ARCBEST CORP /DE/ (Form: 10-Q, Received: 05/10/2018 16:42:29)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2018

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

For the transition period from to

Commission file number 000-19969

ARCBEST CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of
incorporation or organization)

71-0673405

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

8401 McClure Drive

Fort Smith, Arkansas 72916

(479) 785-6000

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

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

Not Applicable

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

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

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

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


	Large accelerated filer ☐		Accelerated filer ☒
	Non-accelerated filer ☐ (Do not check if a smaller reporting company)
	Smaller reporting company ☐		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

Class		Outstanding at May 4, 2018
Common Stock, $0.01 par value		25,641,511 shares

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ARCBEST CORPORATION

IN DEX


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets — March 31, 2018 and December 31, 2017	3

	Consolidated Statements of Operations — For the Three Months Ended March 31, 2018 and 2017	4

	Consolidated Statements of Comprehensive Income — For the Three Months Ended March 31, 2018 and 2017	5

	Consolidated Statement of Stockholders’ Equity — For the Three Months Ended March 31, 2018	6

	Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2018 and 2017	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55

Item 4.	Controls and Procedures	55

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	56

Item 1A.	Risk Factors	56

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 3.	Defaults Upon Senior Securities	56

Item 4.	Mine Safety Disclosures	56

Item 5.	Other Information	56

Item 6.	Exhibits	57

SIGNATURES		58

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PART I .

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEET S


	March 31		December 31
	2018		2017
	(Unaudited)
	(in thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	124,652	$	120,772
Short-term investments		54,669		56,401
Accounts receivable, less allowances (2018 – $7,837; 2017 – $7,657)		289,366		279,074
Other accounts receivable, less allowances (2018 – $936; 2017 – $921)		19,262		19,491
Prepaid expenses		24,891		22,183
Prepaid and refundable income taxes		10,267		12,296
Other		9,029		12,132
TOTAL CURRENT ASSETS		532,136		522,349
PROPERTY, PLANT AND EQUIPMENT
Land and structures		338,346		344,224
Revenue equipment		790,685		793,523
Service, office, and other equipment		189,055		179,950
Software		132,088		129,589
Leasehold improvements		8,948		8,888
		1,459,122		1,456,174
Less allowances for depreciation and amortization		884,959		865,010
PROPERTY, PLANT AND EQUIPMENT, net		574,163		591,164
GOODWILL		108,320		108,320
INTANGIBLE ASSETS, net		72,336		73,469
DEFERRED INCOME TAXES		6,095		5,965
OTHER LONG-TERM ASSETS		65,033		64,374
TOTAL ASSETS	$	1,358,083	$	1,365,641

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	139,830	$	129,099
Income taxes payable		93		324
Accrued expenses		202,656		211,237
Current portion of long-term debt		56,057		61,930
TOTAL CURRENT LIABILITIES		398,636		402,590
LONG-TERM DEBT, less current portion		196,425		206,989
PENSION AND POSTRETIREMENT LIABILITIES		36,984		39,827
OTHER LONG-TERM LIABILITIES		12,320		15,616
DEFERRED INCOME TAXES		48,244		49,157
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2018: 28,498,971 shares; 2017: 28,495,628 shares		285		285
Additional paid-in capital		321,265		319,436
Retained earnings		450,267		438,379
Treasury stock, at cost, 2018: 2,857,460 shares; 2017: 2,851,578 shares		(86,265)		(86,064)
Accumulated other comprehensive loss		(20,078)		(20,574)
TOTAL STOCKHOLDERS’ EQUITY		665,474		651,462
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,358,083	$	1,365,641

See notes to consolidated financial statements.

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ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATION S


	Three Months Ended
	March 31
	2018		2017
	(Unaudited)
	(in thousands, except share and per share data)
REVENUES	$	700,001	$	651,088

OPERATING EXPENSES		687,276		660,988

OPERATING INCOME (LOSS)		12,725		(9,900)

OTHER INCOME (COSTS)
Interest and dividend income		526		274
Interest and other related financing costs		(2,059)		(1,315)
Other, net		(2,201)		(1,706)
TOTAL OTHER INCOME (COSTS)		(3,734)		(2,747)

INCOME (LOSS) BEFORE INCOME TAXES		8,991		(12,647)

INCOME TAX BENEFIT		(963)		(5,240)

NET INCOME (LOSS)	$	9,954	$	(7,407)

EARNINGS (LOSS) PER COMMON SHARE
Basic	$	0.39	$	(0.29)
Diluted	$	0.37	$	(0.29)

AVERAGE COMMON SHARES OUTSTANDING
Basic		25,642,871		25,684,475
Diluted		26,596,376		25,684,475

CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.08	$	0.08

See notes to consolidated financial statements .

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ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOM E


	Three Months Ended
	March 31
	2018		2017
	(Unaudited)
	(in thousands)
NET INCOME (LOSS)	$	9,954	$	(7,407)

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

Pension and other postretirement benefit plans:
Net actuarial gain (loss), net of tax of: (2018 – $899; 2017 – $935)		2,590		(1,471)
Pension settlement expense, net of tax of: (2018 – $168; 2017 – $761)		486		1,196
Amortization of unrecognized net periodic benefit costs, net of tax of: (2018 – $219; 2017 – $401)
Net actuarial loss		649		660
Prior service credit		(17)		(29)

Interest rate swap and foreign currency translation:
Change in unrealized income on interest rate swap, net of tax of: (2018 – $219; 2017 – $88)		436		135
Change in foreign currency translation, net of tax of: (2018 – $223; 2017 – $76)		(72)		119

OTHER COMPREHENSIVE INCOME, net of tax		4,072		610

TOTAL COMPREHENSIVE INCOME (LOSS)	$	14,026	$	(6,797)

See notes to consolidated financial statements.

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ARCBEST CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUIT Y


											Accumulated
				Additional							Other
	Common Stock			Paid-In		Retained		Treasury Stock			Comprehensive		Total
	Shares	Amount		Capital		Earnings		Shares	Amount		Loss		Equity
	(Unaudited)
	(in thousands)
Balance at December 31, 2017	28,496	$	285	$	319,436	$	438,379	2,852	$	(86,064)	$	(20,574)	$	651,462
Adjustments to beginning retained earnings for adoption of accounting standards:							3,992					(3,576)		416
Balance at January 1, 2018	28,496		285		319,436		442,371	2,852		(86,064)		(24,150)		651,878
Net income							9,954							9,954
Other comprehensive income, net of tax												4,072		4,072
Issuance of common stock under share-based compensation plans	3		—		—									—
Tax effect of share-based compensation plans					(41)									(41)
Share-based compensation expense					1,870									1,870
Purchase of treasury stock								5		(201)				(201)
Dividends declared on common stock							(2,058)							(2,058)
Balance at March 31, 2018	28,499	$	285	$	321,265	$	450,267	2,857	$	(86,265)	$	(20,078)	$	665,474

See notes to consolidated financial statements .

