set forth in the regulations adopted by the SEC under the Exchange Act.
Board Composition and Filling Vacancies
Our Bylaws provide that the number of directors shall be fixed from time to time by resolution of the Board. Each director shall hold office for the term for which that individual is elected and thereafter until that individual’s successor is elected or until such individual’s earlier death, resignation, retirement, disqualification or removal. In the event of a vacancy of the Board, the remaining directors exclusively, by vote of a majority thereof, have the right to fill the vacancy.
Actions by Stockholders
No Written Consent of Stockholders. Our Certificate of Incorporation provides that any action required or permitted to be taken by stockholders must be taken at an annual or special meeting of such stockholders and may not be taken by any consent in writing of such stockholders.
Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called at any time by the Chairman of the Board, by resolution adopted by the affirmative vote of the majority of the Board, or our President.
Amendment. Our Bylaws may be amended by the affirmative vote of the Board or by the affirmative vote of the holders of at least 75% of the stock issued and outstanding and entitled to vote thereon. Our Certificate of Incorporation may be amended by the affirmative vote of the holders of at least 66-2/3% of our outstanding voting stock.
Mergers and Consolidations. A merger or consolidation of ArcBest with or into any other corporation, or the sale or other disposition of all or substantially all of the assets of ArcBest to or with
4
any other corporation, person or other entity, requires the affirmative vote of the holders of at least 66-2/3% of our outstanding voting stock.
The foregoing provisions of our Certificate of Incorporation and Bylaws, together with the provisions of Section 203 of the DGCL, could have the effect of delaying, deferring or preventing a change in control or the removal of existing management, of deterring potential acquirors from making an offer to our stockholders and of limiting any opportunity to realize premiums over prevailing market prices for our common stock in connection therewith. This could be the case notwithstanding that a majority of our stockholders might benefit from such a change in control or offer.
Limitation of Liability of Directors and Officers
Our Certificate of Incorporation limits the liability of directors and officers to us and our stockholders to the fullest extent permitted by Delaware law. Specifically, our directors and officers will not be personally liable for monetary damages for breach of a director or officer’s fiduciary duty in such capacity, except for liability:
● | for any breach of the director or officer’s duty of loyalty to us or our stockholders; |
● | for any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law; |
● | with respect to any director, for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; |
● | for any transaction from which the director or officer derived an improper personal benefit; or |
● | with respect to any officer, in any action by or in right of us. |
The inclusion of this provision in our Certificate of Incorporation may reduce the likelihood of derivative litigation against our directors or officers, and may discourage or deter stockholders or management from bringing a lawsuit against our directors or officers for breach of their duty of care, even though such an action, if successful, might have otherwise benefitted us and our stockholders. Our Certificate of Incorporation provides indemnification to our directors and officers and certain other persons with respect to certain matters to the maximum extent allowed by Delaware law as it exists now or may hereafter be amended. These provisions do not alter the liability of directors and officers under federal securities laws and do not affect the right to sue (nor to recover monetary damages) under federal securities laws for violations thereof.
Listing
Our outstanding shares of common stock are listed on The Nasdaq Global Select Market under the symbol “ARCB.”
Transfer Agent and Registrar
Our transfer agent and registrar of the common stock is Equiniti Trust Company, LLC.
5
EXHIBIT 10.11
ARCBEST CORPORATION
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Non-Employee Directors – with deferral feature)
Participant: | |
Date of Grant: | |
Award Number: | |
Total Number of Units Granted: |
This Restricted Stock Unit Award Agreement (this “Agreement”) is dated as of this [ ] day of [ ], [ ] (the “Grant Date”), and is between ArcBest Corporation (the “Company”) and the “Participant” named above.
WHEREAS, the Company, by action of the Board and approval of its shareholders established the ArcBest Corporation Ownership Incentive Plan (the “Plan”);
WHEREAS, Participant is a member of the Board and is not employed by the Company or a Subsidiary;
WHEREAS, the Company desires to encourage Participant to own Common Stock for the purposes stated in Section 1 of the Plan; and
WHEREAS, Participant and the Company have entered into this Agreement to govern the terms of the Restricted Stock Unit Award (as defined below) granted to Participant by the Company.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:
Defined terms in the Plan shall have the same meaning in this Agreement, except where the context otherwise requires.
On the Grant Date, the Company hereby grants to Participant an Award of Restricted Stock Units (the “Award”) in accordance with Section 9 of the Plan and subject to the conditions set forth in this Agreement and the Plan (as amended from time to time). Each Restricted Stock Unit subject to the Award represents the right to receive one Share (as adjusted from time to time pursuant to Paragraph 13 hereof and/or Section 13 of the Plan) upon the terms and subject to the conditions (including the vesting conditions) set forth in this Agreement and the Plan. By accepting the Award, Participant irrevocably agrees on behalf of Participant and Participant’s
successors and permitted assigns to all of the terms and conditions of the Award as set forth in or pursuant to this Agreement and the Plan (as such Plan may be amended from time to time).
Restricted Stock Units that have vested and are no longer subject to a substantial risk of forfeiture are referred to herein as “Vested Units.” Restricted Stock Units that are not vested and generally remain subject to forfeiture are referred to herein as “Unvested Units.”
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Notwithstanding the above, prior to a Change in Control, (i) for administrative or other reasons, the Company may from time to time temporarily suspend the issuance of Shares (whether or not deferred), (ii) the Company shall not be obligated to deliver any Shares during any period when the Company determines that the delivery of Shares hereunder would violate any federal, state or other applicable laws, and (iii) the date on which Shares are issued hereunder may include a delay in order to provide the Company such time as it determines appropriate to address tax withholding and other administrative matters. Any delay pursuant to 3(e)(ii) shall only be until such time that the Company determines that the delivery of shares would no longer violate any federal, state or other applicable law. Notwithstanding the delay for administrative or other reasons provided for in clauses (i) and (iii) above, in no event will such issuance of shares be delayed beyond the later of the end of the calendar year in which the Settlement Date occurs, or the 15th day of the third month after the end of such year, or such other time as permitted under Section 409A of the Code and the regulations thereunder without the imposition of any additional taxes under Section 409A of the Code.
Notwithstanding any other provision of the Plan, this Agreement or the Deferral Election Form to the contrary, the Plan, this Agreement and the Deferral Election Form shall be construed or deemed to be amended as necessary to comply with the requirements of Section 409A of the Code to avoid the imposition of any additional or accelerated taxes or other penalties under Section 409A of the Code. The Committee, in its sole discretion, shall determine the requirements of Section 409A of the Code applicable to the Plan, this Agreement and the Deferral Election Form and shall interpret the terms of the Plan, this Agreement and the Deferral Election Form consistently therewith. Under no circumstances, however, shall the Company have any liability under the Plan, this Agreement or the Deferral Election Form for any taxes, penalties or interest due on amounts paid or payable pursuant to the Plan, this Agreement or the Deferral Election Form, including any taxes, penalties or interest imposed under Section 409A of the Code.
Participant shall have no rights as a stockholder (including, without limitation, any voting rights with respect to the Shares subject to the Award and, except to the extent the Award is adjusted pursuant to Paragraph 13 hereof and/or Section 13 of the Plan, the right to receive any payments with respect to dividends or other distributions paid with respect to the Shares subject to this Award) with respect to either the Restricted Stock Units granted hereunder or the Shares underlying the Restricted Stock Units, unless and until such Shares are issued, and then only to the extent of such issued Shares.
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Participant is liable and responsible for all taxes owed in connection with the Award, regardless of any action the Company takes with respect to any tax reporting or withholding obligations that arise in connection with the Award. The Company does not make any representation or undertaking regarding the tax treatment of the grant or vesting of the Award or the subsequent sale of Shares issuable pursuant to the Award. The Company does not commit and is under no obligation to structure the Award to reduce or eliminate Participant’s tax liability.
Notwithstanding anything in this Agreement to the contrary, if any of the payments in respect of this Award, together with any other payments to which Participant has the right to receive from the Company or any purchaser, successor, or assign, would constitute an “excess parachute payment” (as defined in Section 280G of the Code), the payments pursuant to the Award and/or such other plans or agreements shall be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code.
The terms of this Agreement are governed by the terms of the Plan, as it exists on the Grant Date and as the Plan is amended from time to time. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the terms of the Plan shall control, except as expressly stated otherwise in this Agreement. The term “Section” generally refers to provisions within the Plan; provided, however, the term “Paragraph” shall refer to a provision of this Agreement.
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By entering into this Agreement and accepting the Award, Participant acknowledges that: (a) Participant’s participation in the Plan is voluntary and (b) the grant of the Award will not be interpreted to form an employment or Board member relationship with the Company or any Subsidiary. The Company shall be under no obligation whatsoever to advise Participant of the existence, maturity or termination of any of Participant’s rights hereunder and Participant shall be responsible for familiarizing himself or herself with all matters contained herein and in the Plan which may affect any of Participant’s rights or privileges hereunder.
Any question concerning the interpretation of this Agreement or the Plan, any adjustments required to be made under the Plan, and any controversy that may arise under the Plan or this Agreement shall be determined by the Committee in its sole and absolute discretion. Such decision by the Committee shall be final and binding.
(a) General Restrictions. Any sale, transfer, assignment, encumbrance, pledge, hypothecation, conveyance in trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind, whether voluntary or by operation of law, directly or indirectly, of (i) Unvested Units, (ii) Vested Units prior to the Settlement Date, or (iii) Shares subject to such Unvested Units or Vested Units, shall be strictly prohibited and void; provided, however, Participant may assign or transfer the Award to the extent permitted under the Plan, provided that the Award shall be subject to all the terms and condition of the Plan, this Agreement and any other terms required by the Committee as a condition to such transfer.
(b)Transfers by Covered Persons. If Participant is a “Covered Person” as defined in the ArcBest Corporation Stock Ownership Policy for Directors and Executives (the “Policy”) as amended from time to time, Participant agrees that he or she shall not sell or otherwise dispose or transfer any shares from this Award or any other Award except to the extent permitted by the Policy.
Pursuant to Section 15 of the Plan, if at any time prior to Participant’s receipt of Shares pursuant to the Award an Authorized Officer reasonably believes that Participant may have committed an Act of Misconduct (as defined below), the Authorized Officer, the Committee or the Board may suspend Participant’s rights to vest in any Restricted Stock Units, and/or to receive payment for or receive Shares in settlement of Vested Units pending a determination of whether an Act of Misconduct has been committed. In addition, pursuant to Section 15 of the Plan, if the Committee or an Authorized Officer determines Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company or any Subsidiary, breach of fiduciary duty, violation of Company ethics policy or code of conduct, deliberate disregard of Company or Subsidiary rules, or if Participant makes an unauthorized disclosure of any Company or Subsidiary trade secret or confidential information, solicits any employee or service provider to leave the employ or cease providing services to the Company or
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any Subsidiary, breaches any intellectual property or assignment of inventions covenant, engages in any conduct constituting unfair competition, breaches any non-competition agreement, induces any Company or Subsidiary customer to breach a contract with the Company or any Subsidiary or to cease doing business with the Company or any Subsidiary, or induces any principal for whom the Company or any Subsidiary acts as agent to terminate such agency relationship (any of the foregoing acts, an “Act of Misconduct”), then except as otherwise provided by the Committee, (i) neither Participant nor Participant’s estate nor transferee will be entitled to vest in or have the restrictions on Unvested Units lapse, or otherwise receive payment or Shares in respect of Vested Units and (ii) Participant will forfeit all undelivered (including deferred) Vested and Unvested Units. In making such determination, the Committee or an Authorized Officer shall give Participant an opportunity to appear and present evidence on his or her behalf at a hearing before the Committee or an opportunity to submit written comments, documents, information and arguments to be considered by the Committee. Any dispute by Participant or other person as to the determination of the Committee must be resolved pursuant to Paragraph 14(j).
In the event that the number of Shares increases or decreases through a reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend (other than regular, quarterly cash dividends), or otherwise, the Committee shall equitably adjust the number of Shares subject to this Award to reflect such increase or decrease.
Company:ArcBest Corporation
Attn:Executive Benefits
P.O. Box 10048
Fort Smith, AR 72917-0048
Fax: (479) 494-6770
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(i) Participant agrees that he or she will keep confidential all information and knowledge that Participant has relating to the manner and amount of his or her participation in the Plan; provided, however, that such information may be disclosed as required by law and may be given in confidence to Participant’s spouse, tax and financial advisors, or to a financial institution to the extent that such information is necessary to secure a loan.
(ii)Participant agrees that he or she will maintain the confidentiality of any Confidential Information to which he or she is entrusted by the Company, except when disclosure is authorized by the Company or required by laws or regulations. Confidential Information includes “trade secrets” as defined by applicable law and all other non-public information that might be of use to competitors, or harmful to the Company or its customers if disclosed. The obligation to preserve Confidential Information shall continue even after Participant’s service to the Company ends. Participant agrees that, in addition to all other legal and equitable remedies, the Company shall be entitled to seek injunctive relief in the event of a violation of this provision by the Participant.
(iii)Nothing in this Agreement will prevent Participant from: (A) making a good faith report of possible violations of applicable law to any governmental agency or entity or (B) making disclosures that are protected under the whistleblower provisions of
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applicable law. For the avoidance of doubt, nothing herein shall prevent Participant from making a disclosure that: (1) is made in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Further, an individual who files a lawsuit for retaliation by an employer of reporting a suspected violation of law may make disclosures without violating this Paragraph 14(g) to the attorney of the individual and use such information in the court proceeding.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
ARCBEST CORPORATION
By: _____________________________
Judy R. McReynolds
Chairman, President & CEO
PARTICIPANT
________________________________
[First Name/MI/Last Name]
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Return Deferral Form by December 31, [ ]
Exhibit A
ARCBEST CORPORATION
RESTRICTED STOCK UNIT
INITIAL DEFERRAL ELECTION FORM FOR [ ] AWARDS
Effective as of ________________, the undersigned hereby irrevocably elects (the “Election”) to defer receipt of certain shares of common stock (the “Shares”) of ArcBest Corporation (the “Company”) related to the Restricted Stock Units (the “Award”) awarded under and pursuant to any Restricted Stock Unit Award Agreement dated between January 1, [ ] and December 31, [ ] (the “Award Agreement”) and the ArcBest Corporation Ownership Incentive Plan, as amended from time to time (the “Plan”). This deferral shall be made in accordance with the terms and provisions outlined in this Election in the manner and amount set forth below. In making this Election, you may elect to defer the settlement of all or a portion of your Award. Your deferral must be expressed as a percentage of the Restricted Stock Units subject to the Award. In executing this Election form you acknowledge that, in order to be effective, the Election must be returned no later than December 31 of the year preceding the year in which the Grant Date set forth in your Award Agreement occurs.
In general, all deferrals pursuant to this election will be paid out in Shares. Subject to the terms and conditions of the Award Agreement and the Plan, all of the Shares you are entitled to receive on the Settlement Date specified in this Election will be transferred to you on the applicable Settlement Date.
Amount of the Deferral
o | I hereby irrevocably elect to defer settlement of _____% of the Shares subject to the Award. |
Duration of the Deferral
Settlement of that portion of the Award specified above shall be deferred until [complete by checking the appropriate box below and, if applicable, filling in the distribution date. Check only one box]:
o | _____________, 20_____ [Note: this date must be after the first anniversary of the Grant Date]; or |
o | the termination of my service as a member of the Board; or |
o | the earlier of _____________, 20_____ [Note: this date must be after the first anniversary of the Grant Date] or the termination of my service as a member of the Board; or |
o | the later of _____________, 20_____ [Note: this date must be after the first anniversary of the Grant Date] or the termination of my service as a member of the Board. |
Terms and Conditions
By signing this form, you acknowledge your understanding and acceptance of the following:
Submitted by: [Participant] | Accepted by: ARCBEST CORPORATION By: Name: Title: |
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EXHIBIT 21
LIST OF SUBSIDIARY CORPORATIONS
ARCBEST CORPORATION
Certain subsidiaries which do not qualify as significant in accordance with the applicable rules have not been listed.
| | Jurisdiction of | | % of Voting | |
Name | | Incorporation | | Securities Owned | |
| | | | | |
ABF Cartage, Inc. | | Delaware | | 100 | |
ABF Freight System (B.C.) ULC | | British Columbia | | 100 | |
ABF Freight System Canada ULC | | Alberta, Canada | | 100 | |
ABF Freight System, Inc. | | Arkansas | | 100 | |
ABF, Inc. d/b/a Transport Realty, Inc. | | Arkansas | | 100 | |
Albert Companies, Inc. | | Delaware | | 100 | |
ArcBest Dedicated LLC | | Nevada | | 100 | |
ArcBest Enterprise Solutions, Inc. | | Arkansas | | 100 | |
ArcBest Funding LLC | | Delaware | | 100 | |
ArcBest Holdings, Inc. | | Arkansas | | 100 | |
ArcBest II, Inc. d/b/a ArcBest and d/b/a U-Pack | | Arkansas | | 100 | |
ArcBest International, Inc. | | Delaware | | 100 | |
ArcBest Technologies, Inc. | | Arkansas | | 100 | |
Arkansas Best Corporation | | Delaware | | 100 | |
Land-Marine Cargo, Inc. | | Puerto Rico | | 100 | |
Logistics Holdings, Inc. | | Arkansas | | 100 | |
MoLo Solutions, LLC d/b/a ArcBest Logistics | | Illinois | | 100 | |
Motor Carrier Insurance, Inc. | | Arkansas | | 100 | |
Moving Solutions, Inc. | | Arkansas | | 100 | |
Panther II Transportation, Inc. d/b/a Panther Premium Logistics | | Arkansas | | 100 | |
Panther Premium Logistics, Inc. | | Arkansas | | 100 | |
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) | Registration Statement (Form S-8, No. 333-258555) pertaining to the ArcBest Corporation Ownership Incentive Plan, |
(2) | Registration Statement (Form S-8, No. 333-231245) pertaining to the ArcBest Corporation Ownership Incentive Plan, previously known as the Arkansas Best Corporation 2005 Ownership Incentive Plan, |
(3) | Registration Statement (Form S-8, No. 333-174637) pertaining to the Arkansas Best Corporation 2005 Ownership Incentive Plan, |
(4) | Registration Statement (Form S-8, No. 333-127055) pertaining to the Arkansas Best Corporation 2005 Ownership Incentive Plan, and |
(5) | Registration Statement (Form S-8, No. 033-52877) pertaining to the Arkansas Best Corporation Employees’ Investment Plan; |
of our reports dated February 23, 2024, with respect to the consolidated financial statements of ArcBest Corporation and the effectiveness of internal control over financial reporting of ArcBest Corporation included in this Annual Report (Form 10-K) of ArcBest Corporation for the year ended December 31, 2023.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 23, 2024
EXHIBIT 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Judy R. McReynolds, certify that:
1. | I have reviewed this Annual Report on Form 10-K of ArcBest Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: | February 23, 2024 | /s/ Judy R. McReynolds |
| | Judy R. McReynolds |
| | Chairman, President and Chief Executive Officer and |
| | Principal Executive Officer |
EXHIBIT 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, J. Matthew Beasley, certify that:
1. | I have reviewed this Annual Report on Form 10-K of ArcBest Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: | February 23, 2024 | /s/ J. Matthew Beasley |
| | J. Matthew Beasley |
| | Vice President – Chief Financial Officer |
| | and Principal Financial Officer |
EXHIBIT 32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the filing of the Annual Report on Form 10-K for the year ended December 31, 2023 (the “Report”) by ArcBest Corporation (the “Registrant”), each of the undersigned hereby certifies that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| ARCBEST CORPORATION |
| (Registrant) |
| |
Date: February 23, 2024 | /s/ Judy R. McReynolds |
| Judy R. McReynolds |
| Chairman, President and Chief Executive Officer and |
| Principal Executive Officer |
| ARCBEST CORPORATION |
| (Registrant) |
| |
Date: February 23, 2024 | /s/ J. Matthew Beasley |
| J. Matthew Beasley |
| Vice President – Chief Financial Officer |
| and Principal Financial Officer |
EXHIBIT 97
ArcBest Recoupment of Incentive Compensation Policy
ArcBest Corporation adopted the ArcBest Recoupment of Incentive Compensation Policy (this “Policy”) which shall apply to all Executive Officers of ArcBest Corporation (“ArcBest” or the “Company”) and any of its subsidiaries (each a “Subsidiary”). The ArcBest Board of Directors has appointed the Compensation Committee (the “Committee”) to administer this Policy.