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ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW S


	Three Months Ended
	March 31
	2018		2017
	(Unaudited)
	(in thousands)
OPERATING ACTIVITIES
Net income (loss)	$	9,954	$	(7,407)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,352		24,258
Amortization of intangibles		1,134		1,136
Pension settlement expense		654		1,957
Share-based compensation expense		1,870		1,731
Provision for losses on accounts receivable		445		442
Deferred income tax benefit		(2,749)		(4,197)
Gain on sale of property and equipment		(221)		(613)
Changes in operating assets and liabilities:
Receivables		(10,260)		3,345
Prepaid expenses		(2,587)		(5,174)
Other assets		2,732		(3,357)
Income taxes		1,938		(1,205)
Accounts payable, accrued expenses, and other liabilities		3,513		(9,155)
NET CASH PROVIDED BY OPERATING ACTIVITIES		31,775		1,761

INVESTING ACTIVITIES
Purchases of property, plant and equipment, net of financings		(7,177)		(12,273)
Proceeds from sale of property and equipment		1,050		1,692
Purchases of short-term investments		(4,410)		(6,223)
Proceeds from sale of short-term investments		6,245		6,125
Capitalization of internally developed software		(2,164)		(2,440)
NET CASH USED IN INVESTING ACTIVITIES		(6,456)		(13,119)

FINANCING ACTIVITIES
Payments on long-term debt		(16,558)		(17,297)
Net change in book overdrafts		(2,572)		(981)
Payment of common stock dividends		(2,058)		(2,066)
Purchases of treasury stock		(201)		—
Payments for tax withheld on share-based compensation		(50)		(325)
NET CASH USED IN FINANCING ACTIVITIES		(21,439)		(20,669)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		3,880		(32,027)
Cash and cash equivalents and restricted cash at beginning of period		120,772		115,242
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	124,652	$	83,215

NONCASH INVESTING ACTIVITIES
Equipment financed	$	121	$	694
Accruals for equipment received	$	883	$	440

See notes to consolidated financial statements .

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ARCBEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE A – ORGANIZATIO N AND DESCRIPTION OF THE BUSINESS AND FINANCIAL STATEMENT PRESENTATION

ArcBest Corporation (the “Company”) is the parent holding company of businesses providing integrated logistics solutions. The Company’s operations are conducted through its three reportable operating segments: Asset-Based, which consists of ABF Freight System, Inc. and certain other subsidiaries (“ABF Freight”); ArcBest ® , the Company’s asset-light logistics operation; and FleetNet. References to the Company in this Quarterly Report on Form 10-Q are primarily to the Company and its subsidiaries on a consolidated basis.

The Asset-Based segment represented approximately 68% of the Company’s total revenues before other revenues and intercompany eliminations for the three months ended March 31, 2018. As of March 2018, approximately 82% of the Asset-Based segment’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”). The ABF NMFA included a 7% wage rate reduction upon the November 3, 2013 implementation date, followed by wage rate increases of 2% on July 1 in each of the next three years, which began in 2014, and a 2.5% increase on July 1, 2017; a one-week reduction in annual compensated vacation effective for employee anniversary dates on or after April 1, 2013; the option to expand the use of purchased transportation; and increased flexibility in labor work rules. The ABF NMFA and the related supplemental agreements provide for continued contributions to various multiemployer health, welfare, and pension plans maintained for the benefit of the Asset-Based segment’s employees who are members of the IBT. The estimated net effect of the November 3, 2013 wage rate reduction and the benefit rate increase which was applied retroactively to August 1, 2013 was an initial reduction of approximately 4% to the combined total contractual wage and benefit rate under the ABF NMFA. Following the initial reduction, the combined contractual wage and benefit contribution rate under the ABF NMFA increased approximately 2.5% on a compounded annual basis throughout the contract period which extended through March 31, 2018.

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

Financial Statement Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements and, therefore, should be read in conjunction with the audited financial statements and accompanying notes included in the Company’s 2017 Annual Report on Form 10-K and other current filings with the SEC. In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary for a fair presentation have been included.

As previously disclosed in our 2017 Annual Report on Form 10-K, the Company modified the presentation of segment expenses allocated from shared services during the third quarter of 2017. Previously, expenses allocated from company-wide functions were categorized in individual segment expense line items by type of expense. Allocated expenses are now presented on a single shared services line within the Company’s operating segment disclosures. Reclassifications have been made to the prior period operating segment expenses to conform to the current year presentation. There was no impact on each segment’s total expenses as a result of the reclassifications.

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

Accounting Policies

The Company’s accounting policies are described in Note B to the consolidated financial statements included in Part II, Item 8 of the Company’s 2017 Annual Report on Form 10-K. The following policies have been updated during the three months ended March 31, 2018 for the adoption of accounting standard updates disclosed within this Note.

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

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

Asset-Based Segment

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

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

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

ArcBest Segment

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

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

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FleetNet Segment

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

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

Other Recognition and Disclosure

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

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

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

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

Adopted Accounting Pronouncements

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

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

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

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

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

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

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

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

Accounting Pronouncements Not Yet Adopted

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

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

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

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NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial Instruments

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


	March 31		December 31
	2018		2017
	(in thousands)
Cash and cash equivalents
Cash deposits (1)	$	93,022	$	86,510
Variable rate demand notes (1)(2)		17,810		19,744
Money market funds (3)		13,820		14,518
Total cash and cash equivalents	$	124,652	$	120,772

Short-term investments
Certificates of deposit (1)	$	54,669	$	56,401

⁽¹⁾

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

⁽²⁾

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

⁽³⁾

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

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

Concentrations of Credit Risk of Financial Instruments

The Company is potentially subject to concentrations of credit risk related to its cash, cash equivalents, and short-term investments. The Company reduces credit risk by maintaining its cash deposits primarily in FDIC-insured accounts and placing its short-term investments primarily in FDIC-insured certificates of deposit. However, certain cash deposits and certificates of deposit may exceed federally insured limits. At March 31, 2018 and December 31, 2017, cash and cash equivalents totaling $69.1 million and $61.1 million, respectively, were not FDIC insured.

Fair Value Disclosure of Financial Instruments

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

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

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

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

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


	March 31				December 31
	2018				2017
	(in thousands)
		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
Credit Facility (1)	$	70,000	$	70,000	$	70,000	$	70,000
Accounts receivable securitization borrowings (2)		45,000		45,000		45,000		45,000
Notes payable (3)		137,056		135,282		153,441		152,131
	$	252,056	$	250,282	$	268,441	$	267,131

⁽¹⁾

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

⁽²⁾

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

⁽³⁾

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

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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:


	March 31, 2018
			Fair Value Measurements Using
			Quoted Prices		Significant		Significant
			In Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Money market funds (1)	$	13,820	$	13,820	$	—	$	—
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan (2)		2,332		2,332		—		—
Interest rate swaps (3)		1,199		—		1,199		—
	$	17,351	$	16,152	$	1,199	$	—
Liabilities:
Contingent consideration (4)	$	3,711	$	—	$	—	$	3,711


	December 31, 2017
			Fair Value Measurements Using
			Quoted Prices		Significant		Significant
			In Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Money market funds (1)	$	14,518	$	14,518	$	—	$	—
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan (2)		2,359		2,359		—		—
Interest rate swaps (3)		481		—		481		—
	$	17,358	$	16,877	$	481	$	—
Liabilities:
Contingent consideration (4)	$	6,970	$	—	$	—	$	6,970

⁽¹⁾

Included in cash and cash equivalents.

⁽²⁾

Nonqualified deferred compensation plan investments consist of U.S. and international equity mutual funds, government and corporate bond mutual funds, and money market funds which are held in a trust with a third-party brokerage firm. Included in other long-term assets, with a corresponding liability reported within other long-term liabilities.

⁽³⁾

Included in other long-term assets. The fair values of the interest rate swaps were determined by discounting future cash flows and receipts based on expected interest rates observed in market interest rate curves (Level 2 inputs) adjusted for estimated credit valuation considerations reflecting nonperformance risk of the Company and the counterparty, which are considered to be in Level 3 of the fair value hierarchy. The Company assessed Level 3 inputs as insignificant to the valuation at March 31, 2018 and December 31, 2017 and considers the interest rate swap valuations in Level 2 of the fair value hierarchy.

⁽⁴⁾

Included in accrued expenses as of March 31, 2018 and included in accrued expenses and other long-term liabilities based on when expected payouts become due as of December 31, 2017. The estimated fair value of contingent consideration for an earn-out agreement related to the September 2016 acquisition of LDS was determined by assessing Level 3 inputs with a discounted cash flow approach using various probability-weighted scenarios. The Level 3 assessments utilize a Monte Carlo simulation with inputs including scenarios of estimated revenues and gross margins to be achieved for the applicable performance periods, probability weightings assigned to the performance scenarios, and the discount rate applied, which was 11.9% and 12.5% as of March 31, 2018 and December 31, 2017. Subsequent changes to the fair value as a result of recurring assessments will be recognized in operating income.

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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)

Balances at December 31, 2017	$	6,970
Payments (1)		(3,528)
Change in fair value included in operating expenses		269
Balances at March 31, 2018	$	3,711

⁽¹⁾

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

NOTE C – GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired. Goodwill by reportable operating segment consisted of $107.7 million and $0.6 million reported in the ArcBest and FleetNet segments, respectively, for both March 31, 2018 and December 31, 2017.

Intangible assets consisted of the following:


		March 31, 2018						December 31, 2017
	Weighted-Average			Accumulated		Net				Accumulated		Net
	Amortization Period	Cost		Amortization		Value			Cost	Amortization		Value
	(in years)	(in thousands)						(in thousands)
Finite-lived intangible assets
Customer relationships	14	$	60,431	$	20,842	$	39,589	$	60,431	$	19,745	$	40,686
Driver network	3		3,200		3,200		—		3,200		3,200		—
Other	9		1,032		585		447		1,032		549		483
	13		64,663		24,627		40,036		64,663		23,494		41,169
Indefinite-lived intangible assets
Trade name	N/A		32,300		N/A		32,300		32,300		N/A		32,300

Total intangible assets	N/A	$	96,963	$	24,627	$	72,336	$	96,963	$	23,494	$	73,469

The future amortization for intangible assets and acquired software as of March 31, 2018 were as follows:


			Intangible		Acquired
	Total		Assets		Software (1)
	(in thousands)
2018	$	4,978	$	3,387	$	1,591
2019		5,463		4,482		981
2020		4,471		4,454		17
2021		4,418		4,412		6
2022		4,385		4,385		—
Thereafter		18,916		18,916		—
Total amortization	$	42,631	$	40,036	$	2,595

⁽¹⁾

Acquired software is reported in property, plant and equipment.

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NOTE D – INCOME TAXES

On December 22, 2017, H.R. 1/Public Law 115-97 which includes tax legislation titled Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. Effective January 1, 2018, the Tax Reform Act reduced the U.S. federal corporate tax rate from 35% to 21%. As a result of the Tax Reform Act, the Company recorded a provisional reduction of net deferred income tax liabilities of approximately $24.5 million at December 31, 2017, pursuant to the provisions of ASC Topic 740, Income Taxes , which requires the impact of tax law changes to be recognized in the period in which the legislation is enacted. An additional provisional reduction of net deferred income tax liabilities of approximately $2.6 million was recognized in the first quarter of 2018. The additional reduction relates to the reversal of temporary differences through the Company’s fiscal tax year end of February 28, 2018. 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. The effective tax benefit rate was 10.7% and 41.4% for the three months ended March 31, 2018 and 2017, respectively.

In addition to the provisional effect on net deferred tax liabilities, the Company recorded a provisional reduction in current income tax expense of approximately $1.3 million at December 31, 2017, as a result of the Tax Reform Act, to reflect the Company’s use of a fiscal year rather than a calendar year for U.S. income tax filing. Due to the fact that the Company’s current fiscal tax year includes the effective date of the rate change under the Tax Reform Act, taxes are required to be calculated by applying a blended rate to the taxable income for the current taxable year ending February 28, 2018. The blended rate is calculated based on the ratio of days in the fiscal year prior to and after the effective date of the rate change. In computing total tax expense for the first quarter 2018, a 32.74% blended federal statutory rate was applied to the two months ended February 28, 2018, and a projected combined tax rate of 25.8% (based on the federal statutory rate of 21% plus applicable state tax rates) was applied to the month of March 2018.

For the three-month period ended March 31, 2018, the difference between the Company’s effective tax rate and the federal statutory rate primarily results from the $2.6 million provisional reduction of net deferred income tax liabilities, as previously discussed, and the $1.2 million alternative fuel tax credit related to the year ended December 31, 2017 which was recognized in first quarter 2018 due to the February 2018 passage of the Bipartisan Budget Act of 2018 which retroactively reinstated the alternative fuel tax credit that had previously expired on December 31, 2016. For the three months ended March 31, 2018 and 2017, the difference between the Company’s effective tax rate and the federal statutory rate also resulted from state income taxes, nondeductible expenses, changes in tax valuation allowances, and changes in the cash surrender value of life insurance.

As of March 31, 2018, the Company’s deferred tax liabilities, which will reverse in future years, exceeded the deferred tax assets. The Company evaluated the total deferred tax assets at March 31, 2018 and concluded that, other than for certain deferred tax assets related to state net operating loss and contribution carryforwards, the assets did not exceed the amount for which realization is more likely than not. In making this determination, the Company considered the future reversal of existing taxable temporary differences, future taxable income, and tax planning strategies. Valuation allowances for deferred tax assets totaled $0.6 million and $0.8 million at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018, the Company also had a $0.5 million valuation allowance relating to anticipated foreign tax credit carryforwards that are unlikely to be used as a result of the lower U.S. income tax rate.

The Company established a reserve for uncertain tax positions of less than $0.1 million at December 31, 2016, and maintained the reserve at March 31, 2018, due to uncertainty of how the IRS will interpret regulations related to research and development credits claimed on the Company’s 2015 federal return. The Company established a reserve for an uncertain tax position of $0.9 million at March 31, 2018, due to credits taken on amended federal returns.

The Company paid state and foreign income taxes of $1.1 million and state income taxes of less than $0.1 million during the three months ended March 31, 2018 and 2017, respectively. During the three months ended March 31, 2018 and 2017, the Company received refunds of $1.0 million of federal and state income taxes and less than $0.1 million of state income taxes that were paid in prior years, respectively.

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NOTE E – LONG-TERM DEBT AND FINANCING ARRANGEMENTS

Long-Term Debt Obligations

Long-term debt consisted of borrowings outstanding under the Company’s revolving credit facility and accounts receivable securitization program, both of which are further described in Financing Arrangements within this Note, and notes payable and capital lease obligations related to the financing of revenue equipment (tractors and trailers used primarily in Asset-Based segment operations), real estate, and certain other equipment as follows:


	March 31		December 31
	2018		2017
	(in thousands)
Credit Facility (interest rate of 3.4% (1) at March 31, 2018)	$	70,000	$	70,000
Accounts receivable securitization borrowings (interest rate of 2.6% at March 31, 2018)		45,000		45,000
Notes payable (weighted-average interest rate of 2.7% at March 31, 2018)		137,056		153,441
Capital lease obligations (weighted-average interest rate of 5.7% at March 31, 2018)		426		478
		252,482		268,919
Less current portion		56,057		61,930
Long-term debt, less current portion	$	196,425	$	206,989

⁽¹⁾

The interest rate swap mitigates interest rate risk by effectively converting $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 3.35% based on the margin of the Credit Facility as of March 31, 2018.