A. Recoupment in the Event of a Material Restatement. The Committee shall promptly cause the Company to require recoupment, reimbursement or forfeiture by any Executive Officer of any Erroneously Awarded Incentive Compensation if, regardless of the existence of misconduct or fault, the Company is required to prepare an accounting restatement due to material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “Restatement”).
In the event of a Restatement, the Committee shall, to the full extent permitted by governing law and without regard to any taxes paid, (i) require reimbursement of any Erroneously Awarded Incentive Compensation Received by an Executive Officer and (ii) effect the cancellation of unvested or outstanding Erroneously Awarded Incentive Compensation previously granted or awarded to the Executive Officer. Notwithstanding the foregoing, this Policy will not be applicable to any Incentive Compensation Received for a fiscal year preceding the three full fiscal years immediately prior to the earlier to occur of: the date the Board, a committee thereof or the officer or officers of the Company authorized to take such action if Board action is not required concludes, or reasonably should have concluded, that a Restatement is required, or the date a court, regulator, or other legally authorized body directs the Company to prepare a Restatement. This Section A is effective for any and all Incentive Compensation granted, awarded, vested, made, earned or otherwise Received on or after the Effective Date; provided, however, that any Incentive Compensation granted, awarded, vested, made, earned or otherwise Received before the Effective Date shall remain subject to this Policy as it existed prior to such date.
Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by this Section A if the following conditions are met and the Committee determines that recovery would be impracticable:
(i) | The direct expenses paid to a third party to assist in enforcing this Policy against an Executive Officer would exceed the amount to be recovered, after the Company has made a reasonable attempt to recover the applicable Erroneously Awarded Incentive Compensation, documented such attempts and provided such documentation to Nasdaq; |
(ii) | Recovery would violate home country law where that law was adopted prior to November 29, 2022, provided that, before determining that it would be impracticable to recover any amount of Erroneously Awarded Incentive Compensation based on home country law, the Company has obtained an opinion of home country counsel, acceptable to Nasdaq, that recovery would result in such a violation and a copy of the opinion is provided to Nasdaq; or |
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(iii) | Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder. |
For the purpose of this Policy, the following changes to the Company’s financial statements shall not be considered a Restatement:
(i) | retrospective application of a change in accounting principle or a change required or permitted under generally accepted accounting principles in connection with the adoption or implementation of a new accounting standard or interpretation; |
(ii) | retrospective revision to reportable segment information due to a change in the structure of the Company’s internal organization; |
(iii) | retrospective reclassification due to a discontinued operation; |
(iv) | retrospective application of a change in reporting entity; |
(v) | retrospective adjustment to provisional amounts in connection with a prior business combination; |
(vi) | retrospective revision for stock splits; and |
(vii) | retrospective application of a change caused by the Company’s decision to modify its accounting practices as permitted by applicable law. |
B. Recoupment in the Event of Any Overpayment. The Committee may, in its discretion and to the extent not covered by Section A of this Policy, cause the Company to require recoupment, reimbursement or forfeiture by any Executive Officer of any Covered Compensation (as defined below) if any overpayment is made as a result of an error, which may include, without limitation, an error in determining the performance metric result or in the calculation of an Executive Officer’s Covered Compensation.
C. Recoupment in the Event of Act of Misconduct. The Committee may, in its discretion and to the extent not covered by Section A of this Policy, cause the Company to require recoupment, reimbursement or forfeiture by any Executive Officer of any Covered Compensation (as defined below) if the Executive Officer commits an Act of Misconduct (as defined below). In such event, the Committee may, to the full extent permitted by governing law, (i) require reimbursement of any Covered Compensation granted, awarded, vested or made to or earned by an Executive Officer and (ii) effect the cancellation of unvested or outstanding Covered Compensation previously granted or awarded to the Executive Officer. Notwithstanding the foregoing, this Policy will not be applicable to any Covered Compensation received for a fiscal year preceding the three full fiscal years immediately prior to the fiscal year in which the Executive Officer is found to have committed an Act of Misconduct.
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D. Committee Authority. The Committee shall have discretion to make all determinations under Section B and Section C of this Policy, including but not limited to (i) whether or not to cause the Company to pursue recoupment, reimbursement or forfeiture under this Policy, (ii) whether an Executive Officer’s conduct met or did not meet any particular standard of conduct under law, this Policy or other applicable Company policies and procedures, and at what point in time it will make that determination, (iii) how to treat increases and decreases in the Company’s share value following the sale of shares received as Covered Compensation; and (iv) what Covered Compensation is subject to recoupment, reimbursement or forfeiture, subject to applicable law and the terms of this Policy.
In determining whether or not to cause the Company to pursue recoupment, reimbursement or forfeiture under Section B and Section C of this Policy, the Committee shall not be required to cause the Company to seek recoupment, reimbursement or forfeiture if the Committee determines that such recoupment, reimbursement or forfeiture would be impracticable. In making such determinations pursuant to Section B and Section C of this Policy, the Committee may take into account all relevant facts and circumstances, including but not limited to: (i) the Executive Officer’s conduct; (ii) the effect and availability of all remedies, including adjustment of future compensation and termination of employment; (iii) the findings or holdings of any court, arbitrator or similar authority; (iv) any penalties or punishments imposed or asserted by third parties, such as law enforcement agencies, regulators or other authorities, or private plaintiffs; (v) whether the assertion of a claim against an Executive Officer may violate applicable law or adversely impact the interests of the Company in any related proceeding or investigation or in any other way; (vi) the cost and likely outcome of any potential litigation in connection with the Company’s attempts to recoup compensation; (vii) the passage of time since the occurrence of any act in respect of any applicable fraud or misconduct; and (viii) whether the amount subject to clawback is de minimis.
E.Indemnification Prohibited. Notwithstanding the terms of any indemnification or insurance policy or any contractual arrangement with any Executive Officer that may be interpreted to the contrary, the Company shall not be permitted (i) to indemnify any Executive Officer against the loss of any Erroneously Awarded Incentive Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or any claims relating to the Company’s enforcement of its rights under this Policy or (ii) to purchase third-party insurance to fund an Executive Officer’s potential recoupment obligations under this Policy or to make any payment or reimbursement for the premiums and other costs of any such insurance purchased by, or on behalf of, an Executive Officer. Further, no Executive Officer of the Company shall enter into any agreement that exempts any Incentive Compensation from the application of this Policy or that waives the Company’s right to recovery of any Erroneously Awarded Incentive Compensation and this Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date of this Policy).
F. Definitions. For the purpose of this Policy:
“Act of Misconduct” means the Executive Officer (i) has committed an act of (a) gross misconduct or fraud in the performance of Executive Officer’s duties to the Company or any Subsidiary, (b) embezzlement, fraud, or dishonesty, (c) material theft or misappropriation of Company or Subsidiary property, (d) nonpayment of any obligation owed to the Company or any Subsidiary, (e) breach of fiduciary duty, (f) violation of Company ethics policy or code of conduct, or (g) deliberate disregard of Company or Subsidiary rules; (ii) is convicted of or enters a guilty
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plea or plea of nolo contendere with regard to any felony or act of moral turpitude; (iii) makes an unauthorized disclosure of any Company or Subsidiary trade secret or confidential information; (iv) solicits any employee or service provider to leave the employ or cease providing services to the Company or any Subsidiary; (v) breaches any intellectual property or assignment of inventions covenant; (vi) engages in any conduct constituting unfair competition or breaches any noncompetition agreement; (vii) induces any Company or Subsidiary customer to breach a contract with the Company or any Subsidiary or to cease doing business with the Company or any Subsidiary; or (viii) induces any principal for whom the Company or any Subsidiary acts as agent to terminate such agency relationship.
“Covered Compensation” means (i) any Incentive Compensation plus (ii) any cash, equity or equity-based award or payment (including any deferred stock awards or short- or long-term incentive cash awards) under any Incentive Plan (including awards subject to service-based, performance-based or other conditions or any combination of the foregoing) or any award not under an explicit Incentive Plan (iii) that is or was granted, awarded, vested, made to or earned by the Executive Officer, and (iv) includes, for the avoidance of doubt, any matching contributions made by the Company under the deferred compensation plan with respect to an award that satisfies the conditions of clauses (i) and/or (ii) and (iii).
“Effective Date” means October 2, 2023.
“Erroneously Awarded Incentive Compensation” means the amount of Incentive-Based Compensation received by an Executive Officer that exceeds the amount of Incentive-Based Compensation that would have been received by the Executive Officer had it been determined based on the restated amounts. For Incentive Compensation based on (or derived from) stock price or total shareholder return where the amount of Erroneously Awarded Incentive Compensation is not subject to mathematical recalculation directly from the information in the applicable Restatement, an amount shall be determined by the Committee based on a reasonable estimate of the effect of the Restatement on the stock price or total shareholder return upon which the Incentive Compensation was Received (in which case the Company shall maintain documentation of such determination of that reasonable estimate and provide documentation to Nasdaq).
“Executive Officer” means any current or former officer subject to Section 16 of the Securities Exchange Act of 1934, as amended.
“Financial Reporting Measure” means measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures, stock price and total shareholder return. For the avoidance of doubt, a Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
“Incentive Compensation” means (i) any cash, equity or equity-based award or payment (including any deferred stock awards or short- or long-term incentive cash awards) under any Incentive Plan or any award not under an explicit Incentive Plan, (ii) that is or was granted, earned, vested, paid or Received based wholly or in part upon the attainment of any Financial Reporting Measure, and (iii) includes, for the avoidance of doubt, any matching contributions made by the Company under the deferred compensation plan with respect to an award that satisfies the conditions of clauses (i) and (ii).
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“Incentive Plan” means the (i) ArcBest Executive Officer Incentive Compensation Plan, (ii) ArcBest Ownership Incentive Plan, or (iii) any other incentive plan currently or in the future sponsored, maintained or adopted by the Company.
Incentive Compensation is deemed “Received” in the Company’s fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if the payment or grant of the incentive-based compensation occurs after the end of that period.
“SEC” means the United States Securities and Exchange Commission.
G.Miscellaneous. The recoupment/reimbursement/forfeiture remedy under this Policy shall be in addition to all other remedies available to the Company, including removal or dismissal, legal action for breach of fiduciary duty or such other action to enforce the Company’s rights against the Executive Officer as may fit the facts surrounding the particular case. The Committee may, in determining the appropriate punishment, take into account penalties or punishments imposed by third parties, such as law enforcement agencies, regulators and other authorities. The Committee’s power to determine the appropriate punishment for the wrongdoer is in addition to, and not in replacement of, remedies imposed by such entities.
To the extent the rules adopted by Nasdaq or the SEC under the Dodd-Frank Wall Street Reform and Consumer Protection Act related to Erroneously Awarded Incentive Compensation differ from the provisions of this Policy, Executive Officers will be subject to such additional clawback provisions as required by such rules.
The validity, construction, and effect of this Policy and any determinations relating to this Policy shall be construed in accordance with the laws of the State of Delaware without regard to its conflicts of laws principles. The Committee (and each member thereof) shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or employee of the Company, legal counsel, independent auditors, consultants or any other agents assisting in the administration of this Policy.
The Committee reserves the right to amend or terminate this Policy at any time. All actions taken and decisions made relating to this Policy are in the Committee’s sole and absolute discretion, except to the extent discretion is not permitted in connection with Section A.
Adopted by Board of Directors on October 18, 2007.
Updated by Board of Directors on January 27, 2020.
Updated by Compensation Committee on October 24, 2023.
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
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CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowances (in dollars) | $ 10,346 | $ 13,892 |
Other accounts receivable, allowances (in dollars) | $ 731 | $ 713 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized shares | 70,000,000 | 70,000,000 |
Common stock, issued shares | 30,024,125 | 29,758,716 |
Treasury stock, at cost, shares | 6,460,137 | 5,529,383 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||
Net Income (Loss) | $ 195,433 | $ 298,209 | $ 213,521 |
Postretirement benefit plans: | |||
Net actuarial gain (loss), net of tax of: (2023 - $294; 2022 - $1,144; 2021 - $451) | (847) | 3,298 | 1,300 |
Amortization of unrecognized net periodic benefit cost (credit), net of tax of: (2023 - $342; 2022 - $195, 2021 - $139) | |||
Net actuarial gain | (988) | (562) | (400) |
Interest rate swap and foreign currency translation: | |||
Change in unrealized gain (loss) on interest rate swap, net of tax of: (2023 - $475; 2022 - $812, 2021 - $534) | (1,341) | 2,295 | 1,507 |
Change in foreign currency translation, net of tax of: (2023 - $141; 2022 - $576, 2021 - $36) | 397 | (1,627) | 102 |
OTHER COMPREHENSIVE INCOME (LOSS), net of tax | (2,779) | 3,404 | 2,509 |
TOTAL COMPREHENSIVE INCOME | $ 192,654 | $ 301,613 | $ 216,030 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||
Net actuarial gain, tax | $ (294) | $ 1,144 | $ 451 |
Amortization of unrecognized net periodic benefit cost, tax | (342) | (195) | (139) |
Change in unrealized gain (loss) on interest rate swap, tax | (475) | 812 | 534 |
Change in foreign currency translation, tax | $ 141 | $ (576) | $ 36 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
---|---|---|---|
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
Cash and cash equivalents of continuing operations at beginning of period | $ 158,264 | $ 76,568 | $ 303,872 |
Cash and cash equivalents of discontinued operations at beginning of period | $ 108 | $ 52 | $ 82 |
ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION |
12 Months Ended |
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Dec. 31, 2023 | |
ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION | |
ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION | NOTE A – ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION Organization and Description of Business ArcBest Corporation™ (the “Company”) is a multibillion-dollar integrated logistics company that leverages technology and a full suite of shipping and logistics solutions to meet customers’ supply chain needs. The Company, which started over a century ago as a local freight hauler, is now a logistics powerhouse with global reach. The Company’s operations are conducted through its two reportable operating segments: Asset-Based, which consists of ABF Freight System, Inc. and certain other subsidiaries (“ABF Freight”), and Asset-Light, which includes MoLo Solutions, LLC (“MoLo”), Panther Premium Logistics® (“Panther”), and certain other subsidiaries. References to the Company in this Annual Report on Form 10-K are primarily to the Company and its subsidiaries on a consolidated basis. The Asset-Based segment represented approximately 63% of the Company’s 2023 total revenues before other revenues and intercompany eliminations. As of December 2023, approximately 82% of the Asset-Based segment’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “2023 ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”), which was ratified on June 30, 2023 by a majority of ABF Freight’s IBT member employees. A majority of the 2023 ABF NMFA supplements also passed. The remaining supplements were ratified on July 7, 2023. The 2023 ABF NMFA was implemented on July 16, 2023, effective retroactive to July 1, 2023, and will remain in effect through June 30, 2028. Financial Statement Presentation Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Segment Information: The Company uses the “management approach” for determining its reportable segment information. The management approach is based on the way management organizes the reportable segments within the Company for making operating decisions and assessing performance. See Note O for further discussion of segment reporting. Use of Estimates: 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. Reclassifications: On February 28, 2023, the Company sold FleetNet America, Inc. (“FleetNet”), a wholly owned subsidiary and reportable operating segment of the Company, for an aggregate adjusted cash purchase price of $100.9 million, including post-closing adjustments. The sale of FleetNet was a strategic shift for the Company as it exited the fleet roadside assistance and maintenance management business; therefore, the sale was accounted for as discontinued operations. As such, historical results of FleetNet have been excluded from both continuing operations and segment results for all periods presented, and reclassifications have been made to the prior-period financial statements to conform to the current-year presentation. Related assets and liabilities associated with FleetNet are classified as discontinued operations in the consolidated balance sheets for all periods presented. The cash flows related to the discontinued operations have not been segregated and are included in the consolidated statements of cash flows. Unless otherwise indicated, all amounts in this Annual Report on Form 10-K refer to continuing operations, including comparisons to the prior year. For more information on the Company’s discontinued operations, see Note D. Certain reclassifications have been made to the prior period presentation of other long-term liabilities to conform to the current-year presentation of the contingent consideration liability on a separate line in the consolidated balance sheets. For the years ended December 31, 2022 and 2021, certain reclassifications have been made between operating expenses lines of the Asset-Light segment to conform to the current-year presentation of certain facility rent expenses. There was no impact on total liabilities or total operating expenses as a result of these reclassifications.