Scheduled maturities of long-term debt obligations as of March 31, 2018 were as follows:


					Accounts
					Receivable
			Credit		Securitization		Notes		Capital Lease
	Total		Facility (1)		Program (1)		Payable		Obligations (2)
	(in thousands)
Due in one year or less	$	63,064	$	2,579	$	1,384	$	58,865	$	236
Due after one year through two years		82,310		2,895		46,587		32,627		201
Due after two years through three years		26,293		2,966		—		23,320		7
Due after three years through four years		23,276		2,921		—		20,349		6
Due after four years through five years		79,541		70,796		—		8,745		—
Due after five years		—		—		—		—		—
Total payments		274,484		82,157		47,971		143,906		450
Less amounts representing interest		22,002		12,157		2,971		6,850		24
Long-term debt	$	252,482	$	70,000	$	45,000	$	137,056	$	426

⁽¹⁾

The future interest payments included in the scheduled maturities due are calculated using variable interest rates based on the LIBOR swap curve, plus the anticipated applicable margin.

⁽²⁾

Minimum payments of capital lease obligations include maximum amounts due under rental adjustment clauses contained in the capital lease agreements.

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Assets securing notes payable or held under capital leases were included in property, plant and equipment as follows:


	March 31		December 31
	2018		2017
	(in thousands)
Revenue equipment	$	249,053	$	269,950
Land and structures (service centers)		1,794		1,794
Software		486		486
Service, office, and other equipment		100		100
Total assets securing notes payable or held under capital leases		251,433		272,330
Less accumulated depreciation and amortization (1)		84,766		87,691
Net assets securing notes payable or held under capital leases	$	166,667	$	184,639

⁽¹⁾

Amortization of assets under held capital leases and depreciation of assets securing notes payable are included in depreciation expense.

Financing Arrangements

Credit Facility

The Company has a revolving credit facility (the “Credit Facility”) under its second amended and restated credit agreement (the “Credit Agreement”) with an initial maximum credit amount of $200.0 million, including a swing line facility in an aggregate amount of up to $20.0 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 additional amount of $100.0 million, subject to certain additional conditions as provided in the Credit Agreement. As of March 31, 2018, the Company had available borrowing capacity of $130.0 million under the Credit Facility.

Principal payments under the Credit Facility are due upon maturity of the facility on July 7, 2022; however, borrowings may be repaid, at the Company’s discretion, in whole or in part at any time, without penalty, subject to required notice periods and compliance with minimum prepayment amounts. Borrowings under the Credit Agreement can either be, at the Company’s election: (i) at an alternate base rate (as defined in the Credit Agreement) plus a spread; or (ii) at a Eurodollar rate (as defined in the Credit Agreement) plus a spread. The applicable spread is dependent upon the Company’s adjusted leverage ratio (as defined in the Credit Agreement). The Credit Agreement contains conditions, representations and warranties, events of default, and indemnification provisions that are customary for financings of this type, including, but not limited to, a minimum interest coverage ratio, a maximum adjusted leverage ratio, and limitations on incurrence of debt, investments, liens on assets, certain sale and leaseback transactions, transactions with affiliates, mergers, consolidations, purchases and sales of assets, and certain restricted payments. The Company was in compliance with the covenants under the Credit Agreement at March 31, 2018.

Interest Rate Swaps

The Company has a five-year interest rate swap agreement with a $50.0 million notional amount maturing on January 2, 2020. The Company receives floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 1.85% over the life of the agreement. The interest rate swap mitigates interest rate risk by effectively converting $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 3.35% based on the margin of the Credit Facility as of March 31, 2018. The fair value of the interest rate swap of $0.4 million and $0.1 million was recorded in other long-term assets in the consolidated balance sheet at March 31, 2018 and December 31, 2017, respectively.

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In June 2017, the Company entered into a forward-starting interest rate swap agreement with a $50.0 million notional amount which will start on January 2, 2020 upon maturity of the current interest rate swap agreement, and mature on June 30, 2022. The Company will receive floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 1.99% over the life of the agreement. The interest rate swap mitigates interest rate risk by effectively converting $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 3.49% based on the margin of the Credit Facility as of March 31, 2018. The fair value of the interest rate swap of $0.8 million and $0.4 million was recorded in other long-term assets in the consolidated balance sheet at March 31, 2018 and December 31, 2017, respectively.

The unrealized gain or loss on the interest rate swap instruments was reported as a component of accumulated other comprehensive loss, net of tax, in stockholders’ equity at March 31, 2018 and December 31, 2017, and the change in the unrealized income (loss) on the interest rate swaps for the three months ended March 31, 2018 and 2017 was reported in other comprehensive loss, net of tax, in the consolidated statements of comprehensive income. The interest rate swaps are subject to certain customary provisions that could allow the counterparty to request immediate payment of the fair value liability upon violation of any or all of the provisions. The Company was in compliance with all provisions of the interest rate swap agreements at March 31, 2018.

Accounts Receivable Securitization Program

The Company’s accounts receivable securitization program, which matures on April 1, 2020, allows for cash proceeds of $125.0 million to be provided under the facility and has an accordion feature allowing the Company to request additional borrowings up to $25.0 million, subject to certain conditions. Under this program, certain subsidiaries of the Company continuously sell a designated pool of trade accounts receivables to a wholly owned subsidiary which, in turn, may borrow funds on a revolving basis. This wholly owned consolidated subsidiary is a separate bankruptcy-remote entity, and its assets would be available only to satisfy the claims related to the lender’s interest in the trade accounts receivables. Borrowings under the accounts receivable securitization program bear interest based upon LIBOR, plus a margin, and an annual facility fee. The securitization agreement contains representations and warranties, affirmative and negative covenants, and events of default that are customary for financings of this type, including a maximum adjusted leverage ratio covenant. As of March 31, 2018, $45.0 million was borrowed under the program. The Company was in compliance with the covenants under the accounts receivable securitization program at March 31, 2018.

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 March 31, 2018, standby letters of credit of $17.7 million have been issued under the program, which reduced the available borrowing capacity to $62.3 million.

Letter of Credit Agreements and Surety Bond Programs

As of March 31, 2018, the Company had letters of credit outstanding of $18.3 million (including $17.7 million 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 March 31, 2018, surety bonds outstanding related to the self-insurance program totaled $61.0 million.

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NOTE F – PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Nonunion Defined Benefit Pension, Supplemental Benefit, and Postretirement Health Benefit Plans

The following is a summary of the components of net periodic benefit cost:


	Three Months Ended March 31
	Nonunion Defined				Supplemental				Postretirement
	Benefit Pension Plan				Benefit Plan				Health Benefit Plan
	2018		2017		2018		2017		2018		2017
	(in thousands)
Service cost	$	—	$	—	$	—	$	—	$	92	$	122
Interest cost		1,015		1,240		27		26		209		265
Expected return on plan assets		(401)		(2,167)		—		—		—		—
Amortization of prior service credit		—		—		—		—		(23)		(47)
Pension settlement expense		654		1,957		—		—		—		—
Amortization of net actuarial loss (1)		778		886		20		20		76		173
Net periodic benefit cost	$	2,046	$	1,916	$	47	$	46	$	354	$	513

⁽¹⁾

The Company amortizes actuarial losses over the average remaining active service period of the plan participants and does not use a corridor approach.