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ACCOUNTING POLICIES |
12 Months Ended | |||||||||
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Dec. 31, 2023 | ||||||||||
ACCOUNTING POLICIES | ||||||||||
ACCOUNTING POLICIES | NOTE B – ACCOUNTING POLICIES Cash, Cash Equivalents, and Short-Term Investments: Short-term investments that have a maturity of ninety days or less when purchased are considered cash equivalents. Variable rate demand notes are classified as cash equivalents, as the investments may be redeemed on a daily basis with the original issuer. Short-term investments consist of FDIC-insured certificates of deposit and U.S. Treasury securities with original maturities greater than ninety days and remaining maturities less than one year. Interest and dividends related to cash, cash equivalents, and short-term investments are included in interest and dividend income. Certificates of deposit are valued at cost plus accrued interest, which approximates fair value. Held-to-maturity U.S. Treasury securities are recorded at amortized cost with interest and amortization of premiums and discounts included in interest income. Quarterly, the Company evaluates held-to-maturity securities for any other-than-temporary impairments related to any intention to sell or requirement to sell before its amortized costs are recovered. If a security is considered to be other-than-temporarily impaired, the difference between amortized cost and the amount that is determined to be recoverable is recorded in operating income. Concentration of Credit Risk: The Company is potentially subject to concentrations of credit risk related to the portion of its cash, cash equivalents, and short-term investments, which is not federally insured, as further discussed in Note C. The Company’s services are provided primarily to customers throughout the United States and, to a lesser extent, Canada, Mexico, and other international locations. On a consolidated basis, the Company had no single customer representing more than 2% of its revenues in 2023, 2022, or 2021 or more than 5% of its accounts receivable balance at December 31, 2023 and 2022. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have been within management’s expectations. Receivable Allowances: The Company maintains allowances for credit losses 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 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 credit losses and revenue adjustments. The allowance for credit losses on the Company’s trade accounts receivable totaled $5.5 million and $9.3 million at December 31, 2023 and 2022, respectively. During 2023, the allowance for credit losses increased $3.6 million and was reduced $7.4 million by write-offs, net of recoveries. Property, Plant and Equipment, Including Repairs and Maintenance: Purchases of property, plant and equipment are recorded at cost. For financial reporting purposes, property, plant and equipment is depreciated principally by the straight-line method, using the following useful lives: structures – primarily 15 to 60 years; revenue equipment – 3 to 22 years; and other equipment – 2 to 16 years. The Company utilizes tractors and trailers in its operations. Tractors and trailers are commonly referred to as “revenue equipment” in the transportation business. The Company periodically reviews and adjusts, as appropriate, the residual values and useful lives of revenue equipment and other equipment. For tax reporting purposes, accelerated depreciation or cost recovery methods are used. Gains and losses on asset sales are reflected in the year of disposal. Exchanges of nonmonetary assets that have commercial substance are measured based on the fair value of the assets exchanged. Tires purchased with revenue equipment are capitalized as a part of the cost of such equipment, with replacement tires being expensed when placed in service. Repair and maintenance costs associated with property, plant and equipment are expensed as incurred if the costs do not extend the useful life of the asset. If such costs do extend the useful life of the asset, the costs are capitalized and depreciated over the appropriate remaining useful life. Computer Software for Internal Use, Including Web Site Development and Cloud Computing Costs: The Company capitalizes the costs of software acquired from third parties and qualifying internal computer software costs incurred during the application development stage, or during the implementation stage for cloud computing or hosting arrangements. Costs incurred in the preliminary project stage and postimplementation-operation stage, which includes maintenance and training costs, are expensed as incurred. For financial reporting purposes, capitalized software costs are amortized by the straight-line method generally over 2 to 7 years. Capitalized costs related to cloud computing and hosting arrangements are presented within prepaid expenses in the accompanying consolidated balance sheets. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period. Impairment Assessment of Long-Lived Assets: The Company reviews its long-lived assets, including property, plant and equipment, capitalized software, finite-lived intangible assets and right-of-use assets held under operating leases, which are held and used in its operations, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If such an event or change in circumstances is present, the Company will estimate the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted future cash flows is less than the carrying amount of the related asset, the Company will record the asset at the lesser of its carrying amount or fair value and recognize an impairment loss, if any, in operating income. During the third quarter of 2023, the Company evaluated for impairment certain long-lived operating right-of-use assets that were made available for sublease. After determining the carrying values of these asset groups were not recoverable, impairment was measured as the amount by which the carrying value exceeded the fair value of the asset groups, and lease impairment charges of $30.2 million were recognized as a component of operating expenses in the consolidated statements of operations for the year ended December 31, 2023 (see Note C). At December 31, 2023 and 2022, management was not aware of events or circumstances indicating the Company’s long-lived assets would not be recoverable. Assets to be disposed of are reclassified as assets held for sale at the lower of their carrying amount or fair value less cost to sell. Assets held for sale primarily represent Asset-Based segment nonoperating properties, older revenue equipment, and other equipment. Adjustments to write down assets to fair value less the amount of costs to sell are reported in operating income. Assets held for sale are expected to be disposed of by selling the assets within the next 12 months. Gains and losses on property and equipment are reported in operating income. Assets held for sale of $1.5 million and $0.8 million were reported within other long-term assets as of December 31, 2023 and 2022, respectively. Business Combinations: The Company uses the acquisition method of accounting for business combinations, which generally requires that the assets acquired and liabilities assumed be recorded at their respective fair values at the date of acquisition. The excess, if any, of the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree over the fair value of the identifiable net assets acquired are recorded as goodwill. The acquisition date fair value of acquired assets and liabilities are subject to revision during the remeasurement period if information becomes available that warrants further adjustments. Changes to the acquisition date fair value prior to the remeasurement period are recorded as adjustments to goodwill. Acquisition-related expenses are expensed as incurred. Contingent Consideration: The Company records the estimated fair value of contingent earnout consideration at the acquisition date as part of the purchase price consideration for an acquisition. The fair value of the contingent earnout consideration liability is determined using a Monte Carlo simulation with Level 3 inputs including volatility factors, projected earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and the discount rate. The liability for contingent earnout consideration is remeasured at each quarterly reporting date and any change in fair value as a result of the recurring assessments is recognized in operating income (see Note C). Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is evaluated for impairment annually or more frequently if indicators of impairment exist. The Company performs its annual assessment of goodwill impairment as of October 1 (see Note F). The Company typically assesses qualitative factors but may also use a quantitative analysis to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative valuation of the reporting unit is prepared to measure the amount of goodwill impairment, if any. Indefinite-lived intangible assets are also not amortized but rather are evaluated for impairment annually or more frequently if indicators of impairment exist. Consistent with goodwill, the Company typically assesses qualitative factors but may from time to time perform a quantitative assessment to determine if it is more likely than not that the fair value of indefinite-lived intangible assets is less than its carrying value; if applicable, a quantitative analysis is performed if it is determined it is more likely than not the indefinite-lived intangible is impaired. The Company amortizes finite-lived intangible assets over their respective estimated useful lives. Income Taxes: The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities, which are recorded as noncurrent by jurisdiction, are recognized based on the temporary differences between the book value and the tax basis of certain assets and liabilities and the tax effect of operating loss and tax credit carryforwards. Deferred income taxes relate principally to asset and liability basis differences resulting from the timing of depreciation deductions and to temporary differences in the recognition of certain revenues and expenses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. The Company classifies any interest and penalty amounts related to income tax matters as operating expenses. Management applies considerable judgment in determining the consolidated income tax provision, including valuation allowances on deferred tax assets. The valuation allowance for deferred tax assets is determined by evaluating whether it is more likely than not that the benefits of deferred tax assets will be realized through future reversal of existing taxable temporary differences, taxable income in carryback years in jurisdictions in which they are allowable, projected future taxable income, or tax-planning strategies. Uncertain tax positions, which also require significant judgment, are measured to determine the amounts to be recognized in the financial statements. The income tax provision and valuation allowances are complicated by complex and frequently changing rules administered in multiple jurisdictions, including U.S. federal, state, and foreign governments. Long-Term Investments: The Company’s long-term investments are recorded in other long-term assets and represent equity investments in private entities without readily determinable fair values. The investments are recorded using the measurement alternative in which the Company’s equity interests are recorded at cost and are adjusted for any impairments or for observable price changes identified in orderly transactions of similar investments of the same issuers. The fair value of the Company’s equity investment was remeasured in second quarter 2023, based on an observable price change which resulted in a $3.7 million increase in fair value (see Note C). As of December 31, 2023 and 2022, the carrying amount of these investments totaled $28.7 million and $25.0 million, respectively. Book Overdrafts: Issued checks that have not cleared the bank as of December 31 result in book overdraft balances for accounting purposes which are classified within accounts payable in the accompanying consolidated balance sheets. Book overdrafts amounted to $19.2 million and $30.3 million at December 31, 2023 and 2022, respectively. The change in book overdrafts is reported as a component of financing activities within the statement of cash flows. Insurance Reserves: The Company is self-insured up to certain limits for workers’ compensation, certain third-party casualty claims, and cargo loss and damage claims. Amounts in excess of the self-insured limits are fully insured to levels which management considers appropriate for the Company’s operations. The Company’s claims liabilities have not been discounted. Liabilities for self-insured workers’ compensation and third-party casualty claims are based on the case reserve amounts plus an estimate of loss development and incurred but not reported (“IBNR”) claims, which is developed from an independent actuarial analysis. The process of determining reserve requirements utilizes historical trends and involves an evaluation of claim frequency and severity, claims management, and other factors. Case reserves are evaluated as loss experience develops and new information becomes available. Adjustments to previously estimated aggregate reserves are reflected in financial results in the periods in which they are made. Aggregate reserves represent an estimate of the costs of claims incurred, and it is possible that the ultimate liability may differ significantly from such estimates. The Company develops an estimate of self-insured cargo loss and damage claims liabilities based on historical trends and certain event-specific information. Claims liabilities are recorded in accrued expenses and are not offset by insurance receivables which are reported in other accounts receivable. Loss Contingencies: The Company is involved in various legal actions arising in the ordinary course of business. In assessing loss contingencies, the Company uses significant judgments and assumptions to estimate the likelihood of loss or the incurrence of a liability, and to reasonably estimate the amount of loss. The Company records a liability and expense for loss contingencies when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company’s legal matters are discussed in Note P. Long-Term Debt: Long-term debt consists of borrowings outstanding under the revolving credit facility (the “Credit Facility”) of the Company’s Fourth Amended and Restated Credit Agreement (“Credit Agreement”) and notes payable for the financing of revenue equipment, other equipment, and software. The Company also has borrowing capacity under an accounts receivable securitization program. The Company’s long-term debt and financing arrangements are further described in Note I. Interest Rate Swap Derivative Instruments: The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The Company has an interest rate swap agreement designated as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap instrument is reported as unrealized gain or loss as a component of accumulated other comprehensive income or loss, net of tax, in stockholders’ equity and the change in the unrealized gain or loss on the interest rate swap is reported in other comprehensive income or loss, net of tax, in the consolidated statements of comprehensive income. The unrealized gain or loss is reclassified out of accumulated other comprehensive loss into income in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. Leases: The Company leases, primarily under operating lease arrangements, certain facilities used primarily in the Asset-Based segment service center operations, certain facilities and revenue equipment used in the Asset-Light segment operations, and certain other facilities and office equipment. The Company also has a small number of subleases and income leases on owned properties that are immaterial to the consolidated financial statements. Right-of-use assets and lease liabilities for operating leases are recorded on the balance sheet and the related lease expense is recorded on a straight-line basis over the lease term in operating expenses. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. For financial reporting purposes, right-of-use assets held under finance leases are amortized over their estimated useful lives on the same basis as owned assets, and leasehold improvements associated with assets utilized under finance or operating leases are amortized by the straight-line method over the shorter of the remaining lease term or the asset’s useful life. Amortization of assets under finance leases is included in depreciation expense. Obligations under the finance lease arrangements, if any, are included in long-term debt. The Company elected the short-term lease exemption for all classes of assets to include real property, revenue equipment, and service, office, and other equipment. The Company adopted the policy election as a lessee for all classes of assets to account for each lease component and its related non-lease component(s) as a single lease component. In determining the discount rate, the Company uses ArcBest Corporation’s incremental borrowing rate unless the rate implicit in the lease is readily determinable when entering into a lease as a lessee. The incremental borrowing rate is determined by the price of a fully collateralized loan with similar terms based on current market rates. An assessment is made on or after the effective date of newly signed contracts as to whether the contract is, or contains, a lease at the inception of a contract. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset; (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period; and (3) whether the Company has the right to direct the use of the asset. The operating right-of-use asset is measured as the initial amount of the operating lease liability, plus any initial direct costs incurred, less any prepayments prior to commencement or lease incentives received. The operating lease liability is initially measured at the present value of the lease payments, discounted using the Company’s secured incremental borrowing rate for the same term as the underlying lease unless the interest rate implicit in the lease is readily determined, then the implicit rate will be used. Lease payments included in the measurement of the lease liability are comprised of the following: (1) the fixed noncancelable lease payments, (2) payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and (3) payments for early termination options unless it is reasonably certain the lease will not be terminated early. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the initial lease liability. Additional payments based on the change in an index or rate are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability. Supplemental Benefit and Postretirement Health Benefit Plans: The Company recognizes the funded status of the supplemental benefit plan (the “SBP”) and postretirement health benefit plan in the consolidated balance sheet and recognizes changes in the funded status, net of tax, in the year in which they occur as a component of other comprehensive income or loss. The benefit obligations of the SBP and postretirement health benefit plan represent the funded status, as these plans do not have plan assets. Amounts recognized in other comprehensive income or loss are subsequently expensed as components of net periodic benefit cost by amortizing unrecognized net actuarial losses over the average remaining active service period of the plan participants and amortizing unrecognized prior service credits over the remaining years of service until full eligibility of the active participants at the time of the plan amendment which created the prior service credit. A corridor approach is not used for determining the amounts of net actuarial losses to be amortized. The Company has not incurred service cost under the SBP since the accrual of benefits under the plan was frozen on December 31, 2009, however, the Company incurs service cost under the postretirement health benefit plan which is reported within operating expenses in the consolidated statements of operations. The other components of net periodic benefit cost (credit) of the SBP (including pension settlement expense) and the postretirement health benefit plan are reported within the other line item of other income (costs). The expense and liability related to the postretirement health benefit plan are measured based upon a number of assumptions and using the services of a third-party actuary. Assumptions are made regarding the discount rate, expected retirement age, mortality, employee turnover, and future increases in health care costs. The discount rates used to discount the SBP and postretirement health benefit plan obligations are determined by matching projected cash distributions with appropriate high-quality corporate bond yields in a yield curve analysis. The assumptions used directly impact the net periodic benefit cost (credit) for a particular year. An actuarial gain or loss results when actual experience varies from the assumptions or when there are changes in actuarial assumptions. Actuarial gains and losses are not included in net periodic benefit cost (credit) in the period when they arise but are recognized as a component of other comprehensive income or loss and subsequently amortized as a component of net periodic benefit cost (credit). The Company uses December 31 as the measurement date for the SBP and postretirement health benefit plan. Plan obligations are also remeasured upon curtailment and upon settlement. Benefit distributions under the SBP individually exceed the annual interest cost of the plan, which triggers settlement accounting. The Company records the related settlement expense when the amount of the benefit to be distributed is fixed, which is generally upon an employee’s termination of employment. There was no pension settlement expense incurred for the SBP in 2023, 2022, or 2021. Revenue Recognition: Revenues are recognized when or as control of the promised services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenue adjustments occur due to freight bill rating or other billing adjustments. The Company also estimates revenue adjustments based on historical information and current trends, and revenue is recognized accordingly. Asset-Based Segment Asset-Based segment revenues consist primarily of less-than-truckload freight delivery. Performance obligations are satisfied upon final delivery of the freight to the specified destination. Revenue is recognized based on the relative transit time in each reporting period with expenses recognized as incurred. A bill-by-bill analysis is used to establish estimates of revenue in transit for recognition in the appropriate period. Because the bill-by-bill methodology utilizes the approximate location of the shipment in the delivery process to determine the revenue to recognize, management believes it to be a reliable method. Certain contracts may provide for volume-based or other discounts which are accounted for as variable consideration. The Company estimates these amounts based on a historical expectation of discounts to be earned by customers, and revenue is recognized based on the estimates. Management believes that actual amounts will not vary significantly from estimates of variable consideration. Revenue, purchased transportation expense, and third-party service expenses are reported on a gross basis for certain shipments and services where the Company utilizes a third-party carrier for pickup, linehaul, delivery of freight, or performance of services but remains primarily responsible for fulfilling delivery to the customer and maintains discretion in setting the price for the services. Asset-Light Segment Asset-Light segment revenues consist primarily of asset-light logistics services using third-party vendors to provide transportation services. Asset-Light segment revenue is generally recognized based on the relative transit time in each reporting period using estimated standard delivery times for freight in transit at the end of the reporting period. Purchased transportation expense is recognized as incurred consistent with the recognition of revenue. Revenue and purchased transportation expense are reported on a gross basis for shipments and services where the Company utilizes a third-party carrier for pickup and delivery but remains primarily responsible to the customer for delivery and maintains discretion in setting the price for the service. Other Recognition and Disclosure Payment terms with customers may vary depending on the service provided, location or specific agreement with the customer. The term between invoicing and when payment is due is not significant. For certain services, payment is required before the services are provided to the customer. The Company expenses sales commissions when incurred because the amortization period is one year or less. The Company has elected not to disclose the value of unsatisfied performance obligations for contracts with an original length of one year or less or contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed. Comprehensive Income or Loss: Comprehensive income or loss consists of net income and other comprehensive income or loss, net of tax. Other comprehensive income or loss refers to revenues, expenses, gains, and losses that are not included in net income for the period, but rather are recorded directly to stockholders’ equity. The Company reports the components of other comprehensive income or loss, net of tax, by their nature and discloses the tax effect allocated to each component in the consolidated statements of comprehensive income. The accumulated balance of other comprehensive income or loss is displayed separately in the consolidated statements of stockholders’ equity and the components of the balance are reported in Note L. The changes in accumulated other comprehensive income or loss, net of tax, and the significant reclassifications out of accumulated other comprehensive income or loss are disclosed, by component, in Note L. Accelerated Share Repurchase: On November 2, 2021, the Company entered into a fixed dollar accelerated share repurchase program (“ASR”) with a third-party financial institution to repurchase the Company’s common stock pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. Under the ASR, the Company paid $100.0 million and received an initial delivery of 709,287 shares valued at $75.0 million based on the closing price of the Company’s common stock on November 2, 2021. The initial repurchase of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share on the effective date of the ASR. The remaining balance of $25.0 million, funded in November 2021, was recorded as a forward equity contract indexed to the Company’s common stock and classified within stockholders’ equity as additional paid-in capital as of December 31, 2021. The balance of the forward equity contract was settled in January 2022 with the delivery of 214,763 shares. The total amount of shares repurchased under the forward equity contract was based on the daily volume-weighted average share price of the Company’s common stock during the term of the ASR, less a negotiated discount. The ASR met all of the applicable criteria for equity classification and, as a result, was not accounted for as a derivative instrument. Earnings Per Share: Basic earnings per share is calculated by dividing net income by the daily weighted number of shares of the Company’s common stock outstanding for the period. Diluted earnings per share is calculated using the treasury stock method. Under this method, the denominator used in calculating diluted earnings per share includes the impact of unvested restricted equity awards. Share-Based Compensation: The fair value of restricted stock awards is determined based upon the closing market price of the Company’s common stock on the date of grant, adjusted for the present value of dividends which are not payable with respect to unvested restricted stock units (“RSUs”). The RSUs generally vest over a specified time beginning on the grant date. RSUs granted in 2023 and 2022 follow a three-year ratable vesting schedule with one-third of the grants vesting each year. RSUs awarded in 2021 vest at the end of a three-year period following the date of grant. RSUs awarded in 2018 through 2020 vest at the end of a four-year period following the date of grant. Awards granted to non-employee directors typically vest at the end of a one-year period, subject to accelerated vesting due to death, disability, retirement, or change-in-control provisions. When RSUs become vested, the Company issues new shares in settlement of the RSU award. The Company recognizes the income tax benefits of dividends on share-based payment awards as income tax expense or benefit in the consolidated statements of operations when awards vest or are settled. Share-based awards are amortized to compensation expense on a straight-line basis over the vesting period of awards or over the period to which the recipient first becomes eligible for retirement, whichever is shorter, with vesting accelerated upon death or disability. The Company recognizes forfeitures as they occur, and the income tax effects of awards are recognized in the statement of operations when awards vest or are settled. Fair Value Measurements: The Company discloses the fair value measurements of its financial assets and liabilities. Fair value measurements are disclosed in accordance with the following hierarchy of valuation approaches based on whether the inputs of market data and market assumptions used to measure fair value are observable or unobservable:
Environmental Matters: The Company expenses environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. 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. The estimated liability is not reduced for possible recoveries from insurance carriers or other third parties. Exit or Disposal Activities: The Company recognizes liabilities for costs associated with exit or disposal activities when the liability is incurred. Accounting Pronouncements Not Yet Adopted Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, was amended in November 2023 through the issuance of Accounting Standards Update (“ASU’) No. 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 will require enhanced disclosures of significant segment expenses on an annual and interim basis. ASU 2023-07, which is effective for fiscal years beginning after December 15, 2023, is not expected to have a significant impact on the Company’s disclosures. ASC Topic 740, Income Taxes, was amended in December 2023 through the issuance of ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), to improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, while early adoption is permitted. The Company is currently assessing the amendment’s impact on the Company’s disclosures.
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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | NOTE C – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Financial Instruments The following table presents the components of cash and cash equivalents and short-term investments:
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 and short-term investments in accounts and certificates of deposit which are primarily FDIC-insured or in direct obligations of the U.S. government. However, certain cash deposits and certificates of deposit may exceed federally insured limits. At December 31, 2023 and 2022, cash deposits and short-term investments totaling $76.3 million and $87.6 million, respectively, were neither FDIC insured nor direct obligations of the U.S. government. The Company also holds money market funds, which are invested in U.S. government securities and repurchase agreements collateralized solely by U.S. government securities. Fair value and carrying value disclosures of financial instruments as of December 31 are presented in the following table:
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:
The following table provides the changes in fair value of the liabilities measured at fair value using inputs categorized in Level 3 of the fair value hierarchy:
Assets Measured at Fair Value on a Nonrecurring Basis The Company remeasures certain assets on a nonrecurring basis upon the occurrence of certain events. During the year ended December 31, 2023, the Company remeasured the fair value of its equity investments in private entities upon an observable price change and remeasured certain long-lived operating lease right-of-use assets and leasehold improvements for which impairment charges were recognized during the period. The following table provides the change in fair value of equity investments on a nonrecurring basis using inputs categorized in Level 3 of the fair value hierarchy:
The following table provides the changes in the long-lived assets measured on a nonrecurring basis for which impairment charges were recognized during the year ended December 31, 2023. The fair value measurements used inputs categorized in Level 3 of the fair value hierarchy.
There were no assets remeasured on a nonrecurring basis during the year ended December 31, 2022. |
DISCONTINUED OPERATIONS |
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DISCONTINUED OPERATIONS | NOTE D – DISCONTINUED OPERATIONS On February 28, 2023, the Company sold FleetNet, a wholly owned subsidiary of the Company, for an aggregate adjusted cash purchase price of $100.9 million, and recorded a pre-tax gain on sale of $70.2 million, or $52.3 million, net of tax. FleetNet provided roadside repair solutions and vehicle maintenance management services for commercial and private fleets through a network of third-party service providers. The sale of FleetNet allows the Company to focus on growing its continuing operations, as FleetNet was no longer core to the Company’s growth initiatives. The financial results of FleetNet have been accounted for as discontinued operations for all periods presented. The following table summarizes the financial results from discontinued operations:
The following table summarizes the assets and liabilities from discontinued operations:
Cash flows from discontinued operations of FleetNet were as follows:
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ACQUISITION |
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ACQUISITION. | |
ACQUISITION | NOTE E – ACQUISITION On November 1, 2021 (the “acquisition date”), the Company acquired MoLo, a Chicago-based truckload freight brokerage company, pursuant to the Merger Agreement dated September 29, 2021. Net cash consideration related to the transaction totaled $237.1 million, adjusted for certain post-closing adjustments. The Company funded the initial purchase price with cash on hand and subsequently received $2.3 million from escrow related to certain post-closing adjustments during the year ended December 31, 2022, which is reported in the accompanying consolidated statements of cash flows as business acquisition, net of cash acquired. The Merger Agreement provides for certain additional cash consideration to be paid by the Company based on the achievement of certain incremental targets of adjusted EBITDA for each of the years ended December 31, 2023, 2024, and 2025. The adjusted EBITDA metric was below target for 2023, resulting in no earnout payment for 2023. At 100% of the target, the cumulative additional consideration through 2025 would be $215.0 million, consisting of target earnout payments of $70.0 million and $145.0 million, including catch-up provisions, for the years ended December 31, 2024 and 2025, respectively. Possible undiscounted cash consideration could range from a total of $95.0 million at 80% of target to $455.0 million at 300% of target, as outlined in the Merger Agreement. See Note C for change in fair value of the contingent earnout consideration. The results of MoLo’s operations subsequent to the acquisition date have been included in the accompanying consolidated financial statements, with the acquired operations included within the Asset-Light operating segment (see Note O). The acquisition of MoLo enhances the scale of the Company’s truckload brokerage services by providing additional truckload capacity, support, and expertise in the Company’s Asset-Light operations and increasing cross-selling potential. In the year of acquisition, operating revenues of $120.3 million and operating loss of $1.2 million, including intangible asset amortization expense, related to MoLo from the acquisition date through December 31, 2021 were included in the accompanying consolidated statements of operations. The Company recognized $6.0 million of acquisition related costs in operating expenses in 2021. For segment reporting purposes, these transaction costs have been reported in “Other and eliminations” (see Note O). |
GOODWILL AND INTANGIBLE ASSETS |
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GOODWILL AND INTANGIBLE ASSETS | NOTE F – GOODWILL AND INTANGIBLE ASSETS December 31, 2022 and 2021 goodwill balances have been adjusted to reclassify $0.6 million of goodwill related to FleetNet to discontinued operations. The remaining goodwill balance of $304.8 million at both December 31, 2023 and 2022, primarily relates to the Asset-Light segment acquisitions of MoLo and Panther. Goodwill balances were as follows:
The annual impairment evaluation of the goodwill balance of the Asset-Light reporting unit was performed as of October 1, 2023, and it was determined that there was no impairment to the recorded balance. In making this analysis, management considered current and forecasted business levels and estimated future cash flows over several years. Furthermore, as of December 31, 2023, no indicators of impairment were identified. Goodwill was assessed for impairment qualitatively as of October 1, 2022, and the evaluation determined there was no impairment of the goodwill balance. Intangible assets consisted of the following:
The annual impairment evaluation of the indefinite-lived intangible asset was performed as of October 1, 2023 and 2022, and it was determined that there was no impairment of the recorded balance. As of December 31, 2023, the future amortization for intangible assets acquired through business acquisitions were as follows:
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INCOME TAXES |
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INCOME TAXES | NOTE G – INCOME TAXES Significant components of the provision or benefit for income taxes for the years ended December 31 were as follows:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the deferred tax benefit on continuing operations for the years ended December 31 were as follows:
Significant components of the deferred tax assets and liabilities of continuing operations at December 31 were as follows:
Reconciliation between the effective income tax rate, as computed on income from continuing operations before income taxes, and the statutory federal income tax rate for the years ended December 31 is presented in the following table:
The Company's total effective tax rate was 24.4%, 24.1% and 23.0% for 2023, 2022 and 2021, respectively, including discontinued operations which are further discussed in Note D. The effective tax rate from discontinued operations was 25.5%, 26.6% and 24.7% for 2023, 2022 and 2021, 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. Income taxes paid, excluding income tax refunds, totaled $115.7 million, $148.7 million, and $77.5 million in 2023, 2022, and 2021, respectively. Income tax refunds totaled $36.4 million, $42.3 million, and $19.4 million in 2023, 2022, and 2021, respectively. Under Accounting Standards Codification Topic 718, Compensation – Stock Compensation, the Company may experience volatility in its income tax provision as a result of recording all excess tax benefits and tax deficiencies in the income statement upon settlement of awards, which occurs primarily during the second quarter of each year. The 2023, 2022, and 2021 tax rates reflect a tax benefit of 2.8%, 2.1%, and 2.8%, respectively. At December 31, 2023, the Company had gross federal net operating loss carryforwards of $0.6 million. Due to taxable income, there is no need for a valuation allowance on these amounts at December 31, 2023 or 2022. At December 31, 2023, the Company had total gross state net operating losses of $26.4 million. Gross state net operating losses of $1.4 million are from the acquisition of Panther and relate to periods ending on or prior to June 15, 2012. State carryforward periods for the remaining Panther net operating losses vary from to 20 years. Gross state net operating losses of $9.7 million are for subsidiaries that have had taxable losses for three or more prior tax years or have other nexus issues that reduce the likelihood of the utilization of the losses. These net operating loss carryforwards have been fully reserved with valuation allowances of $0.5 million and $0.4 million at December 31, 2023 and 2022, respectively. Additional valuation allowances of $0.2 million related to state research and development tax credits were reserved at December 31, 2023 and 2022, and less than $0.1 million related to state interest expense carryforwards was reserved at December 31, 2023 and 2022.As the Canadian tax rate is now higher than the U.S. tax rate, it is unlikely that foreign tax credit carryforwards will be useable, as U.S. taxes will be paid at a lower rate than the tax rates in Canada. Thus, the foreign tax credit carryover is fully reserved, resulting in valuation allowances of $1.0 million at December 31, 2023 and 2022. Consolidated federal income tax returns filed for tax years through 2019 are closed by the applicable statute of limitations. The Company is not under examination by any federal, state, or foreign taxing authorities at December 31, 2023. At December 31, 2023 and 2022, there was a reserve for uncertain tax positions of $0.9 million related to credits taken on federal returns, of which $0.5 million will reverse in the second quarter of 2024 upon the expiration of the statute of limitations. For 2023, 2022, and 2021, interest paid or accrued related to foreign and state income taxes was immaterial. |
LEASES |
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LEASES | NOTE H – LEASES The Company has operating lease arrangements for certain facilities and revenue equipment used in the Asset-Based and Asset-Light segment operations and certain other facilities and office equipment. Current operating leases have remaining terms of 9.8 years or less, some of which include one or more options to renew, with renewal option terms up to ten years. There is one early termination option available on an operating lease as of December 31, 2023, provided notification is given 24 months prior to the end of the lease term, which is included in the right-of-use assets and liabilities as of December 31, 2023. All renewal options that have been exercised or are reasonably certain to be exercised as of December 31, 2023 and 2022, are included in the right-of-use assets and lease liabilities. Variable lease cost for operating leases consists of subsequent changes in the consumer price index, rent payments that are based on usage, and other lease related payments which are subject to change and not considered fixed payments. All fixed lease and non-lease component payments are combined in determining the right-of-use asset and lease liability. The components of operating lease expense were as follows:
The operating cash flows from operating lease activity were as follows:
Supplemental balance sheet information related to operating leases was as follows:
Maturities of operating lease liabilities at December 31, 2023 were as follows:
Lease Impairment Charges Long-lived assets, including operating right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. During the third quarter of 2023, the Company evaluated for impairment certain long-lived operating right-of-use assets that were made available for sublease. The assets evaluated for impairment included the operating right-of-use assets and leasehold improvements for a service center within the Asset-Based segment from which operations were relocated to a purchased facility; certain office spaces within the Asset-Light segment that have been vacated as a cost reduction measure in light of ongoing market changes impacting the Asset-Light business and changing employee work location trends; and certain leased facilities reported within “Other and eliminations” utilized for the service center operations of a freight handling pilot location, as operations transitioned back to the owned Asset-Based service center facility where they had previously been located, following the pause of the hardware pilot program at ABF Freight. After determining the carrying values of these asset groups were not recoverable, impairment was measured and lease impairment charges were recognized for the amount by which the carrying value exceeded the fair value of the asset groups. To estimate the fair value of the asset groups, the Company relied on a discounted cash flow method utilizing market-participant discount rates estimated with Level 3 inputs (see Note C). As a result of these evaluations, the Company recognized $30.2 million of lease impairment charges as a component of operating expenses in the consolidated statements of operations for the year ended December 31, 2023. The impairment losses recorded include $28.1 million related to the operating right-of-use assets with the remaining amount related to leasehold improvements. The Company determined the right-of-use assets and leasehold improvements are not or will not be abandoned, as there is a plan to sublease the properties, and the right-of-use assets will continue to be classified as held and used. |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS |
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LONG-TERM DEBT AND FINANCING ARRANGEMENTS | NOTE I – LONG-TERM DEBT AND FINANCING ARRANGEMENTS Long-Term Debt Obligations Long-term debt consisted of borrowings outstanding under the Company’s revolving credit facility, which is further described in Financing Arrangements within this Note, and notes payable related to the financing of revenue equipment (tractors and trailers used primarily in Asset-Based segment operations) and certain other equipment as follows:
Scheduled maturities of long-term debt obligations as of December 31, 2023 were as follows:
Assets securing notes payable at December 31 were included in property, plant and equipment as follows:
The Company’s long-term debt obligations have a weighted-average interest rate of 3.3% at December 31, 2023. The Company paid interest of $8.7 million, $7.1 million, and $8.7 million in 2023, 2022, and 2021, respectively, net of capitalized interest which totaled $0.3 million, $0.3 million, and $0.5 million for 2023, 2022, and 2021, respectively. Financing Arrangements Credit Facility The Company has a revolving credit facility (the “Credit Facility”) under its Fourth Amended and Restated Credit Agreement (the “Credit Agreement”), which was amended and restated in October 2022. The amendment, among other things, increased the aggregate amount of the swing line facility from $25.0 million to $40.0 million, extended the scheduled maturity date from October 1, 2024 to October 7, 2027, replaced LIBOR-based interest pricing conventions with interest pricing based on the SOFR, released the liens on the assets of the Company and certain subsidiaries, and released pledges of equity interests in certain subsidiaries. As a result of the amendment, the Credit Facility is now an unsecured facility. However, the indebtedness under the Credit Agreement and certain other obligations owed to lenders or their affiliates are cross-guaranteed by the Company and certain subsidiaries. The Credit Facility has an initial maximum credit amount of $250.0 million, including a swing line facility in an aggregate amount of up to $40.0 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 up to $125.0 million, subject to the satisfaction of certain additional conditions as provided in the Credit Agreement. As of December 31, 2023, the Company had available borrowing capacity of $200.0 million under the initial maximum credit amount of the Credit Facility. Principal payments under the Credit Facility are due upon maturity of the facility on October 7, 2027; 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 ranging from 0.125% to 1.00%, and SOFR adjustment of 0.10% per annum; or (ii) the Adjusted Term SOFR Screen Rate (as defined in the Credit Agreement) plus a spread ranging from 1.125% to 2.00%. The applicable spread is dependent upon the Company’s Adjusted Leverage Ratio (as defined in the Credit Agreement). In addition, the Credit Facility requires the Company to pay a fee on unused commitments. 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, consolidations, and sales of assets. The Company was in compliance with the covenants under the Credit Agreement at December 31, 2023. Interest Rate Swap As noted in the table above, the Company has an interest rate swap agreement with a $50.0 million notional amount, which started on June 30, 2022 and will end on October 1, 2024. The interest rate swap agreement was amended in October 2022 to replace LIBOR-based interest pricing conventions with interest pricing based on the SOFR. Under the amended interest rate swap agreement, the Company receives floating-rate interest amounts based on one-month SOFR in exchange for fixed-rate interest payments of 0.33% throughout the remaining term of the agreement. The fair value of the interest rate swap of $1.7 million and $3.5 million was recorded in other long-term assets at December 31, 2023 and 2022, respectively. The interest rate swap continues to qualify for cash flow hedge accounting through application of expedients provided for contracts affected by reference rate reform. Remeasurement at the modification date or reassessment from the previous accounting determination was not required. The unrealized gain or loss on the interest rate swap instruments in effect at the balance sheet date was reported as a component of accumulated other comprehensive income, net of tax, in stockholders’ equity at December 31, 2023 and 2022, and the change in the unrealized gain or loss on the interest rate swap for the years ended December 31, 2023 and 2022 was reported in other comprehensive income (loss), net of tax, in the consolidated statements of comprehensive income. The interest rate swap is 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 agreement at December 31, 2023. Accounts Receivable Securitization Program The Company’s accounts receivable securitization program, which matures on July 1, 2024, provides available cash proceeds of $50.0 million under the program and has an accordion feature allowing the Company to request additional borrowings up to $100.0 million, subject to certain conditions. In May 2022, the Company amended its accounts receivable securitization program to, among other things, increase certain ratios, including the delinquency, default, and accounts receivable turnover ratios, as defined in the agreement; add language addressing the potential inclusion of receivables originated by MoLo; and replace LIBOR-based interest pricing conventions with interest pricing based on the SOFR. The program ratios were adjusted to accommodate revenue growth and customer demand for integrated logistics solutions, which has resulted in an increased proportion of total revenues generated by the Company’s Asset-Light operations and, as a result, longer collection periods on the Company’s accounts receivable, as are typical for asset-light businesses. 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 amended accounts receivable securitization program bear interest based upon SOFR, 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 December 31, 2023. 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 December 31, 2023, standby letters of credit of $16.8 million have been issued under the program, which reduced the available borrowing capacity to $33.2 million. Letter of Credit Agreements and Surety Bond Programs As of both December 31, 2023 and 2022, the Company had letters of credit outstanding of $17.4 million and $10.6 million, respectively (including $16.8 million and $10.0 million, respectively issued under the accounts receivable securitization program). 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 December 31, 2023 and 2022, surety bonds outstanding related to the self-insurance program totaled $65.2 million and $62.6 million, respectively. Notes Payable The Company has financed the purchase of certain revenue equipment, other equipment, and software through promissory note arrangements. During the year ended December 31, 2023 and 2022, the Company entered into notes payable arrangements, primarily for revenue equipment, of $33.5 million and $82.4 million, respectively. |
ACCRUED EXPENSES |
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ACCRUED EXPENSES | NOTE J – ACCRUED EXPENSES
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EMPLOYEE BENEFIT PLANS |
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POSTRETIREMENT BENEFIT PLANS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EMPLOYEE BENEFIT PLANS | NOTE K – EMPLOYEE BENEFIT PLANS Supplemental Benefit and Postretirement Health Benefit Plans The Company has an unfunded supplemental benefit plan (the “SBP”) which was designed to supplement benefits under the Company’s legacy nonunion defined benefit pension plan (for which plan termination and liquidation was completed in 2019) for designated executive officers. The SBP was closed to new entrants, and a cap was placed on the maximum payment per participant in the SBP effective January 1, 2006. In place of the SBP, eligible officers of the Company appointed after 2005 participate in a long-term cash incentive plan (see Cash Long-Term Incentive Compensation Plan section within this Note). Effective December 31, 2009, the accrual of benefits for remaining participants under the SBP was frozen. With the exception of early retirement penalties that may apply in certain cases, the valuation inputs for calculating the frozen SBP benefits to be paid to participants, including final average salary and the interest rate, were frozen at December 31, 2009. The SBP did not incur pension settlement expense in 2023, 2022, or 2021. The Company sponsors an insured postretirement health benefit plan that provides supplemental medical benefits and dental and vision benefits primarily to certain officers of the Company and certain subsidiaries. New entrants have not been added to the postretirement health benefit plan since January 1, 2017. The following table discloses the changes in benefit obligations and plan assets of the Company’s nonunion defined benefit plans for years ended December 31, the measurement date of the plans:
Amounts recognized in the consolidated balance sheets at December 31 consisted of the following:
The following is a summary of the components of net periodic benefit cost for the Company’s nonunion benefit plans for the years ended December 31:
Included in accumulated other comprehensive loss at December 31 were the following pre-tax amounts that have not yet been recognized in net periodic benefit cost:
The discount rate is determined by matching projected cash distributions with appropriate high-quality corporate bond yields in a yield curve analysis. Weighted-average assumptions used to determine nonunion benefit obligations at December 31 were as follows:
Weighted-average assumptions used to determine net periodic benefit cost for the Company’s nonunion benefit plans for the years ended December 31 were as follows:
The assumed health care cost trend rates for the Company’s postretirement health benefit plan at December 31 were as follows:
Estimated future benefit payments from the Company’s SBP and postretirement health benefit plans, which reflect expected future service as appropriate, as of December 31, 2023 are as follows:
Deferred Compensation Plans The Company has deferred salary agreements with certain executives for which liabilities of $1.1 million and $1.3 million were recorded as of December 31, 2023 and 2022, respectively. The deferred salary agreements include a provision that immediately vests all benefits and provides for a lump-sum payment upon a change in control of the Company that is followed by a termination of the executive. The deferred salary agreement program was closed to new entrants effective January 1, 2006. In place of the deferred salary agreement program, officers appointed after 2005 participate in the Long-Term Incentive Plan (see Long-Term Incentive Compensation Plan section within this Note). The Company maintains a Voluntary Savings Plan (“VSP”), a nonqualified deferred compensation program for the benefit of certain executives of the Company and certain subsidiaries. Eligible employees may defer receipt of a portion of their salary and incentive compensation into the VSP by making an election prior to the beginning of the year in which the salary compensation is payable and, for incentive compensation, by making an election at least six months prior to the end of the performance period to which the incentive relates. The Company credits participants’ accounts with applicable rates of return based on a portfolio selected by the participants from the investments available in the plan. The Company match related to the VSP was suspended beginning January 1, 2010. All deferrals, Company match, and investment earnings are considered part of the general assets of the Company until paid. Accordingly, the consolidated balance sheets reflect the fair value of the aggregate participant balances, based on quoted prices of the mutual fund investments, as both an asset and a liability of the Company. As of December 31, 2023 and 2022, VSP balances of $4.6 million and $4.0 million, respectively, were included in other long-term with a corresponding amount recorded in other long-term .Defined Contribution Plans The Company and its subsidiaries have defined contribution 401(k) plans that cover substantially all nonunion employees. The plans permit participants to defer a portion of their salary up to a maximum of 69% as determined under Section 401(k) of the IRC. For certain participating subsidiaries, the Company matches 50% of nonunion participant contributions up to the first 6% of annual compensation. The Company’s matching expense for the nonunion 401(k) plans totaled $7.1 million, $9.4 million, and $7.7 million for 2023, 2022, and 2021, respectively. The plans also allow for discretionary 401(k) Company contributions determined annually. The Company recognized expense of $13.1 million, $19.1 million, and $16.8 million in 2023, 2022, and 2021, respectively, related to its discretionary contributions to the nonunion defined contribution 401(k) plans. Discretionary contribution expense was higher in 2022, primarily due to an increase in discretionary contribution rate based on the Company’s higher operating results for the year. Participants are fully vested in the Company’s contributions under the defined contribution 401(k) plans after three years of service. Long-Term Incentive Compensation Plan The Company maintains a performance-based Long-Term Incentive Compensation Plan (“LTIP”) for certain officers of the Company or its subsidiaries. The LTIP incentive, which is earned over three years, is based, in part, upon a proportionate weighting of return on capital employed and shareholder returns compared to a peer group, as specifically defined in the plan document. As of December 31, 2023, 2022, and 2021, $26.3 million, $29.5 million, $28.3 million, respectively, were accrued for future payments under the plans. Other Plans Other long-term assets include $48.5 million and $54.7 million at December 31, 2023 and 2022, respectively, in the cash surrender value of life insurance policies. These policies are intended to provide funding for certain of the Company’s long-term nonunion benefit plans. A portion of the Company’s cash surrender value of variable life insurance policies have investments, through separate accounts, in equity and fixed income securities and, therefore, are subject to market volatility. The Company recognized a gain of $4.6 million for 2023, a loss of $2.7 million 2022, and a gain of $4.1 million for 2021, associated with changes in the cash surrender value and proceeds from life insurance policies. 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 Labor Management Relations Act of 1947 (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 2023 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 multiemployer plans to which ABF Freight primarily contributes are jointly-trusteed (half of the trustees of each plan are selected by the participating employers, the other half by the IBT) and cover collectively bargained employees of multiple unrelated employers. Due to the inherent nature of multiemployer plans, there are risks associated with participation in these plans that differ from single-employer plans. Assets received by the plans are not segregated by employer, and contributions made by one employer can be and are used to provide benefits to current and former employees of other employers. If a participating employer in a multiemployer pension plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If a participating employer in a multiemployer pension plan completely withdraws from the plan, it owes to the plan its proportionate share of the plan’s unfunded vested benefits, referred to as a withdrawal liability. A complete withdrawal generally occurs when the employer permanently ceases to have an obligation to contribute to the plan. Withdrawal liability is also owed in the event the employer withdraws from a plan in connection with a mass withdrawal, which generally occurs when all or substantially all employers withdraw from the plan pursuant to an agreement in a relatively short period of time. Were ABF Freight to completely withdraw from certain multiemployer pension plans, whether in connection with a mass withdrawal or otherwise, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan. Pension Plans 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 2023 ABF NMFA, which will remain in effect through June 30, 2028. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006 (the “PPA”), which was permanently extended by the Multiemployer Pension Reform Act of 2014 (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. 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. The PPA requires that “endangered” (generally less than 80% funded and commonly called “yellow zone”) plans adopt “funding improvement plans” and that “critical” (generally less than 65% funded and commonly called “red zone”) plans adopt “rehabilitation plans” that are intended to improve the plan’s funded status over time. The Reform Act includes provisions to address the funding of multiemployer pension plans in “critical and declining” status, including certain of those in which ABF Freight participates. 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 two to one or the plan’s funded percentage is less than 80%. 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 Treasury (the “Treasury Department”) for the reduction of certain accrued benefits. 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 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 2023 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. Certain multiemployer pension plans to which ABF Freight contributes, including the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”), have applied for or received funds under the SFA Program which could allow them to avoid insolvency and improve their funded status. Under the American Rescue Plan Act and in accordance with regulations of the PBGC, the plans receiving funding under the SFA Program are not permitted to reduce employer contributions to their funds. The Company will continue to evaluate the impact of the assistance provided by the SFA Program on ABF Freight’s multiemployer pension plan contributions. Through the term of the 2023 ABF NMFA, 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. Based on the most recent funding information the Company has received, approximately 6% of ABF Freight’s multiemployer pension plan contributions for the year ended December 31, 2023 were made to plans that are in “critical and declining status;” approximately 53% were made to plans that are in “critical status,” including the Central States Pension Plan discussed below; and no contributions were made to plans that are in “endangered status,” each as defined by the PPA. ABF Freight’s participation in multiemployer pension plans is summarized in the table below. The multiemployer pension plans listed separately in the table represent plans that are individually significant to the Asset-Based segment based on the amount of plan contributions. The Central States Pension Plan is the only fund individually listed in the table which received financial assistance from the SFA Program. The severity of a plan’s underfunded status considered in the analysis of individually significant funds to be separately disclosed was after the financial assistance from the SFA Program. Significant multiemployer pension funds and key participation information were as follows:
Table Heading Definitions
Table Footnotes
For 2023, 2022, and 2021, approximately one-half of ABF Freight’s multiemployer pension contributions were made to the Central States Pension Plan. The funded percentages of the Central States Pension Plan, as set forth in information provided by the Central States Pension Plan, were 14.5%, and 17.1% as of January 1, 2022 and 2021, respectively. ABF Freight received a Notice of Critical Status for the Central States Pension Plan dated March 31, 2023, in which the plan’s actuary certified that, as of January 1, 2023 the approximate funding percentage was 97.5%; however, the plan is deemed to be in critical status through 2051 due to the receipt of funding from the SFA Program in January 2023. The plan announced that the SFA Program funding will allow the Central States Pension Plan to avoid insolvency in 2025 and to reach full funding over time. The funding notices for the 2022 plan year for the Western Pennsylvania Teamsters and Employers Pension Fund, the New York State Teamsters Conference Pension and Retirement Fund, and the Trucking Employees of North Jersey Welfare Fund, Inc. – Pension Fund reflected the reinstatement of benefits previously suspended due to the significantly improved status of each fund due to the funding provided by the SFA Program; however, these funds will be deemed to be in critical status through the end of 2051. The Company also previously received notice that the PBGC will provide financial assistance (by paying retiree benefits not to exceed the PBGC guarantee limits) to the Road Carriers Local 707 Pension Fund, which was declared insolvent; however, this fund received SFA Program funding during 2022. Approximately 1% to 2% of ABF Freight’s total multiemployer pension contributions for the year ended December 31, 2023 were made to each of these funds. ABF Freight has not received any other notification of plan reorganization or plan insolvency with respect to any multiemployer pension plan to which it contributes. Health and Welfare Plans ABF Freight contributes to 38 multiemployer health and welfare plans which provide health care benefits for active employees and retirees covered under labor agreements. Contributions to multiemployer health and welfare plans totaled $215.6 million, $194.4 million, and $176.2 million, for the year ended December 31, 2023, 2022, and 2021, respectively. The benefit contribution rate for health and welfare benefits increased by an average of approximately 5.7% on August 1, 2023 under ABF Freight’s current collective bargaining agreement with IBT ratified in 2023 and 4.3% on both August 1, 2022 and 2021 under ABF Freight’s prior collective bargaining agreement with the IBT ratified in 2018. Higher benefit contribution rates following the 2023 ABF NMFA ratification and more hours worked to maintain capacity in the first half of the year and to service higher business levels in the second half of the year, resulted in an increase in contributions to health and welfare plans in 2023, compared to 2022. In 2022, more hours worked by ABF Freight’s contractual employees, as well as the hiring of additional contractual employees to service higher shipment levels resulted in an increase in contributions to multiemployer health and welfare plans in 2022, compared to 2021. Other than changes to benefit contribution rates and variances in rates and time worked, there have been no other significant items that affect the comparability of the Company’s 2023, 2022, and 2021 multiemployer health and welfare plan contributions. |
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STOCKHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | NOTE L – STOCKHOLDERS’ EQUITY Accumulated Other Comprehensive Income Components of accumulated other comprehensive income were as follows at December 31:
The following is a summary of the changes in accumulated other comprehensive income, net of tax, by component:
The following is a summary of the significant reclassifications out of accumulated other comprehensive income by component for the years ended December 31:
Dividends on Common Stock The following table is a summary of dividends declared during the applicable quarter:
On February 2, 2024, the Company’s Board of Directors declared a dividend of $0.12 per share to stockholders of record as of February 16, 2024. Treasury Stock The Company has a program to repurchase its common stock in the open market or in privately negotiated transactions (the “share repurchase program”). The share repurchase 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. In February 2023, the Board of Directors reauthorized the share repurchase program and increased the total amount available for purchases of the Company’s common stock under the program to $125.0 million. During 2023, the Company purchased 930,754 shares of its common stock for an aggregate cost of $91.5 million, including 501,146 shares for an aggregate cost of $47.6 million under Rule 10b5-1 plans, which allowed for stock repurchases during closed trading windows. The Company had $33.5 million remaining under its share repurchase program as of December 31, 2023. Treasury shares totaled 6,460,137 and 5,529,383 as of December 31, 2023 and 2022, respectively. In February 2024, the Board of Directors reauthorized the share repurchase program and increased the total amount available for purchases of the Company’s common stock under the program to $125.0 million. Subsequent to December 31, 2023 through February 19, 2024, the Company settled repurchases of 51,220 shares for an aggregate cost of $6.1 million. |
SHARE-BASED COMPENSATION |
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SHARE-BASED COMPENSATION | NOTE M – SHARE-BASED COMPENSATION Stock Awards The Company had outstanding RSUs granted under the ArcBest Corporation Ownership Incentive Plan (the “Ownership Incentive Plan”) as of December 31, 2023 and 2022. The Ownership Incentive Plan provides for the granting of 4.9 million shares, which may be awarded as incentive and nonqualified stock options, stock appreciation rights, restricted stock, RSUs, or performance award units. Restricted Stock Units A summary of the Company’s RSU award program is presented below:
The Compensation Committee of the Company’s Board of Directors granted RSUs during the years ended December 31 as follows: k
The fair value of restricted stock awards that vested in 2023, 2022, and 2021 was $34.2 million, $48.1 million, and $36.4 million, respectively. Unrecognized compensation cost related to restricted stock awards outstanding as of December 31, 2023 was $14.0 million, which is expected to be recognized over a weighted-average period of approximately 0.9 years. |
EARNINGS PER SHARE |
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EARNINGS PER SHARE | NOTE N – EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:
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OPERATING SEGMENT DATA |
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OPERATING SEGMENT DATA | NOTE O – 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 (loss), and key operating statistics to evaluate performance and allocate resources to the Company’s operations. On February 28, 2023, the Company sold FleetNet, a wholly owned subsidiary and reportable operating segment of the Company. Following the sale, FleetNet is reported as discontinued operations. As such, historical results of FleetNet have been excluded from both continuing operations and segment results for all periods presented, and reclassifications have been made to the prior-period financial statements to conform to the current-year presentation. The Company’s reportable operating segments are as follows:
As previously discussed in Note A, the Asset-Based segment’s contractual employees are covered under the 2023 ABF NMFA, which was implemented on July 16, 2023, effective retroactive to July 1, 2023, and will remain in effect through June 30, 2028. The major economic provisions of the 2023 ABF NMFA include wage and mileage rate increases in each year of the contract, with the initial increase effective retroactive to July 1, 2023; profit-sharing bonuses upon the Asset-Based segment’s achievement of certain annual operating ratios for any full calendar year under the contract; an additional paid holiday; two additional paid sick days; and a new non-CDL employee classification. The 2023 ABF NMFA and the related supplemental agreements provide for annual contribution rate increases to multiemployer health and welfare and pension funds to which ABF Freight contributed under the previous agreement.
The Company’s other business activities and operations that are not reportable segments include ArcBest Corporation (the parent holding company) and certain 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 operating 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 Company’s Board of Directors, and certain technology investments. Shared services costs attributable to the reportable operating segments are predominantly allocated based upon estimated and planned resource utilization-related metrics such as estimated shipment levels 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 reportable 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. The following table reflects reportable operating segment information from continuing operations for the years ended December 31:
The following table reflects information about revenues from customers and intersegment revenues for the years ended December 31:
The following table provides capital expenditure and depreciation and amortization information by reportable operating segment from continuing operations:
A table of assets by reportable operating segment has not been presented as segment assets are not included in reports regularly provided to management nor does management consider segment assets for assessing segment operating performance or allocating resources. The Company incurred research and development costs of $52.4 million and $40.8 million for the year ended December 31, 2023 and 2022, respectively, related to innovative technology initiatives. The following table presents operating expenses by category on a consolidated basis:
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LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS, AND OTHER EVENTS |
12 Months Ended |
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Dec. 31, 2023 | |
LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS, AND OTHER EVENTS | |
LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS, AND OTHER EVENTS | NOTE P – 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. Legal Proceedings In January 2023, the Company and MoLo were named as defendants in lawsuits related to an auto accident which involved a MoLo contract carrier. The accident occurred prior to the Company’s acquisition of MoLo on November 1, 2021. The Company intends to vigorously defend against these lawsuits. The Company believes that a loss related to this matter is reasonably possible. The Company cannot estimate the amount or a range of reasonably possible losses for this matter, if any, at this time; however, it is reasonably possible that such amounts could be material to the Company’s financial condition, results of operations, or cash flows. The Company will pursue recovery for its losses, if any, against all available sources, including, but not limited to, insurance and any potentially responsible third parties. Environmental Matters The Company’s subsidiaries store fuel for use in tractors and trucks in underground tanks 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 of 1980, as amended, 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. The Company maintains a reserve within accrued expenses for estimated environmental cleanup costs of properties currently or previously operated by the 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. On March 20, 2023, ABF Freight entered into a consent decree with the EPA (the “Consent Decree”) to resolve alleged compliance issues under the federal Clean Water Act (the “CWA”) and, as a result, paid civil penalties of $0.5 million, including interest, during the third quarter of 2023. The estimated settlement expense for this matter was reserved within accrued expenses as of December 31, 2022. By the date of the Consent Decree, the Asset-Based service center facilities were in general compliance with the stormwater laws and have ensured compliance with applicable stormwater permits under the CWA. ABF Freight has internally developed an environmental stormwater management strategy, including the delineation of roles and responsibilities for stormwater maintenance and compliance; developed procedures for tracking the permit process, including comprehensive employee training; implemented standard operating procedures; ensuring contractor awareness of stormwater laws; and tracking facility-specific corrective actions throughout the term of the Consent Decree. Other Events During second quarter 2023, the Company received a Notice of Assessment from a state regarding an ongoing sales and use tax audit for the trailing time period of December 1, 2018 to March 31, 2021. This notice is in addition to the February 2021 Notice of Assessment from that state pertaining to uncollected sales and use tax, including interest and penalties, for the period of September 1, 2016 to November 30, 2018. The Company does not agree with the basis of these assessments and filed an appeal for the 2023 assessment in October 2023 on the same legal basis as the appeal filed in May 2021 for the earlier assessment. The Company has previously accrued an amount related to these assessments consistent with applicable accounting guidance, but if the state prevails in its position, the Company may owe additional tax. Management does not believe the resolution of this matter will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows. During fourth quarter 2023, the Company tentatively settled a claim related to the classification of certain Asset-Light employees under the Fair Labor Standards Act for approximately $9.5 million. The settlement is pending court approval. The estimated settlement expense for this matter is reserved within accrued expenses in the consolidated balance sheet as of December 31, 2023.
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES |
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES | SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ARCBEST CORPORATION On February 28, 2023, the Company sold FleetNet America, Inc. (“FleetNet”), a wholly owned subsidiary and reportable operating segment of the Company. The sale of FleetNet was accounted for as discontinued operations. As such, reclassifications have been made to the balances, additions, and deductions below to exclude the impact of FleetNet. (See Note D to the Company’s consolidated financial statements included in Part II, Item 8 of the Annual Report on Form 10-K).
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ACCOUNTING POLICIES (Policies) |
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ACCOUNTING POLICIES | ||||||||||
Consolidation | Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. |
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Segment Information | Segment Information: The Company uses the “management approach” for determining its reportable segment information. The management approach is based on the way management organizes the reportable segments within the Company for making operating decisions and assessing performance. See Note O for further discussion of segment reporting. |
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Use of Estimates | Use of Estimates: 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. |
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Reclassifications | Reclassifications: On February 28, 2023, the Company sold FleetNet America, Inc. (“FleetNet”), a wholly owned subsidiary and reportable operating segment of the Company, for an aggregate adjusted cash purchase price of $100.9 million, including post-closing adjustments. The sale of FleetNet was a strategic shift for the Company as it exited the fleet roadside assistance and maintenance management business; therefore, the sale was accounted for as discontinued operations. As such, historical results of FleetNet have been excluded from both continuing operations and segment results for all periods presented, and reclassifications have been made to the prior-period financial statements to conform to the current-year presentation. Related assets and liabilities associated with FleetNet are classified as discontinued operations in the consolidated balance sheets for all periods presented. The cash flows related to the discontinued operations have not been segregated and are included in the consolidated statements of cash flows. Unless otherwise indicated, all amounts in this Annual Report on Form 10-K refer to continuing operations, including comparisons to the prior year. For more information on the Company’s discontinued operations, see Note D. Certain reclassifications have been made to the prior period presentation of other long-term liabilities to conform to the current-year presentation of the contingent consideration liability on a separate line in the consolidated balance sheets. For the years ended December 31, 2022 and 2021, certain reclassifications have been made between operating expenses lines of the Asset-Light segment to conform to the current-year presentation of certain facility rent expenses. There was no impact on total liabilities or total operating expenses as a result of these reclassifications. |
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Cash, Cash Equivalents, and Short-Term Investments | Cash, Cash Equivalents, and Short-Term Investments: Short-term investments that have a maturity of ninety days or less when purchased are considered cash equivalents. Variable rate demand notes are classified as cash equivalents, as the investments may be redeemed on a daily basis with the original issuer. Short-term investments consist of FDIC-insured certificates of deposit and U.S. Treasury securities with original maturities greater than ninety days and remaining maturities less than one year. Interest and dividends related to cash, cash equivalents, and short-term investments are included in interest and dividend income. Certificates of deposit are valued at cost plus accrued interest, which approximates fair value. Held-to-maturity U.S. Treasury securities are recorded at amortized cost with interest and amortization of premiums and discounts included in interest income. Quarterly, the Company evaluates held-to-maturity securities for any other-than-temporary impairments related to any intention to sell or requirement to sell before its amortized costs are recovered. If a security is considered to be other-than-temporarily impaired, the difference between amortized cost and the amount that is determined to be recoverable is recorded in operating income. |
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Concentration of Credit Risk | Concentration of Credit Risk: The Company is potentially subject to concentrations of credit risk related to the portion of its cash, cash equivalents, and short-term investments, which is not federally insured, as further discussed in Note C. The Company’s services are provided primarily to customers throughout the United States and, to a lesser extent, Canada, Mexico, and other international locations. On a consolidated basis, the Company had no single customer representing more than 2% of its revenues in 2023, 2022, or 2021 or more than 5% of its accounts receivable balance at December 31, 2023 and 2022. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have been within management’s expectations. |
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Receivable Allowances | Receivable Allowances: The Company maintains allowances for credit losses 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 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 credit losses and revenue adjustments. The allowance for credit losses on the Company’s trade accounts receivable totaled $5.5 million and $9.3 million at December 31, 2023 and 2022, respectively. During 2023, the allowance for credit losses increased $3.6 million and was reduced $7.4 million by write-offs, net of recoveries.