Nonunion Defined Benefit Pension Plan

The Company’s nonunion defined benefit pension plan covers substantially all noncontractual employees hired before January 1, 2006. In June 2013, the Company amended the nonunion defined benefit pension plan to freeze the participants’ final average compensation and years of credited service as of July 1, 2013. The plan amendment did not impact the vested benefits of retirees or former employees whose benefits have not yet been paid from the plan. Effective July 1, 2013, participants of the nonunion defined benefit pension plan who were active employees of the Company became eligible for the discretionary defined contribution feature of the Company’s nonunion 401(k) and defined contribution plan in which all eligible noncontractual employees hired subsequent to December 31, 2005 also participate.

In November 2017, an amendment was executed to terminate the nonunion defined benefit pension plan with a termination date of December 31, 2017. The plan has filed for a determination letter from the IRS regarding the qualification of the plan termination. Following receipt of a favorable determination letter, benefit election forms will be provided to plan participants and they will have an election window in which they can choose any form of payment allowed by the plan for immediate commencement of payment or defer payment until a later date. Until a favorable determination letter is received and the benefit election forms are distributed to participants, the methodologies for establishing plan assumptions will continue to be consistent with those used prior to the amendment to terminate the plan. Pension settlement charges related to the plan termination, including settlements for lump sum benefit distributions and the cost to purchase an annuity contract to settle the pension obligation related to benefits for which participants elect to defer payment until a later date, may occur in 2018. However, the timing of recognizing these settlements in the consolidated financial statements is highly dependent on when and if the plan receives the favorable determination letter from the IRS.

The Company recognized pension settlement expense as a component of net periodic benefit cost of the nonunion defined benefit pension plan for the three months ended March 31, 2018 of $0.7 million (pre-tax), or $0.5 million (after-tax), related to $4.8 million of lump-sum benefit distributions from the plan. For the three months ended March 31, 2017, pension settlement expense of $2.0 million (pre-tax), or $1.2 million (after-tax), was recognized related to $4.8 million of lump-sum distributions from the plan and a $7.6 million nonparticipating annuity contract purchased from an insurance company to settle the pension obligation related to the vested benefits of approximately 50 plan participants and beneficiaries receiving monthly benefit payments at the time of the contract purchase. Upon recognition of pension settlement expense, a corresponding reduction in the unrecognized net actuarial loss of the plan is recorded. The remaining pre-tax unrecognized net actuarial loss will continue to be amortized over the average remaining future years of service of the active plan participants. The Company will incur additional quarterly settlement expense related to lump-sum distributions from the nonunion defined benefit pension plan during the remainder of 2018.

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The following table discloses the changes in benefit obligations and plan assets of the nonunion defined benefit pension plan for the three months ended March 31, 2018:


	Nonunion Defined
	Benefit Pension Plan
	(in thousands)
Change in benefit obligations
Benefit obligations at December 31, 2017	$	137,417
Interest cost		1,015
Actuarial gain (1)		(3,487)
Benefits paid		(4,864)
Benefit obligations at March 31, 2018		130,081
Change in plan assets
Fair value of plan assets at December 31, 2017		124,831
Actual return on plan assets		402
Benefits paid		(4,864)
Fair value of plan assets at March 31, 2018		120,369
Funded status at period end (2)	$	(9,712)

Accumulated benefit obligation	$	130,081

⁽¹⁾

Primarily related to the impact of an increase in the discount rate at the March 31, 2018 remeasurement upon settlement compared to the discount rate at the December 31, 2017 measurement date.

⁽²⁾

Noncurrent liability recognized within pension and postretirement liabilities in the accompanying consolidated balance sheet at March 31, 2018.

Based upon currently available actuarial information, and except for the impact of funding for plan termination, the Company does not expect to have cash outlays for required minimum contributions to its nonunion defined benefit pension plan in 2018. The plan’s preliminary adjusted funding target attainment percentage (“AFTAP”) is 112.97% as of the January 1, 2018 valuation date. The AFTAP is determined by measurements prescribed by the Internal Revenue Code, which differ from the funding measurements for financial statement reporting purposes.

Multiemployer Plans

ABF Freight System, Inc. and certain other subsidiaries reported in the Company’s Asset-Based operating segment (“ABF Freight”) contribute to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. ABF Freight’s contributions generally are based on the time worked by its contractual employees, in accordance with the 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 25 multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. Contribution obligations to these plans are generally specified in the ABF NMFA, which remained in effect through March 31, 2018 and was extended to allow for the ratification process of the new agreement to take place. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006, which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Provisions of the Reform Act include, among others, providing qualifying plans the ability to self-correct funding issues, subject to various requirements and restrictions, including applying to the U.S. Department of the Treasury for the reduction of certain accrued benefits. Through the term of its current collective bargaining agreement, ABF Freight’s contribution obligations generally will be satisfied by making the specified contributions when due. However, the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees. If ABF Freight was to completely withdraw from certain multiemployer pension plans, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan.

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Approximately one half of ABF Freight’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). ABF Freight received an Actuarial Certification of Plan Status for the Central States Pension Plan dated March 30, 2018, in which the plan’s actuary certified that, as of January 1, 2018, the plan is in critical and declining status, as defined by the Reform Act. Critical and declining status is applicable to critical status plans that are projected to become insolvent anytime within the next 14 plan years, or if the plan is projected to become insolvent within the next 19 plan years and either the plan’s ratio of inactive participants to active participants exceeds two to one or the plan’s funded percentage is less than 80%.

The multiemployer plan administrators have provided to the Company no other significant changes in information related to multiemployer plans from the information disclosed in the Company’s 2017 Annual Report on Form 10-K.

NOTE G – STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss were as follows:


	March 31		December 31
	2018		2017
	(in thousands)
Pre-tax amounts:
Unrecognized net periodic benefit costs	$	(20,774)	$	(25,768)
Interest rate swap		1,199		481
Foreign currency translation		(1,991)		(1,894)

Total	$	(21,566)	$	(27,181)

After-tax amounts:
Unrecognized net periodic benefit costs	$	(19,398)	$	(19,715)
Interest rate swap		791		292
Foreign currency translation		(1,471)		(1,151)
Total	$	(20,078)	$	(20,574)

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The following is a summary of the changes in accumulated other comprehensive loss, net of tax, by component for the three months ended March 31, 2018 and 2017:


			Unrecognized			Interest	Foreign
			Net Periodic			Rate	Currency
	Total		Benefit Costs			Swap	Translation
	(in thousands)
Balances at December 31, 2017	$	(20,574)	$	(19,715)	$	292	$	(1,151)
Adjustment to beginning balance of accumulated other comprehensive loss for adoption of accounting standard (1)		(3,576)		(3,391)		63		(248)
Balances at January 1, 2018		(24,150)		(23,106)		355		(1,399)

Other comprehensive income (loss) before reclassifications		2,954		2,590		436		(72)
Amounts reclassified from accumulated other comprehensive loss		1,118		1,118		—		—
Net current-period other comprehensive income (loss)		4,072		3,708		436		(72)

Balances at March 31, 2018	$	(20,078)	$	(19,398)	$	791	$	(1,471)

Balances at December 31, 2016	$	(23,417)	$	(21,886)	$	(329)	$	(1,202)

Other comprehensive income (loss) before reclassifications		(1,217)		(1,471)		135		119
Amounts reclassified from accumulated other comprehensive loss		1,827		1,827		—		—
Net current-period other comprehensive income		610		356		135		119

Balances at March 31, 2017	$	(22,807)	$	(21,530)	$	(194)	$	(1,083)

⁽¹⁾

The Company elected to reclassify the stranded income tax effects in accumulated other comprehensive loss to retained earnings as of January 1, 2018 as a result of adopting an amendment to ASC Topic 220 (see Note A) .

The following is a summary of the significant reclassifications out of accumulated other comprehensive loss by component:


	Unrecognized Net Periodic
	Benefit Costs (1)(2)
	Three Months Ended March 31
	2018		2017
	(in thousands)
Amortization of net actuarial loss	$	(874)	$	(1,079)
Amortization of prior service credit		23		47
Pension settlement expense		(654)		(1,957)
Total, pre-tax		(1,505)		(2,989)
Tax benefit		387		1,162
Total, net of tax	$	(1,118)	$	(1,827)

⁽¹⁾

Amounts in parentheses indicate increases in expense or loss.

⁽²⁾

These components of accumulated other comprehensive loss are included in the computation of net periodic benefit cost (see Note F).

Dividends on Common Stock

The following table is a summary of dividends declared during the applicable quarter:


	2018				2017
	Per Share		Amount		Per Share		Amount
	(in thousands, except per share data)
First quarter	$	0.08	$	2,058	$	0.08	$	2,066

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On May 1, 2018, the Company’s Board of Directors declared a dividend of $0.08 per share to stockholders of record as of May 15, 2018.

Treasury Stock

The Company has a program to repurchase its common stock in the open market or in privately negotiated transactions. The program has no expiration date but may be terminated at any time at the Board of Directors’ discretion. Repurchases may be made using the Company’s cash reserves or other available sources. As of December 31, 2017, the Company had $31.7 million remaining under the program for repurchases of its common stock. During the three months ended March 31, 2018, the Company purchased 5,882 shares for an aggregate cost of $0.2 million, leaving $31.5 million available for repurchase of common stock under the program.

NOTE H – SHARE-BASED COMPENSATION

Stock Awards

As of March 31, 2018 and December 31, 2017, the Company had outstanding restricted stock units granted under the 2005 Ownership Incentive Plan (the “2005 Plan”). The 2005 Plan, as amended, provides for the granting of 3.1 million shares, which may be awarded as incentive and nonqualified stock options, stock appreciation rights, restricted stock, or restricted stock units (“RSUs”).

Restricted Stock Units

A summary of the Company’s restricted stock unit award program is presented below:


		Weighted-Average
		Grant Date
	Units	Fair Value
Outstanding – January 1, 2018	1,459,260	$	22.98
Granted	2,400	$	33.85
Vested	(4,700)	$	24.09
Outstanding – March 31, 2018	1,456,960	$	22.99

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NOTE I – EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended
	March 31
	2018		2017
	(in thousands, except share and per share data)
Basic
Numerator:
Net income (loss)	$	9,954	$	(7,407)
Effect of unvested restricted stock awards		(30)		(17)
Adjusted net income (loss)	$	9,924	$	(7,424)
Denominator:
Weighted-average shares		25,642,871		25,684,475
Earnings (loss) per common share	$	0.39	$	(0.29)

Diluted
Numerator:
Net income (loss)	$	9,954	$	(7,407)
Effect of unvested restricted stock awards		(29)		(17)
Adjusted net income (loss)	$	9,925	$	(7,424)
Denominator:
Weighted-average shares		25,642,871		25,684,475
Effect of dilutive securities		953,505		—
Adjusted weighted-average shares and assumed conversions		26,596,376		25,684,475
Earnings (loss) per common share	$	0.37	$	(0.29)

Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested RSUs that receive dividends, which are considered participating securities. Beginning with 2015 grants, the RSU agreements were modified to remove dividend rights; therefore, the RSUs granted subsequent to 2015 are not participating securities. Outstanding stock awards of 0.1 million for the three months ended March 31, 2018 were not included in the diluted earnings per share calculation because their inclusion would have the effect of increasing earnings per share. For the three months ended March 31, 2017, outstanding stock awards of 0.8 million were not included in the diluted earnings per share calculation because their inclusion would have the effect of decreasing the loss per share.

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NOTE J – OPERATING SEGMENT DATA

The Company uses the “management approach” to determine its reportable operating segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company’s management uses to make operating decisions. Management uses revenues, operating expense categories, operating ratios, operating income, and key operating statistics to evaluate performance and allocate resources to the Company’s operations.

As disclosed in the Company’s 2017 10-K, the Company modified the presentation of segment expenses allocated from shared services, during the third quarter of 2017. Previously, expenses related to company-wide functions were allocated to segment expense line items by type of expense. Allocated expenses are now presented on a single shared services line within the Company’s operating segment disclosures. Reclassifications have been made to the prior period operating segment expenses to conform to the current year presentation. There was no impact on each segment’s total expenses as a result of the reclassifications.

Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, legal, and other company-wide services. Certain overhead costs are not attributable to any segment and remain unallocated in “Other and eliminations.” Included in unallocated costs are expenses related to investor relations, legal, the ArcBest Board of Directors, and certain executive compensation. Shared services costs attributable to the operating segments are predominantly allocated based upon estimated and planned resource utilization-related metrics such as estimated shipment levels, number of pricing proposals, or number of personnel supported. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual incidence of cost incurred by the operating segments. Management believes the methods used to allocate expenses are reasonable.

Effective January 1, 2018, the Company retrospectively adopted an amendment to ASC Topic 715 which requires changes to the financial statement presentation of certain components of net periodic benefit cost related to pension and other postretirement benefits accounted for under ASC Topic 715. As a result of adopting this amendment, the service cost component of net periodic benefit cost continues to be included in operating expenses in the consolidated financial statements, but the other components of net periodic benefit cost, including pension settlement expense, are presented in other income (costs) for the three months ended March 31, 2018 and 2017. The adoption of this accounting policy is further discussed in Note A and the detail of our net periodic benefit costs are presented in Note F.

The Company’s reportable operating segments are impacted by seasonal fluctuations which affect tonnage, shipment levels, and demand for services, as described below; therefore, operating results for the interim periods presented may not necessarily be indicative of the results for the fiscal year.

The Company’s reportable operating segments are as follows:

Asset-Based, which includes the results of operations of ABF Freight System, Inc. and certain other subsidiaries. The operations include national, inter-regional, and regional transportation of general commodities through standard, expedited, and guaranteed LTL services. In addition, the segment operations include freight transportation related to certain consumer household goods self-move services.

Freight shipments and operating costs of the Asset-Based segment can be adversely affected by inclement weather conditions. The second and third calendar quarters of each year usually have the highest tonnage levels while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, may influence quarterly freight tonnage levels.