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Property, Plant and Equipment, Including Repairs and Maintenance | Property, Plant and Equipment, Including Repairs and Maintenance: Purchases of property, plant and equipment are recorded at cost. For financial reporting purposes, property, plant and equipment is depreciated principally by the straight-line method, using the following useful lives: structures – primarily 15 to 60 years; revenue equipment – 3 to 22 years; and other equipment – 2 to 16 years. The Company utilizes tractors and trailers in its operations. Tractors and trailers are commonly referred to as “revenue equipment” in the transportation business. The Company periodically reviews and adjusts, as appropriate, the residual values and useful lives of revenue equipment and other equipment. For tax reporting purposes, accelerated depreciation or cost recovery methods are used. Gains and losses on asset sales are reflected in the year of disposal. Exchanges of nonmonetary assets that have commercial substance are measured based on the fair value of the assets exchanged. Tires purchased with revenue equipment are capitalized as a part of the cost of such equipment, with replacement tires being expensed when placed in service. Repair and maintenance costs associated with property, plant and equipment are expensed as incurred if the costs do not extend the useful life of the asset. If such costs do extend the useful life of the asset, the costs are capitalized and depreciated over the appropriate remaining useful life. |
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Computer Software for Internal Use, Including Web Site Development and Cloud Computing Costs | Computer Software for Internal Use, Including Web Site Development and Cloud Computing Costs: The Company capitalizes the costs of software acquired from third parties and qualifying internal computer software costs incurred during the application development stage, or during the implementation stage for cloud computing or hosting arrangements. Costs incurred in the preliminary project stage and postimplementation-operation stage, which includes maintenance and training costs, are expensed as incurred. For financial reporting purposes, capitalized software costs are amortized by the straight-line method generally over 2 to 7 years. Capitalized costs related to cloud computing and hosting arrangements are presented within prepaid expenses in the accompanying consolidated balance sheets. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period. |
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Impairment Assessment of Long-Lived Assets | Impairment Assessment of Long-Lived Assets: The Company reviews its long-lived assets, including property, plant and equipment, capitalized software, finite-lived intangible assets and right-of-use assets held under operating leases, which are held and used in its operations, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If such an event or change in circumstances is present, the Company will estimate the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the undiscounted future cash flows is less than the carrying amount of the related asset, the Company will record the asset at the lesser of its carrying amount or fair value and recognize an impairment loss, if any, in operating income. During the third quarter of 2023, the Company evaluated for impairment certain long-lived operating right-of-use assets that were made available for sublease. After determining the carrying values of these asset groups were not recoverable, impairment was measured as the amount by which the carrying value exceeded the fair value of the asset groups, and lease impairment charges of $30.2 million were recognized as a component of operating expenses in the consolidated statements of operations for the year ended December 31, 2023 (see Note C). At December 31, 2023 and 2022, management was not aware of events or circumstances indicating the Company’s long-lived assets would not be recoverable. Assets to be disposed of are reclassified as assets held for sale at the lower of their carrying amount or fair value less cost to sell. Assets held for sale primarily represent Asset-Based segment nonoperating properties, older revenue equipment, and other equipment. Adjustments to write down assets to fair value less the amount of costs to sell are reported in operating income. Assets held for sale are expected to be disposed of by selling the assets within the next 12 months. Gains and losses on property and equipment are reported in operating income. Assets held for sale of $1.5 million and $0.8 million were reported within other long-term assets as of December 31, 2023 and 2022, respectively. |
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Business Combinations | Business Combinations: The Company uses the acquisition method of accounting for business combinations, which generally requires that the assets acquired and liabilities assumed be recorded at their respective fair values at the date of acquisition. The excess, if any, of the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree over the fair value of the identifiable net assets acquired are recorded as goodwill. The acquisition date fair value of acquired assets and liabilities are subject to revision during the remeasurement period if information becomes available that warrants further adjustments. Changes to the acquisition date fair value prior to the remeasurement period are recorded as adjustments to goodwill. Acquisition-related expenses are expensed as incurred.
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Contingent Consideration | Contingent Consideration: The Company records the estimated fair value of contingent earnout consideration at the acquisition date as part of the purchase price consideration for an acquisition. The fair value of the contingent earnout consideration liability is determined using a Monte Carlo simulation with Level 3 inputs including volatility factors, projected earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and the discount rate. The liability for contingent earnout consideration is remeasured at each quarterly reporting date and any change in fair value as a result of the recurring assessments is recognized in operating income (see Note C).
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Goodwill and Intangible Assets | Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but rather is evaluated for impairment annually or more frequently if indicators of impairment exist. The Company performs its annual assessment of goodwill impairment as of October 1 (see Note F). The Company typically assesses qualitative factors but may also use a quantitative analysis to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative valuation of the reporting unit is prepared to measure the amount of goodwill impairment, if any. Indefinite-lived intangible assets are also not amortized but rather are evaluated for impairment annually or more frequently if indicators of impairment exist. Consistent with goodwill, the Company typically assesses qualitative factors but may from time to time perform a quantitative assessment to determine if it is more likely than not that the fair value of indefinite-lived intangible assets is less than its carrying value; if applicable, a quantitative analysis is performed if it is determined it is more likely than not the indefinite-lived intangible is impaired. The Company amortizes finite-lived intangible assets over their respective estimated useful lives.
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Income Taxes | Income Taxes: The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities, which are recorded as noncurrent by jurisdiction, are recognized based on the temporary differences between the book value and the tax basis of certain assets and liabilities and the tax effect of operating loss and tax credit carryforwards. Deferred income taxes relate principally to asset and liability basis differences resulting from the timing of depreciation deductions and to temporary differences in the recognition of certain revenues and expenses. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. The Company classifies any interest and penalty amounts related to income tax matters as operating expenses. Management applies considerable judgment in determining the consolidated income tax provision, including valuation allowances on deferred tax assets. The valuation allowance for deferred tax assets is determined by evaluating whether it is more likely than not that the benefits of deferred tax assets will be realized through future reversal of existing taxable temporary differences, taxable income in carryback years in jurisdictions in which they are allowable, projected future taxable income, or tax-planning strategies. Uncertain tax positions, which also require significant judgment, are measured to determine the amounts to be recognized in the financial statements. The income tax provision and valuation allowances are complicated by complex and frequently changing rules administered in multiple jurisdictions, including U.S. federal, state, and foreign governments. |
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Long Term Investments | Long-Term Investments: The Company’s long-term investments are recorded in other long-term assets and represent equity investments in private entities without readily determinable fair values. The investments are recorded using the measurement alternative in which the Company’s equity interests are recorded at cost and are adjusted for any impairments or for observable price changes identified in orderly transactions of similar investments of the same issuers. The fair value of the Company’s equity investment was remeasured in second quarter 2023, based on an observable price change which resulted in a $3.7 million increase in fair value (see Note C). As of December 31, 2023 and 2022, the carrying amount of these investments totaled $28.7 million and $25.0 million, respectively. |
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Book Overdrafts | Book Overdrafts: Issued checks that have not cleared the bank as of December 31 result in book overdraft balances for accounting purposes which are classified within accounts payable in the accompanying consolidated balance sheets. Book overdrafts amounted to $19.2 million and $30.3 million at December 31, 2023 and 2022, respectively. The change in book overdrafts is reported as a component of financing activities within the statement of cash flows.
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Insurance Reserves | Insurance Reserves: The Company is self-insured up to certain limits for workers’ compensation, certain third-party casualty claims, and cargo loss and damage claims. Amounts in excess of the self-insured limits are fully insured to levels which management considers appropriate for the Company’s operations. The Company’s claims liabilities have not been discounted. Liabilities for self-insured workers’ compensation and third-party casualty claims are based on the case reserve amounts plus an estimate of loss development and incurred but not reported (“IBNR”) claims, which is developed from an independent actuarial analysis. The process of determining reserve requirements utilizes historical trends and involves an evaluation of claim frequency and severity, claims management, and other factors. Case reserves are evaluated as loss experience develops and new information becomes available. Adjustments to previously estimated aggregate reserves are reflected in financial results in the periods in which they are made. Aggregate reserves represent an estimate of the costs of claims incurred, and it is possible that the ultimate liability may differ significantly from such estimates. The Company develops an estimate of self-insured cargo loss and damage claims liabilities based on historical trends and certain event-specific information. Claims liabilities are recorded in accrued expenses and are not offset by insurance receivables which are reported in other accounts receivable. |
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Loss Contingencies | Loss Contingencies: The Company is involved in various legal actions arising in the ordinary course of business. In assessing loss contingencies, the Company uses significant judgments and assumptions to estimate the likelihood of loss or the incurrence of a liability, and to reasonably estimate the amount of loss. The Company records a liability and expense for loss contingencies when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company’s legal matters are discussed in Note P. |
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Long-Term Debt | Long-Term Debt: Long-term debt consists of borrowings outstanding under the revolving credit facility (the “Credit Facility”) of the Company’s Fourth Amended and Restated Credit Agreement (“Credit Agreement”) and notes payable for the financing of revenue equipment, other equipment, and software. The Company also has borrowing capacity under an accounts receivable securitization program. The Company’s long-term debt and financing arrangements are further described in Note I. |
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Interest Rate Swap Derivative Instruments | Interest Rate Swap Derivative Instruments: The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value. The Company has an interest rate swap agreement designated as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap instrument is reported as unrealized gain or loss as a component of accumulated other comprehensive income or loss, net of tax, in stockholders’ equity and the change in the unrealized gain or loss on the interest rate swap is reported in other comprehensive income or loss, net of tax, in the consolidated statements of comprehensive income. The unrealized gain or loss is reclassified out of accumulated other comprehensive loss into income in the same period or periods during which the hedged transaction affects earnings. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. |
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Leases | Leases: The Company leases, primarily under operating lease arrangements, certain facilities used primarily in the Asset-Based segment service center operations, certain facilities and revenue equipment used in the Asset-Light segment operations, and certain other facilities and office equipment. The Company also has a small number of subleases and income leases on owned properties that are immaterial to the consolidated financial statements. Right-of-use assets and lease liabilities for operating leases are recorded on the balance sheet and the related lease expense is recorded on a straight-line basis over the lease term in operating expenses. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. For financial reporting purposes, right-of-use assets held under finance leases are amortized over their estimated useful lives on the same basis as owned assets, and leasehold improvements associated with assets utilized under finance or operating leases are amortized by the straight-line method over the shorter of the remaining lease term or the asset’s useful life. Amortization of assets under finance leases is included in depreciation expense. Obligations under the finance lease arrangements, if any, are included in long-term debt. The Company elected the short-term lease exemption for all classes of assets to include real property, revenue equipment, and service, office, and other equipment. The Company adopted the policy election as a lessee for all classes of assets to account for each lease component and its related non-lease component(s) as a single lease component. In determining the discount rate, the Company uses ArcBest Corporation’s incremental borrowing rate unless the rate implicit in the lease is readily determinable when entering into a lease as a lessee. The incremental borrowing rate is determined by the price of a fully collateralized loan with similar terms based on current market rates. An assessment is made on or after the effective date of newly signed contracts as to whether the contract is, or contains, a lease at the inception of a contract. The assessment is based on: (1) whether the contract involves the use of a distinct identified asset; (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period; and (3) whether the Company has the right to direct the use of the asset. The operating right-of-use asset is measured as the initial amount of the operating lease liability, plus any initial direct costs incurred, less any prepayments prior to commencement or lease incentives received. The operating lease liability is initially measured at the present value of the lease payments, discounted using the Company’s secured incremental borrowing rate for the same term as the underlying lease unless the interest rate implicit in the lease is readily determined, then the implicit rate will be used. Lease payments included in the measurement of the lease liability are comprised of the following: (1) the fixed noncancelable lease payments, (2) payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and (3) payments for early termination options unless it is reasonably certain the lease will not be terminated early. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and included in the measurement of the initial lease liability. Additional payments based on the change in an index or rate are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability.
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Nonunion Defined Benefit Pension, Supplemental Benefit, and Postretirement Health Benefit Plans | Supplemental Benefit and Postretirement Health Benefit Plans: The Company recognizes the funded status of the supplemental benefit plan (the “SBP”) and postretirement health benefit plan in the consolidated balance sheet and recognizes changes in the funded status, net of tax, in the year in which they occur as a component of other comprehensive income or loss. The benefit obligations of the SBP and postretirement health benefit plan represent the funded status, as these plans do not have plan assets. Amounts recognized in other comprehensive income or loss are subsequently expensed as components of net periodic benefit cost by amortizing unrecognized net actuarial losses over the average remaining active service period of the plan participants and amortizing unrecognized prior service credits over the remaining years of service until full eligibility of the active participants at the time of the plan amendment which created the prior service credit. A corridor approach is not used for determining the amounts of net actuarial losses to be amortized. The Company has not incurred service cost under the SBP since the accrual of benefits under the plan was frozen on December 31, 2009, however, the Company incurs service cost under the postretirement health benefit plan which is reported within operating expenses in the consolidated statements of operations. The other components of net periodic benefit cost (credit) of the SBP (including pension settlement expense) and the postretirement health benefit plan are reported within the other line item of other income (costs). The expense and liability related to the postretirement health benefit plan are measured based upon a number of assumptions and using the services of a third-party actuary. Assumptions are made regarding the discount rate, expected retirement age, mortality, employee turnover, and future increases in health care costs. The discount rates used to discount the SBP and postretirement health benefit plan obligations are determined by matching projected cash distributions with appropriate high-quality corporate bond yields in a yield curve analysis. The assumptions used directly impact the net periodic benefit cost (credit) for a particular year. An actuarial gain or loss results when actual experience varies from the assumptions or when there are changes in actuarial assumptions. Actuarial gains and losses are not included in net periodic benefit cost (credit) in the period when they arise but are recognized as a component of other comprehensive income or loss and subsequently amortized as a component of net periodic benefit cost (credit). The Company uses December 31 as the measurement date for the SBP and postretirement health benefit plan. Plan obligations are also remeasured upon curtailment and upon settlement. Benefit distributions under the SBP individually exceed the annual interest cost of the plan, which triggers settlement accounting. The Company records the related settlement expense when the amount of the benefit to be distributed is fixed, which is generally upon an employee’s termination of employment. There was no pension settlement expense incurred for the SBP in 2023, 2022, or 2021. |
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Revenue Recognition | Revenue Recognition: Revenues are recognized when or as control of the promised services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenue adjustments occur due to freight bill rating or other billing adjustments. The Company also estimates revenue adjustments based on historical information and current trends, and revenue is recognized accordingly. Asset-Based Segment Asset-Based segment revenues consist primarily of less-than-truckload freight delivery. Performance obligations are satisfied upon final delivery of the freight to the specified destination. Revenue is recognized based on the relative transit time in each reporting period with expenses recognized as incurred. A bill-by-bill analysis is used to establish estimates of revenue in transit for recognition in the appropriate period. Because the bill-by-bill methodology utilizes the approximate location of the shipment in the delivery process to determine the revenue to recognize, management believes it to be a reliable method. Certain contracts may provide for volume-based or other discounts which are accounted for as variable consideration. The Company estimates these amounts based on a historical expectation of discounts to be earned by customers, and revenue is recognized based on the estimates. Management believes that actual amounts will not vary significantly from estimates of variable consideration. Revenue, purchased transportation expense, and third-party service expenses are reported on a gross basis for certain shipments and services where the Company utilizes a third-party carrier for pickup, linehaul, delivery of freight, or performance of services but remains primarily responsible for fulfilling delivery to the customer and maintains discretion in setting the price for the services. Asset-Light Segment Asset-Light segment revenues consist primarily of asset-light logistics services using third-party vendors to provide transportation services. Asset-Light segment revenue is generally recognized based on the relative transit time in each reporting period using estimated standard delivery times for freight in transit at the end of the reporting period. Purchased transportation expense is recognized as incurred consistent with the recognition of revenue. Revenue and purchased transportation expense are reported on a gross basis for shipments and services where the Company utilizes a third-party carrier for pickup and delivery but remains primarily responsible to the customer for delivery and maintains discretion in setting the price for the service. Other Recognition and Disclosure Payment terms with customers may vary depending on the service provided, location or specific agreement with the customer. The term between invoicing and when payment is due is not significant. For certain services, payment is required before the services are provided to the customer. The Company expenses sales commissions when incurred because the amortization period is one year or less. The Company has elected not to disclose the value of unsatisfied performance obligations for contracts with an original length of one year or less or contracts for which revenue is recognized at the amount to which the Company has the right to invoice for services performed.
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Comprehensive Income or Loss | Comprehensive Income or Loss: Comprehensive income or loss consists of net income and other comprehensive income or loss, net of tax. Other comprehensive income or loss refers to revenues, expenses, gains, and losses that are not included in net income for the period, but rather are recorded directly to stockholders’ equity. The Company reports the components of other comprehensive income or loss, net of tax, by their nature and discloses the tax effect allocated to each component in the consolidated statements of comprehensive income. The accumulated balance of other comprehensive income or loss is displayed separately in the consolidated statements of stockholders’ equity and the components of the balance are reported in Note L. The changes in accumulated other comprehensive income or loss, net of tax, and the significant reclassifications out of accumulated other comprehensive income or loss are disclosed, by component, in Note L. |
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Accelerated Share Repurchase | Accelerated Share Repurchase: On November 2, 2021, the Company entered into a fixed dollar accelerated share repurchase program (“ASR”) with a third-party financial institution to repurchase the Company’s common stock pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. Under the ASR, the Company paid $100.0 million and received an initial delivery of 709,287 shares valued at $75.0 million based on the closing price of the Company’s common stock on November 2, 2021. The initial repurchase of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share on the effective date of the ASR. The remaining balance of $25.0 million, funded in November 2021, was recorded as a forward equity contract indexed to the Company’s common stock and classified within stockholders’ equity as additional paid-in capital as of December 31, 2021. The balance of the forward equity contract was settled in January 2022 with the delivery of 214,763 shares. The total amount of shares repurchased under the forward equity contract was based on the daily volume-weighted average share price of the Company’s common stock during the term of the ASR, less a negotiated discount. The ASR met all of the applicable criteria for equity classification and, as a result, was not accounted for as a derivative instrument. |
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Earnings Per Share | Earnings Per Share: Basic earnings per share is calculated by dividing net income by the daily weighted number of shares of the Company’s common stock outstanding for the period. Diluted earnings per share is calculated using the treasury stock method. Under this method, the denominator used in calculating diluted earnings per share includes the impact of unvested restricted equity awards.