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The ArcBest segment includes the results of operations of the Company’s expedite, truckload, and truckload-dedicated businesses as well as its premium logistics services; international freight transportation with air, ocean, and ground service offerings; household goods moving services to consumer, commercial, and government customers; warehousing management and distribution services; and managed transportation solutions. Under the Company’s enhanced marketing approach to offer customers a single source of end-to-end logistics, the service offerings of the ArcBest segment continue to become more integrated. As such, management’s operating decisions have become more focused on the segment’s combined operations, rather than on individual service offerings within the segment’s operations.

ArcBest segment operations are influenced by seasonal fluctuations that impact customers’ supply chains. The second and third calendar quarters of each year usually have the highest shipment levels while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, may impact quarterly business levels. Shipments of the ArcBest segment may decline during winter months because of post-holiday slowdowns, but expedite shipments can be subject to short-term increases depending on the impact of weather disruptions to customers’ supply chains. Plant shutdowns during summer months may affect shipments for automotive and manufacturing customers of the ArcBest segment, but severe weather events can result in higher demand for expedite services. Moving services of the ArcBest segment are impacted by seasonal fluctuations, generally resulting in higher business levels in the second and third quarters as the demand for household goods moving services is typically stronger in the summer months.

FleetNet includes the results of operations of FleetNet America, Inc. and certain other subsidiaries that provide roadside assistance and maintenance management services for commercial vehicles through a network of third-party service providers. FleetNet also provides services to the Asset-Based and ArcBest segments.

Emergency roadside service events of the FleetNet segment are favorably impacted by severe weather conditions that affect commercial vehicle operations and the segment’s results of operations will be influenced by seasonal variations in service event volume.

The Company’s other business activities and operating segments that are not reportable include ArcBest Corporation and certain other subsidiaries. Certain costs incurred by the parent holding company and the Company’s shared services subsidiary are allocated to the reporting segments. The Company eliminates intercompany transactions in consolidation. However, the information used by the Company’s management with respect to its reportable segments is before intersegment eliminations of revenues and expenses.

Further classifications of operations or revenues by geographic location are impracticable and, therefore, are not provided. The Company’s foreign operations are not significant.

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The following tables reflect reportable operating segment information:


	Three Months Ended
	March 31
	2018		2017
	(in thousands)
REVENUES
Asset-Based	$	482,115	$	464,356
ArcBest		181,933		152,876
FleetNet		47,759		40,238
Other and eliminations		(11,806)		(6,382)
Total consolidated revenues	$	700,001	$	651,088

OPERATING EXPENSES (1)
Asset-Based
Salaries, wages, and benefits	$	269,779	$	279,380
Fuel, supplies, and expenses		62,193		58,390
Operating taxes and licenses		11,756		11,823
Insurance		6,628		7,118
Communications and utilities		4,521		4,517
Depreciation and amortization		20,930		20,519
Rents and purchased transportation		46,133		46,426
Shared services (2)		45,607		43,503
Gain on sale of property and equipment		(133)		(617)
Other		1,299		1,505
Restructuring costs (3)		—		140
Total Asset-Based		468,713		472,704

ArcBest
Purchased transportation		148,372		121,987
Supplies and expenses		3,230		3,670
Depreciation and amortization		3,408		3,266
Shared services (2)		21,868		19,586
Other		1,881		2,464
Restructuring costs (3)		9		810
Total ArcBest		178,768		151,783

FleetNet		46,238		39,217
Other and eliminations		(6,443)		(2,716)
Total consolidated operating expenses	$	687,276	$	660,988

⁽¹⁾

As previously discussed in this Note, the Company retrospectively adopted an amendment to ASC Topic 715, effective January 1, 2018, which requires the components of net periodic benefit cost other than service cost to be presented within other income (costs) in the consolidated financial statements and, therefore, excluded from the presentation of operating segment data within this table.

⁽²⁾

Certain reclassifications have been made to the prior year’s operating segment data to conform to the current year presentation, reflecting the modified presentation of segment expenses allocated from shared services as previously discussed in this Note.

⁽³⁾

Restructuring costs relate to the realignment of the Company’s corporate structure (see Note K).

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	Three Months Ended
	March 31
	2018		2017
	(in thousands)
OPERATING INCOME (LOSS) (1)
Asset-Based	$	13,402	$	(8,348)
ArcBest		3,165		1,093
FleetNet		1,521		1,021
Other and eliminations		(5,363)		(3,666)
Total consolidated operating income (loss)	$	12,725	$	(9,900)

OTHER INCOME (COSTS)
Interest and dividend income	$	526	$	274
Interest and other related financing costs		(2,059)		(1,315)
Other, net (1)(2)		(2,201)		(1,706)
Total other income (costs)		(3,734)		(2,747)
INCOME (LOSS) BEFORE INCOME TAXES	$	8,991	$	(12,647)

⁽¹⁾

As previously discussed in this Note, for the three months ended March 31, 2018 and 2017, the components of net periodic benefit cost other than service cost are presented within other income (costs) rather than within operating income (loss) in accordance with an amendment to ASC Topic 715, which the Company adopted retrospectively effective January 1, 2018.

⁽²⁾

Includes proceeds and changes in cash surrender value of life insurance policies.

The following table presents operating expenses by category on a consolidated basis:


	Three Months Ended
	2018		2017
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	328,757	$	332,590
Rents, purchased transportation, and other costs of services		223,756		199,871
Fuel, supplies, and expenses		78,646		72,662
Depreciation and amortization (1)		26,486		25,394
Other		29,255		28,840
Restructuring costs (2)		376		1,631
	$	687,276	$	660,988

⁽¹⁾

Includes amortization of intangible assets.

⁽²⁾

Restructuring costs relate to the realignment of the Company’s corporate structure (see Note K).

NOTE K – RESTRUCTURING CHARGES

On November 3, 2016, the Company announced its plan to implement an enhanced market approach to better serve its customers. The enhanced market approach unified the Company’s sales, pricing, customer service, marketing, and capacity sourcing functions effective January 1, 2017, and allows the Company to operate as one logistics provider under the ArcBest brand. As a result of the restructuring, the Company recorded $0.4 million and $1.6 million of restructuring charges in operating expenses during the three months ended March 31, 2018 and 2017, respectively, primarily for employee-related costs.

The Company estimates it will incur restructuring charges of approximately $1.0 million in 2018 primarily for consulting fees related to continued integration of systems and processes to further implement its enhanced market approach.

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NOTE L – LEGAL PROCEEDINGS, ENVIRONMENTAL MATTERS, AND OTHER EVENTS

The Company is involved in various legal actions arising in the ordinary course of business. The Company maintains liability insurance against certain risks arising out of the normal course of its business, subject to certain self-insured retention limits. The Company routinely establishes and reviews the adequacy of reserves for estimated legal, environmental, and self-insurance exposures. While management believes that amounts accrued in the consolidated financial statements are adequate, estimates of these liabilities may change as circumstances develop. Considering amounts recorded, routine legal matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Environmental Matters

The Company’s subsidiaries store fuel for use in tractors and trucks in 62 underground tanks located in 18 states. 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 and others that it has been identified as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act, or other federal or state environmental statutes, at several hazardous waste sites. After investigating the Company’s involvement in waste disposal or waste generation at such sites, the Company has either agreed to de minimis settlements or determined that its obligations, other than those specifically accrued with respect to such sites, would involve immaterial monetary liability, although there can be no assurances in this regard.

At March 31, 2018 and December 31, 2017, the Company’s reserve, which was reported in accrued expenses, for estimated environmental cleanup costs of properties currently or previously operated by the Company totaled $0.4 million. 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.