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Share-Based Compensation | Share-Based Compensation: The fair value of restricted stock awards is determined based upon the closing market price of the Company’s common stock on the date of grant, adjusted for the present value of dividends which are not payable with respect to unvested restricted stock units (“RSUs”). The RSUs generally vest over a specified time beginning on the grant date. RSUs granted in 2023 and 2022 follow a three-year ratable vesting schedule with one-third of the grants vesting each year. RSUs awarded in 2021 vest at the end of a three-year period following the date of grant. RSUs awarded in 2018 through 2020 vest at the end of a four-year period following the date of grant. Awards granted to non-employee directors typically vest at the end of a one-year period, subject to accelerated vesting due to death, disability, retirement, or change-in-control provisions. When RSUs become vested, the Company issues new shares in settlement of the RSU award. The Company recognizes the income tax benefits of dividends on share-based payment awards as income tax expense or benefit in the consolidated statements of operations when awards vest or are settled. Share-based awards are amortized to compensation expense on a straight-line basis over the vesting period of awards or over the period to which the recipient first becomes eligible for retirement, whichever is shorter, with vesting accelerated upon death or disability. The Company recognizes forfeitures as they occur, and the income tax effects of awards are recognized in the statement of operations when awards vest or are settled. |
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Fair Value Measurements | Fair Value Measurements: The Company discloses the fair value measurements of its financial assets and liabilities. Fair value measurements are disclosed in accordance with the following hierarchy of valuation approaches based on whether the inputs of market data and market assumptions used to measure fair value are observable or unobservable:
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Environmental Matters | Environmental Matters: The Company expenses environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. 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. The estimated liability is not reduced for possible recoveries from insurance carriers or other third parties. |
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Exit or Disposal Activities | Exit or Disposal Activities: The Company recognizes liabilities for costs associated with exit or disposal activities when the liability is incurred.
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Accounting Pronouncements Not Yet Adopted | Accounting Pronouncements Not Yet Adopted Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, was amended in November 2023 through the issuance of Accounting Standards Update (“ASU’) No. 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 will require enhanced disclosures of significant segment expenses on an annual and interim basis. ASU 2023-07, which is effective for fiscal years beginning after December 15, 2023, is not expected to have a significant impact on the Company’s disclosures. ASC Topic 740, Income Taxes, was amended in December 2023 through the issuance of ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), to improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, while early adoption is permitted. The Company is currently assessing the amendment’s impact on the Company’s disclosures.
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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule components of cash and cash equivalents, short term investments, and restricted funds |
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Schedule of fair value and carrying value disclosures of financial instruments |
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Schedule of financial assets and liabilities measured at fair value on a recurring basis |
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Schedule of changes in fair value of liabilities measured at fair value using inputs categorized in Level 3 |
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Schedule of assets measured at fair value on a nonrecurring basis | The following table provides the change in fair value of equity investments on a nonrecurring basis using inputs categorized in Level 3 of the fair value hierarchy:
The following table provides the changes in the long-lived assets measured on a nonrecurring basis for which impairment charges were recognized during the year ended December 31, 2023. The fair value measurements used inputs categorized in Level 3 of the fair value hierarchy.
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DISCONTINUED OPERATIONS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FleetNet | Discontinued Operations, Disposed of by Sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedules of Discontinued Operations - Financial information, Assets and liabilities and Cash flows | The following table summarizes the financial results from discontinued operations:
The following table summarizes the assets and liabilities from discontinued operations:
Cash flows from discontinued operations of FleetNet were as follows:
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GOODWILL AND INTANGIBLE ASSETS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill by reportable operating segment |
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Schedule of intangible assets |
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Schedule of future amortization for intangible assets |
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INCOME TAXES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of significant components of the provision or benefit for income taxes | Significant components of the provision or benefit for income taxes for the years ended December 31 were as follows:
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Schedule of components of the deferred tax benefit on continuing operations |
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Schedule of significant components of deferred tax assets and liabilities of continuing operations | Significant components of the deferred tax assets and liabilities of continuing operations at December 31 were as follows:
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Reconciliation between the effective income tax rate, as computed on income from continuing operations before income taxes, and the statutory federal income tax rate |
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LEASES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of components of lease expense |
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Schedule of operating cash flows from operating lease activity |
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Schedule of supplemental balance sheet information related to lease liabilities |
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Schedule of maturities of operating lease liabilities |
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LONG-TERM DEBT AND FINANCING ARRANGEMENTS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT AND FINANCING ARRANGEMENTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of long-term debt |
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Scheduled maturities of long-term debt obligations | Scheduled maturities of long-term debt obligations as of December 31, 2023 were as follows:
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Schedule of assets securing notes payable | Assets securing notes payable at December 31 were included in property, plant and equipment as follows:
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ACCRUED EXPENSES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of accrued expenses |
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EMPLOYEE BENEFIT PLANS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
POSTRETIREMENT BENEFIT PLANS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in benefit obligations and plan assets and disclosure of funded status and accumulated benefit obligation of nonunion defined benefit plans |
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Schedule of amounts recognized in the consolidated balance sheets related to nonunion defined benefit plans |
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Summary of the components of net periodic benefit cost (credit) |
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Pre-tax amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit cost |
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Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost for nonunion defined benefit plans |
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Schedule of the assumed health care cost trend rates for the postretirement health benefit plan |
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Schedule of estimated future benefit payments for nonunion defined benefit plans |
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Schedule of multiemployer pension funds and key participation information |
Table Heading Definitions
Table Footnotes
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STOCKHOLDERS' EQUITY (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of accumulated other comprehensive income |
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Summary of changes in accumulated other comprehensive income, net of tax, by component |
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Summary of the significant reclassifications out of accumulated other comprehensive income (loss) by component |
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Summary of dividends declared |
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SHARE-BASED COMPENSATION (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the Company's restricted stock unit award program |
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Schedule of restricted stock units granted during the year | The Compensation Committee of the Company’s Board of Directors granted RSUs during the years ended December 31 as follows: k
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EARNINGS PER SHARE (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of computation of basic and diluted earnings (loss) per share |
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OPERATING SEGMENT DATA (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING SEGMENT DATA | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of reportable operating segment information from continuing operations |
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Schedule of revenues from customers and intersegment revenues |
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Schedule of consolidated operating expenses by component |
|
ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION - Organization (Details) |
12 Months Ended |
---|---|
Dec. 31, 2023
segment
| |
Organization and description of business | |
Number of reportable operating segments | 2 |
Asset Based | |
Organization and description of business | |
Percentage of the Company's revenues, before other revenues and intercompany eliminations, represented by the Asset-Based segment | 63.00% |
Asset Based | Unionized employees concentration risk | Number of employees | |
Organization and description of business | |
Percentage of Asset-Based segment employees covered under collective bargaining agreement with the IBT | 82.00% |
ORGANIZATION AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION - Discontinued Operations (Details) $ in Millions |
Feb. 28, 2023
USD ($)
|
---|---|
FleetNet | Discontinued Operations, Disposed of by Sale | |
Discontinued Operations | |
Aggregate purchase price | $ 100.9 |
ACCOUNTING POLICIES - Concentration (Details) - Minimum |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Revenues | Customer concentration risk | |||
Concentrations | |||
Percentage for concentration of credit risk disclosure | 2.00% | 2.00% | 2.00% |
Accounts receivable | Credit concentration risk | |||
Concentrations | |||
Percentage for concentration of credit risk disclosure | 5.00% | 5.00% |
ACCOUNTING POLICIES - Allowances (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Allowances | ||
Allowance for credit losses on trade accounts receivable | $ 5.5 | $ 9.3 |
Increase in amount of allowance for credit losses | 3.6 | |
Write-offs, net of recoveries | $ 7.4 |
ACCOUNTING POLICIES - Long Term Investments (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
ACCOUNTING POLICIES | |||
Change in fair value included in operating income | $ 3,700 | $ 3,739 | |
Carrying value of equity securities without readily determinable fair value | $ 28,700 | $ 25,000 |
ACCOUNTING POLICIES - Book Overdrafts (Details) - USD ($) $ in Millions |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Accounts Payable | ||
Book Overdrafts | ||
Amount of book overdrafts | $ 19.2 | $ 30.3 |
ACCOUNTING POLICIES - Other Recognition and Disclosure (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Other Recognition and Disclosure | |||
Pension settlement expense, pre-tax | $ 0 | $ 0 | $ 0 |
Revenue, Practical Expedient, Incremental Cost of Obtaining Contract | true | ||
Revenue, Practical Expedient, Remaining Performance Obligation | true |
ACCOUNTING POLICIES - Accelerated Share Repurchase (Details) - USD ($) $ in Thousands |
1 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Nov. 02, 2021 |
Jan. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Equity | |||||
Cost of repurchased shares | $ 91,531 | $ 65,002 | $ 83,100 | ||
Accelerated Share Repurchase Agreement ("ASR") | |||||
Equity | |||||
Amount paid in accelerated repurchase | $ 100,000 | ||||
Number of shares repurchased during the period | 709,287 | 214,763 | |||
Cost of repurchased shares | $ 75,000 | ||||
Amount of unsettled forward contract classified within stockholders' equity as additional paid in capital. | $ 25,000 |
ACCOUNTING POLICIES - Share-Based Compensation (Details) - Restricted Stock Units |
12 Months Ended | |||||
---|---|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|
Employee | ||||||
Share-Based Compensation | ||||||
Vesting period | 3 years | 3 years | 3 years | 4 years | 4 years | 4 years |
Percentage of stock awards vesting each year. | 33.30% | 33.30% | ||||
Nonemployee Director | ||||||
Share-Based Compensation | ||||||
Vesting period | 1 year |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS - Cash and Cash Equivalents and Short-term Investments (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Fair value disclosure | ||
Cash and cash equivalents | $ 262,226 | $ 158,264 |
Short-term investments | 67,842 | 167,662 |
Concentrations of Credit Risk of Financial Instruments | ||
Cash deposits and short-term investments which were neither FDIC insured nor direct obligations of the U.S. government | 76,300 | 87,600 |
Cash deposits | ||
Fair value disclosure | ||
Cash and cash equivalents | 168,472 | 137,247 |
Variable rate demand notes | ||
Fair value disclosure | ||
Cash and cash equivalents | 9,285 | |
Money market funds | ||
Fair value disclosure | ||
Cash and cash equivalents | 93,754 | 11,732 |
Certificates of deposit | ||
Fair value disclosure | ||
Short-term investments | $ 67,842 | 88,851 |
U.S. Treasury securities | ||
Fair value disclosure | ||
Short-term investments | $ 78,811 |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS - Changes in Fair Value of Liabilities (Details) - Contingent Consideration $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2023
USD ($)
| |
Changes in fair value | |
Balance at beginning of period | $ 112,000 |
Change in fair value included in operating income | $ (19,100) |
Fair Value, Liability, Recurring Basis, Unobservable Input Reconciliation, Gain (Loss), Statement of Income or Comprehensive Income | Operating income |
Balance at end of period | $ 92,900 |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS - Assets Measured at Fair Value on a Nonrecurring Basis (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2023 |
Dec. 31, 2023 |
|
Fair value measurement | ||
Equity investment, Balance at beginning of period | $ 25,000 | |
Change in fair value included in operating income | $ 3,700 | 3,739 |
Equity investment, Balance at end of period | 28,700 | |
Nonrecurring basis | Level 3 | ||
Fair value measurement | ||
Equity investment, Balance at beginning of period | 25,000 | |
Change in fair value included in operating income | 3,739 | |
Equity investment, Balance at end of period | $ 28,739 |
DISCONTINUED OPERATIONS - Cash flows (Details) - FleetNet - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Discontinued Operations, Disposed of by Sale | ||
Cash flows from discontinued operations | ||
Net cash provided by operating activities | $ 762 | |
Net cash used in investing activities | (397) | |
Net cash provided by (used in) financing activities | (473) | |
Net increase (decrease) in cash and cash equivalents | (108) | |
Depreciation and amortization expense | 400 | |
Share-based compensation expense | 300 | |
Purchases of property, plant and equipment | $ 100 | |
Discontinued Operations, Held-for-sale | ||
Cash flows from discontinued operations | ||
Net cash provided by operating activities | $ 2,825 | |
Net cash used in investing activities | (3,329) | |
Net cash provided by (used in) financing activities | 560 | |
Net increase (decrease) in cash and cash equivalents | 56 | |
Depreciation and amortization expense | 1,900 | |
Purchases of property, plant and equipment | $ 1,400 |
ACQUISITION - MoLo (Details) - USD ($) $ in Thousands |
12 Months Ended | 14 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2022 |
Nov. 01, 2021 |
|
Purchase Consideration | |||||
Business acquisition, net of cash acquired | $ (2,279) | $ 239,380 | |||
MoLo Solutions, LLC | |||||
Purchase Consideration | |||||
Business acquisition, net of cash acquired | $ 237,100 | ||||
Business acquisition, cash acquired | $ 2,300 | ||||
Earnout payment | $ 0 | ||||
Contingent consideration, target earnout payment for 2024 | 70,000 | ||||
Contingent consideration, target earnout payment for 2025 | $ 145,000 | ||||
MoLo Solutions, LLC | 100% of target | |||||
Purchase Consideration | |||||
Adjusted EBITDA target percentage | 100.00% | ||||
Contingent consideration, target | $ 215,000 | ||||
MoLo Solutions, LLC | 80% of target | |||||
Purchase Consideration | |||||
Adjusted EBITDA target percentage | 80.00% | ||||
Contingent consideration, low range | $ 95,000 | ||||
MoLo Solutions, LLC | 300% of target | |||||
Purchase Consideration | |||||
Adjusted EBITDA target percentage | 300.00% | ||||
Contingent consideration, high range | $ 455,000 |
ACQUISITION - Revenue and expenses (Details) - USD ($) $ in Thousands |
2 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Business Acquisition | ||||
Revenues | $ 4,427,443 | $ 5,029,008 | $ 3,766,185 | |
Operating income (loss) | $ 172,619 | $ 394,526 | 276,978 | |
MoLo Solutions, LLC | ||||
Business Acquisition | ||||
Revenues | $ 120,300 | |||
Operating income (loss) | $ (1,200) | |||
Acquisition related costs | $ 6,000 |
GOODWILL AND INTANGIBLE ASSETS - Goodwill (Details) - USD ($) $ in Thousands |
12 Months Ended | ||||
---|---|---|---|---|---|
Oct. 01, 2023 |
Oct. 01, 2022 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2021 |
|
Goodwill by reportable operating segment | |||||
Goodwill | $ 304,753 | $ 304,753 | $ 299,708 | ||
Purchase accounting adjustment | 5,045 | ||||
Accumulated impairment | (20,000) | $ (20,000) | |||
FleetNet Segment | Discontinued Operations, Held-for-sale | |||||
Goodwill by reportable operating segment | |||||
Goodwill, Discontinued operation | $ 600 | $ 600 | |||
Asset-Light | |||||
Goodwill by reportable operating segment | |||||
Goodwill impairment | $ 0 | $ 0 |
GOODWILL AND INTANGIBLE ASSETS - Intangible (Details) - USD ($) $ in Thousands |
Oct. 01, 2023 |
Oct. 01, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|---|---|
Finite-lived intangible assets | ||||
Weighted Average Amortization Period | 11 years | |||
Cost | $ 129,730 | $ 129,493 | ||
Accumulated Amortization | 60,880 | 48,060 | ||
Net Value | 68,850 | 81,433 | ||
Total intangible assets | ||||
Cost | 162,030 | 161,793 | ||
Net Value | 101,150 | 113,733 | ||
Impairment Assessment of Intangible Assets | ||||
Impairment of indefinite-lived intangible asset | $ 0 | $ 0 | ||
Trade name | ||||
Indefinite-lived intangible asset | ||||
Net Value | $ 32,300 | 32,300 | ||
Customer relationships | ||||
Finite-lived intangible assets | ||||
Weighted Average Amortization Period | 12 years | |||
Cost | $ 99,579 | 99,579 | ||
Accumulated Amortization | 51,357 | 42,933 | ||
Net Value | $ 48,222 | 56,646 | ||
Other intangible assets | ||||
Finite-lived intangible assets | ||||
Weighted Average Amortization Period | 8 years | |||
Cost | $ 30,151 | 29,914 | ||
Accumulated Amortization | 9,523 | 5,127 | ||
Net Value | $ 20,628 | $ 24,787 |
GOODWILL AND INTANGIBLE ASSETS - Amortization (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Future amortization for intangible assets | ||
2024 | $ 12,790 | |
2025 | 12,790 | |
2026 | 8,683 | |
2027 | 7,258 | |
2028 | 7,259 | |
Thereafter | 20,070 | |
Net Value | $ 68,850 | $ 81,433 |
INCOME TAXES - Deferred (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Deferred tax assets: | ||
Accrued expenses | $ 60,842 | $ 53,785 |
Operating lease right-of-use liabilities | 53,589 | 46,056 |
Supplemental pension liabilities | 85 | 81 |
Multiemployer pension fund withdrawal | 4,871 | 5,063 |
Postretirement liabilities other than pensions | 3,389 | 3,137 |
Share-based compensation | 5,249 | 5,622 |
Federal and state net operating loss carryforwards | 1,511 | 753 |
Receivable allowances | 1,951 | 2,967 |
Other | 709 | 417 |
Total deferred tax assets | 132,196 | 117,881 |
Valuation allowance | (1,751) | (1,707) |
Total deferred tax assets, net of valuation allowance | 130,445 | 116,174 |
Deferred tax liabilities: | ||
Amortization, depreciation, and basis differences for property, plant and equipment, and other long-lived assets | 118,211 | 116,290 |
Operating lease right-of-use assets | 43,938 | 44,170 |
Intangibles | 10,256 | 4,442 |
Prepaid expenses | 5,685 | 5,424 |
Total deferred tax liabilities | 178,090 | 170,326 |
Net deferred tax liabilities | $ (47,645) | $ (54,152) |
INCOME TAXES - Tax Rate (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
INCOME TAXES | |||
Effective tax rate, including discontinued operations (as a percent) | 24.40% | 24.10% | 23.00% |
Effective tax rate from discontinued operations (as a percent) | 25.50% | 26.60% | 24.70% |
State tax, low end of range of rate (as a percent) | 6.00% | ||
State tax, high end of range of rate (as a percent) | 6.50% | ||
Income taxes paid, excluding income tax refunds | $ 115.7 | $ 148.7 | $ 77.5 |
Income tax refunds | $ 36.4 | $ 42.3 | $ 19.4 |
INCOME TAXES - Stock Compensation (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
INCOME TAXES | |||
Tax benefit for settlement of stock awards (as a percent) | 2.80% | 2.10% | 2.80% |
INCOME TAXES - NOL (Details) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2023
USD ($)
Y
|
Dec. 31, 2022
USD ($)
|
|
Federal | ||
Operating loss carryforwards | ||
Operating loss carryforwards | $ 0.6 | |
State | ||
Operating loss carryforwards | ||
Operating loss carryforwards | 26.4 | |
Valuation allowance, NOLs | 0.5 | $ 0.4 |
State tax department of Panther | ||
Operating loss carryforwards | ||
Operating loss carryforwards | 1.4 | |
State tax department of other subsidiaries | ||
Operating loss carryforwards | ||
Operating loss carryforwards | $ 9.7 | |
Number of prior years with taxable losses | Y | 3 | |
Minimum | State tax department of Panther | ||
Operating loss carryforwards | ||
Carryforward expiration period | 10 years | |
Maximum | State tax department of Panther | ||
Operating loss carryforwards | ||
Carryforward expiration period | 20 years |
INCOME TAXES - Tax Credit Carryforward (Details) - USD ($) $ in Millions |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Foreign | ||
Tax credit carryforwards | ||
Valuation allowance, tax credit carryforwards | $ 1.0 | $ 1.0 |
Research and development | State | ||
Tax credit carryforwards | ||
Valuation allowance, tax credit carryforwards | 0.2 | 0.2 |
Interest expense carryforwards | State | Maximum | ||
Tax credit carryforwards | ||
Valuation allowance, tax credit carryforwards | $ 0.1 | $ 0.1 |
INCOME TAXES - Uncertain Tax Positions (Details) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Jun. 30, 2024 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Income taxes | |||
Reserve for uncertain tax positions | $ 0.9 | $ 0.9 | |
Forecast | |||
Income taxes | |||
Reversal of uncertain tax position | $ 0.5 |
LEASES - Lease terms (Details) |
12 Months Ended |
---|---|
Dec. 31, 2023 | |
Operating leases | |
Option to renew | true |
Early termination option | true |
Notification period for early termination of operating lease | 24 months |
Maximum | |
Operating leases | |
Remaining lease terms | 9 years 9 months 18 days |
Operating lease, renewal term | 10 years |
LEASES - Components of Lease Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
LEASES | |||
Operating lease expense | $ 38,794 | $ 31,790 | $ 26,552 |
Variable lease expense | 6,804 | 4,188 | 4,128 |
Sublease income | (246) | (391) | (626) |
Total operating lease expense | $ 45,352 | $ 35,587 | $ 30,054 |
LEASES - Cash Flows (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Operating leases | |||
Noncash change in operating right-of-use assets | $ 33,470 | $ 27,465 | $ 24,023 |
Change in operating lease liabilities | (30,550) | (24,513) | (23,400) |
Operating right-of-use assets and lease liabilities, net | 2,920 | 2,952 | 623 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ (35,759) | $ (28,830) | $ (25,909) |
LEASES - Impairment (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2023 |
Dec. 31, 2023 |
|
LEASES | ||
Lease impairment charges | $ 30,200 | $ 30,162 |
Operating right-of-use assets, Lease impairment charges | $ 28,124 |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS - Summary (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Long-term debt obligations | ||
Long-term debt | $ 228,938 | $ 264,623 |
Less current portion | 66,948 | 66,252 |
Long-term debt, less current portion | $ 161,990 | 198,371 |
Weighted-average interest rate (as a percent) | 3.30% | |
Credit Facility | ||
Long-term debt obligations | ||
Long-term debt | $ 50,000 | 50,000 |
Interest rate (as a percent) | 6.60% | |
Credit Facility | Interest rate swap agreement | ||
Long-term debt obligations | ||
Amount of borrowings covered by the interest rate swap | $ 50,000 | $ 50,000 |
Effective fixed interest rate on hedged borrowings (as a percent) | 1.55% | 1.55% |
Notes payable | ||
Long-term debt obligations | ||
Long-term debt | $ 178,938 | $ 214,623 |
Weighted-average interest rate (as a percent) | 3.80% |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS - Maturities (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Maturities of long-term debt obligations | ||
2024 | $ 75,800 | |
2025 | 53,388 | |
2026 | 41,476 | |
2027 | 74,972 | |
2028 | 5,520 | |
Total payments | 251,156 | |
Less amounts representing interest | 22,218 | |
Long-term debt | 228,938 | $ 264,623 |
Credit Facility | ||
Maturities of long-term debt obligations | ||
2024 | 3,021 | |
2025 | 2,353 | |
2026 | 2,211 | |
2027 | 51,688 | |
Total payments | 59,273 | |
Less amounts representing interest | 9,273 | |
Long-term debt | 50,000 | 50,000 |
Notes payable | ||
Maturities of long-term debt obligations | ||
2024 | 72,779 | |
2025 | 51,035 | |
2026 | 39,265 | |
2027 | 23,284 | |
2028 | 5,520 | |
Total payments | 191,883 | |
Less amounts representing interest | 12,945 | |
Long-term debt | $ 178,938 | $ 214,623 |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS - Assets Securing Notes (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Financing Arrangements | |||
Total assets securing notes payable | $ 339,060 | $ 336,222 | |
Less accumulated depreciation | 135,305 | 119,244 | |
Net assets securing notes payable | $ 203,755 | 216,978 | |
Weighted-average interest rate (as a percent) | 3.30% | ||
Interest paid, net of capitalized interest | $ 8,700 | 7,100 | $ 8,700 |
Capitalized interest | 300 | 300 | $ 500 |
Revenue Equipment | |||
Financing Arrangements | |||
Total assets securing notes payable | 300,922 | 294,700 | |
Service, office, and other equipment | |||
Financing Arrangements | |||
Total assets securing notes payable | $ 38,138 | $ 41,522 |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS - Interest Rate Swap (Details) - Interest rate swap agreement, maturing on October 1, 2024 - USD ($) $ in Millions |
Dec. 31, 2023 |
Dec. 31, 2022 |
Oct. 31, 2022 |
Jun. 30, 2022 |
---|---|---|---|---|
Financing Arrangements | ||||
Notional amount | $ 50.0 | |||
Fixed interest rate payments (as a percent) | 0.33% | |||
Other long-term assets | ||||
Financing Arrangements | ||||
Fair value of interest rate swap, asset | $ 1.7 | $ 3.5 |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS - Securitization Program (Details) - USD ($) $ in Millions |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Financing Arrangements | ||
Outstanding letters of credit | $ 17.4 | $ 10.6 |
Accounts receivable securitization program | ||
Financing Arrangements | ||
Maximum borrowing capacity | 50.0 | |
Additional borrowing capacity that may be requested | 100.0 | |
Outstanding letters of credit | 16.8 | $ 10.0 |
Remaining borrowing capacity | $ 33.2 |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS - Letters of Credit & Surety Bonds (Details) - USD ($) $ in Millions |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Financing Arrangements | ||
Outstanding letters of credit | $ 17.4 | $ 10.6 |
Accounts receivable securitization program | ||
Financing Arrangements | ||
Outstanding letters of credit | 16.8 | 10.0 |
Surety bonds | ||
Financing Arrangements | ||
Outstanding surety bonds under uncollateralized bond programs | $ 65.2 | $ 62.6 |
LONG-TERM DEBT AND FINANCING ARRANGEMENTS - Notes Payable (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Notes payable | Revenue Equipment | ||
Financing Arrangements | ||
Assets financed during the period under promissory note arrangements | $ 33.5 | $ 82.4 |
ACCRUED EXPENSES (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
ACCRUED EXPENSES. | ||
Workers' compensation, third-party casualty, and loss and damage claims reserves | $ 189,948 | $ 133,122 |
Accrued vacation pay | 63,183 | 58,875 |
Accrued compensation, including retirement benefits | 87,851 | 119,836 |
Taxes other than income | 10,743 | 11,375 |
Other | 26,304 | 15,249 |
Total accrued expenses | $ 378,029 | $ 338,457 |
EMPLOYEE BENEFIT PLANS - Plan summary (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
POSTRETIREMENT BENEFIT PLANS | |||
Noncash charge to pension settlement expense | $ 0 | $ 0 | $ 0 |
EMPLOYEE BENEFIT PLANS - Funded status (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Supplemental Benefit Plan | |||
Change in benefit obligations | |||
Benefit obligations at beginning of period | $ 338 | $ 381 | |
Interest cost | 16 | 7 | $ 4 |
Actuarial (gain) loss | 4 | (50) | |
Benefit obligations at end of period | 358 | 338 | 381 |
Change in plan assets | |||
Funded status at period end | (358) | (338) | |
Accumulated benefit obligation | 358 | 338 | |
Postretirement Health Benefit Plan | |||
Change in benefit obligations | |||
Benefit obligations at beginning of period | 12,534 | 16,992 | |
Service cost | 78 | 156 | 192 |
Interest cost | 599 | 441 | 427 |
Actuarial (gain) loss | 1,137 | (4,392) | |
Benefits paid | (680) | (663) | |
Benefit obligations at end of period | 13,668 | 12,534 | $ 16,992 |
Change in plan assets | |||
Employer contributions | 680 | 663 | |
Benefits paid | (680) | (663) | |
Funded status at period end | (13,668) | (12,534) | |
Accumulated benefit obligation | $ 13,668 | $ 12,534 |
EMPLOYEE BENEFIT PLANS - Recognized in Balance Sheet (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Amounts recognized in the consolidated balance sheets | ||
Pension and postretirement liabilities, less current portion | $ (13,319) | $ (12,196) |
Supplemental Benefit Plan | ||
Amounts recognized in the consolidated balance sheets | ||
Pension and postretirement liabilities, less current portion | (358) | (338) |
Liabilities recognized | (358) | (338) |
Postretirement Health Benefit Plan | ||
Amounts recognized in the consolidated balance sheets | ||
Current portion of pension and postretirement liabilities | (707) | (676) |
Pension and postretirement liabilities, less current portion | (12,961) | (11,858) |
Liabilities recognized | $ (13,668) | $ (12,534) |
EMPLOYEE BENEFIT PLANS - Included in AOCI (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
---|---|---|
Supplemental Benefit Plan | ||
Pre-tax amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit cost | ||
Unrecognized net actuarial gain | $ (9) | $ (18) |
Postretirement Health Benefit Plan | ||
Pre-tax amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit cost | ||
Unrecognized net actuarial gain | $ (6,806) | $ (9,269) |
EMPLOYEE BENEFIT PLANS - Discount rate and assumptions (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Supplemental Benefit Plan | |||
Weighted-average assumptions used to determine nonunion benefit obligations | |||
Discount rate (as a percent) | 4.30% | 4.60% | |
Weighted-average assumptions used to determine net periodic benefit cost | |||
Discount rate (as a percent) | 4.60% | 1.80% | 1.10% |
Postretirement Health Benefit Plan | |||
Weighted-average assumptions used to determine nonunion benefit obligations | |||
Discount rate (as a percent) | 4.80% | 5.00% | |
Weighted-average assumptions used to determine net periodic benefit cost | |||
Discount rate (as a percent) | 5.00% | 2.70% | 2.30% |
EMPLOYEE BENEFIT PLANS - Health care trend rates (Details) - Postretirement Health Benefit Plan |
12 Months Ended | |
---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Assumed health care cost trend rates | ||
Health care cost trend rate assumed for next year (as a percent) | 7.00% | 7.00% |
Rate to which the cost trend rate is assumed to decline (as a percent) | 4.50% | 4.50% |
Year that the rate reaches the cost trend assumed rate | 2035 | 2034 |
EMPLOYEE BENEFIT PLANS - Future benefit payments (Details) $ in Thousands |
Dec. 31, 2023
USD ($)
|
---|---|
Supplemental Benefit Plan | |
Estimated future benefit payments | |
2028 | $ 424 |
Postretirement Health Benefit Plan | |
Estimated future benefit payments | |
2024 | 707 |
2025 | 744 |
2026 | 747 |
2027 | 754 |
2028 | 761 |
2029-2033 | $ 3,836 |
EMPLOYEE BENEFIT PLANS - Deferred Comp Plans (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Deferred salary agreements | ||
Deferred Compensation Plans | ||
Recorded liabilities | $ 1.1 | $ 1.3 |
Voluntary Savings Plan - mutual funds held in trust | ||
Deferred Compensation Plans | ||
Minimum period for election to defer receipt of a portion of salary and incentive compensation | 6 months | |
Voluntary Savings Plan - mutual funds held in trust | Other long-term assets | ||
Deferred Compensation Plans | ||
VSP assets | $ 4.6 | 4.0 |
Voluntary Savings Plan - mutual funds held in trust | Other long-term liabilities | ||
Deferred Compensation Plans | ||
VSP liabilities | $ 4.6 | $ 4.0 |
STOCKHOLDERS' EQUITY - AOCI Components (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2020 |
---|---|---|---|---|
Accumulated Other Comprehensive Income | ||||
Total after-tax amount | $ 1,242,363 | $ 1,151,401 | $ 929,067 | $ 828,593 |
Accumulated Other Comprehensive Income | ||||
Accumulated Other Comprehensive Income | ||||
Total pre-tax amount | 5,817 | 9,566 | 4,977 | |
Total after-tax amount | 4,324 | 7,103 | 3,699 | $ 1,190 |
Unrecognized Net Periodic Benefit Credit | ||||
Accumulated Other Comprehensive Income | ||||
Total pre-tax amount | 6,816 | 9,287 | 5,602 | |
Total after-tax amount | 5,061 | 6,896 | 4,160 | |
Interest Rate Swap | ||||
Accumulated Other Comprehensive Income | ||||
Total pre-tax amount | 1,710 | 3,526 | 419 | |
Total after-tax amount | 1,263 | 2,604 | 309 | |
Foreign Currency Translation | ||||
Accumulated Other Comprehensive Income | ||||
Total pre-tax amount | (2,709) | (3,247) | (1,044) | |
Total after-tax amount | $ (2,000) | $ (2,397) | $ (770) |
STOCKHOLDERS' EQUITY - Reclass (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Unrecognized Net Periodic Benefit Credit | ||
Significant reclassifications out of accumulated other comprehensive loss by component | ||
Tax expense | $ (342) | $ (195) |
Total, net of tax | 988 | 562 |
Amortization of net actuarial gain | ||
Significant reclassifications out of accumulated other comprehensive loss by component | ||
Total, pre-tax | $ 1,330 | $ 757 |
STOCKHOLDERS' EQUITY - Dividends (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Feb. 02, 2024 |
Dec. 31, 2023 |
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Dividends on Common Stock | ||||||||||||
Dividends declared (in dollars per share) | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.12 | $ 0.08 | ||||
Dividend Amount | $ 2,846 | $ 2,887 | $ 2,894 | $ 2,915 | $ 2,938 | $ 2,965 | $ 2,949 | $ 1,978 | $ 11,542 | $ 10,830 | $ 8,139 | |
Subsequent Event | ||||||||||||
Dividends on Common Stock | ||||||||||||
Dividends declared (in dollars per share) | $ 0.12 |
OPERATING SEGMENT DATA - Revenue (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
REVENUES | |||
Revenues | $ 4,427,443 | $ 5,029,008 | $ 3,766,185 |
Asset Based | |||
REVENUES | |||
Revenues | 2,749,803 | 2,896,284 | 2,470,529 |
Asset-Light | |||
REVENUES | |||
Revenues | 1,673,399 | 2,128,394 | 1,291,679 |
Operating Segments | Asset Based | |||
REVENUES | |||
Revenues | 2,871,004 | 3,010,900 | 2,573,773 |
Operating Segments | Asset-Light | |||
REVENUES | |||
Revenues | 1,680,645 | 2,139,272 | 1,300,626 |
Other and eliminations | |||
REVENUES | |||
Revenues | $ (124,206) | $ (121,164) | $ (108,214) |
OPERATING SEGMENT DATA - Operating Income (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
OPERATING INCOME (LOSS) | |||
Operating income | $ 172,619 | $ 394,526 | $ 276,978 |
OTHER INCOME (COSTS) | |||
Interest and dividend income | 14,728 | 3,873 | 1,226 |
Interest and other related financing costs | (9,094) | (7,726) | (8,914) |
Other, net | 8,662 | (2,370) | 3,797 |
TOTAL OTHER INCOME (COSTS) | 14,296 | (6,223) | (3,891) |
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 186,915 | 388,303 | 273,087 |
Operating Segments | Asset Based | |||
OPERATING INCOME (LOSS) | |||
Operating income | 253,152 | 381,133 | 260,707 |
Operating Segments | Asset-Light | |||
OPERATING INCOME (LOSS) | |||
Operating income | (12,271) | 52,725 | 46,397 |
Other and eliminations | |||
OPERATING INCOME (LOSS) | |||
Operating income | $ (68,262) | $ (39,332) | $ (30,126) |
OPERATING SEGMENT DATA - Revenue from Customers (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
REVENUES | |||
Revenues | $ 4,427,443 | $ 5,029,008 | $ 3,766,185 |
Asset Based | |||
REVENUES | |||
Revenues | 2,749,803 | 2,896,284 | 2,470,529 |
Asset-Light | |||
REVENUES | |||
Revenues | 1,673,399 | 2,128,394 | 1,291,679 |
Corporate and other | |||
REVENUES | |||
Revenues | 4,241 | 4,330 | 3,977 |
Operating Segments | Asset Based | |||
REVENUES | |||
Revenues | 2,871,004 | 3,010,900 | 2,573,773 |
Operating Segments | Asset-Light | |||
REVENUES | |||
Revenues | 1,680,645 | 2,139,272 | 1,300,626 |
Intersegment revenues | |||
REVENUES | |||
Revenues | (128,447) | (125,494) | (112,191) |
Intersegment revenues | Asset Based | |||
REVENUES | |||
Revenues | 121,201 | 114,616 | 103,244 |
Intersegment revenues | Asset-Light | |||
REVENUES | |||
Revenues | 7,246 | 10,878 | 8,947 |
Other and eliminations | |||
REVENUES | |||
Revenues | $ (124,206) | $ (121,164) | $ (108,214) |
LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS, AND OTHER EVENTS (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Dec. 31, 2023 |
Sep. 30, 2023 |
|
Compliance issues under federal Clean Water Act | ||
Environmental Matters and Other Events | ||
Amount paid for civil penalties | $ 0.5 | |
Claim related to employee classification under Fair Labor Standards Act | Asset-Light | ||
Environmental Matters and Other Events | ||
Estimated settlement expense | $ 9.5 |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Allowance for doubtful accounts receivable and revenue adjustments | |||
Changes in valuation and qualifying accounts and reserves | |||
Balance at Beginning of Period | $ 13,892 | $ 13,016 | $ 7,693 |
Additions, Charged to Costs and Expenses | 3,633 | 6,852 | 1,334 |
Additions, Charged to Other Accounts | 3,512 | 2,761 | 7,783 |
Deductions | 10,691 | 8,737 | 3,794 |
Balance at End of Period | 10,346 | 13,892 | 13,016 |
Allowance for other accounts receivable | |||
Changes in valuation and qualifying accounts and reserves | |||
Balance at Beginning of Period | 713 | 690 | 660 |
Additions, Charged to Costs and Expenses | 18 | 23 | 30 |
Balance at End of Period | 731 | 713 | 690 |
Allowance for deferred tax assets | |||
Changes in valuation and qualifying accounts and reserves | |||
Balance at Beginning of Period | 1,707 | 2,196 | 1,284 |
Deductions | (44) | 489 | (912) |
Balance at End of Period | $ 1,751 | $ 1,707 | $ 2,196 |
Pay vs Performance Disclosure - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Pay vs Performance Disclosure | |||
Net Income (Loss) | $ 195,433 | $ 298,209 | $ 213,521 |
Insider Trading Arrangements |
3 Months Ended |
---|---|
Dec. 31, 2023 | |
Trading Arrangements, by Individual | |
Rule 10b5-1 Arrangement Adopted | false |
Non-Rule 10b5-1 Arrangement Adopted | false |
Rule 10b5-1 Arrangement Terminated | false |
Non-Rule 10b5-1 Arrangement Terminated | false |
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