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ITEM 2. MANAGEMENT’S DISCUSSIO N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

ArcBest Corporation ® (together with its subsidiaries, the “Company,” “we,” “us,” and “our”) provides a comprehensive suite of freight transportation services and integrated logistics solutions. Our operations are conducted through our three reportable operating segments: Asset-Based, which consists of ABF Freight System, Inc. and certain other subsidiaries (“ABF Freight”); ArcBest, our asset-light logistics operation; and FleetNet. The ArcBest and the FleetNet reportable segments combined represent our Asset-Light operations. References to the Company, including “we,” “us,” and “our,” in this Quarterly Report on Form 10-Q are primarily to the Company and its subsidiaries on a consolidated basis.

As previously disclosed in our 2017 Annual Report on Form 10-K, we modified the presentation of segment expenses allocated from shared services during the third quarter of 2017. Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, legal, and other company-wide services. Certain overhead costs are not attributable to any segment and remain unallocated in “Other and eliminations.” Previously, expenses related to company-wide functions were allocated to segment expense line items by type of expense. Allocated expenses are now presented on a single shared services line within our operating segment disclosures. Reclassifications have been made to the prior period operating segment expenses to conform to the current year presentation. There was no impact on each segment’s total expenses as a result of the reclassifications. See additional descriptions of our segments and the reclassifications made to certain prior year operating segment data in Note J to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Effective January 1, 2018, the Company retrospectively adopted an amendment to Accounting Standards Codification (“ASC”) Topic 715, Compensation – Retirement Benefits , (“ASC Topic 715”), which requires changes to the financial statement presentation of certain components of net periodic benefit cost related to pension and other postretirement benefits accounted for under ASC Topic 715. As a result of adopting this amendment, the service cost component of net periodic benefit cost continues to be included in operating expenses in our consolidated financial statements, but the other components of net periodic benefit cost, including pension settlement expense, are presented in other income (costs) for the three months ended March 31, 2018 and 2017. There was no change to consolidated net income (loss) or earnings (loss) per share as a result of the change in presentation under the new standard. The adoption of this accounting policy is further discussed in Note A to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the detail of our net periodic benefit costs are presented in Note F to the consolidated financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the principal factors affecting our results of operations, liquidity and capital resources, and critical accounting policies. This discussion should be read in conjunction with the accompanying quarterly unaudited consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2017. Our 2017 Annual Report on Form 10-K includes additional information about significant accounting policies, practices, and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties to which our financial and operating results are subject. One of those risk factors disclosed in our 2017 Form 10-K is as follows:

We depend on our employees to support our business operations and future growth opportunities. If our relationship with our employees deteriorates, if we have difficulty attracting and retaining employees, or if our Asset-Based segment is unable to reach agreement on future collective bargaining agreements, we could be faced with labor inefficiencies, disruptions, or stoppages, or delayed growth, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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Tentative Contract Agreement

As of March 2018, approximately 82% of our Asset-Based segment’s employees were covered under the ABF National Master Freight Agreement (the “ABF NMFA”), the collective bargaining agreement with the International Brotherhood of Teamsters (the “IBT”) which extended through March 31, 2018. On March 28, 2018, ABF Freight and the Teamsters National Freight Industry Negotiating Committee, the negotiating arm of the IBT, reached a tentative agreement on a new collective bargaining agreement for the next contract period (the “tentative contract agreement”) and agreed to an extension of the existing ABF NMFA to allow for the ratification process of the new agreement to take place.

The tentative contract agreement is currently subject to ratification by ABF Freight’s IBT member employees. In the event that the tentative contract agreement is not ratified, a work stoppage, the loss of customers, or other events could occur that could have a material adverse effect on our business, results of operations, financial condition, and cash flows in 2018 and subsequent years.

Results of Operations

Consolidated Results


	Three Months Ended
	March 31
	2018		2017
	(in thousands, except per share data)
REVENUES
Asset-Based	$	482,115	$	464,356

ArcBest		181,933		152,876
FleetNet		47,759		40,238
Total Asset-Light		229,692		193,114

Other and eliminations		(11,806)		(6,382)
Total consolidated revenues	$	700,001	$	651,088

OPERATING INCOME (LOSS) (1)
Asset-Based	$	13,402	$	(8,348)

ArcBest		3,165		1,093
FleetNet		1,521		1,021
Total Asset-Light		4,686		2,114

Other and eliminations		(5,363)		(3,666)
Total consolidated operating income (loss)	$	12,725	$	(9,900)

NET INCOME (LOSS)	$	9,954	$	(7,407)

DILUTED EARNINGS (LOSS) PER SHARE	$	0.37	$	(0.29)

⁽¹⁾

As previously discussed in the General section of MD&A, we retrospectively adopted an amendment to ASC Topic 715, effective January 1, 2018, which requires the components of net periodic benefit cost other than service cost to be presented within other income (costs) in the consolidated financial statements. Therefore, these costs are excluded from the presentation of operating income (loss) in this table for the three months ended March 31, 2018 and 2017.

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Our consolidated revenues, which totaled $700.0 million for the three months ended March 31, 2018 increased 7.5% compared to the same prior-year period. The year-over-year increase in consolidated revenues reflects an 18.9% increase in revenues of our Asset-Light operations, which represent the combined operations of our ArcBest and FleetNet segments, and a 3.8% increase in our Asset-Based revenues. Our Asset-Based revenue growth reflects an 8.9% improvement in yield, as measured by billed revenue per hundredweight, including fuel surcharges, partially offset by a 3.7% decline in total tonnage per day for the three months ended March 31, 2018, versus the same period of 2017. The first quarter 2018 increase in billed revenue per hundredweight reflects pricing initiatives we implemented during 2017 as part of our continued focus on yield improvement. Our Asset-Light revenue growth was primarily due to higher revenue per shipment associated with improved market prices in the ArcBest segment. FleetNet revenues also increased for the three months ended March 31, 2018, primarily due to higher service event volume compared to the same period of 2017. On a combined basis, the Asset-Light operating segments generated approximately 32% of our total revenues before other revenues and intercompany eliminations for the three months ended March 31, 2018.

For the three months ended March 31, 2018, consolidated operating income totaled $12.7 million, compared to an operating loss of $9.9 million for the same period of 2017, with each reportable operating segment experiencing year-over-year operating income improvements. The $22.6 million increase in our consolidated operating results for the three months ended March 31, 2018, compared to the same prior-year period, was primarily due to higher revenues, driven by yield improvement initiatives, and cost management. The improvement in consolidated operating results was also favorably impacted by lower nonunion healthcare costs and lower restructuring charges for the three months ended March 31, 2018, compared to the same period of 2017. Nonunion healthcare costs decreased $3.3 million for the first quarter of 2018, compared to the first quarter of 2017, primarily due to a decrease in both the number of health claims filed and in the average cost per claim. Restructuring charges related to the realignment of our organizational structure totaled $0.4 million for the three months ended March 31, 2018, compared to $1.6 million for the same period of 2017.

The loss reported in the “Other and eliminations” line of consolidated operating income (loss) which totaled $5.4 million and $3.7 million for the three months ended March 31, 2018 and 2017, respectively, includes $0.4 million and $0.7 million, respectively, of the previously mentioned restructuring charges related to our enhanced market approach. The “Other and eliminations” line also includes expenses related to investments for improving the delivery of services to ArcBest’s customers, investments in comprehensive transportation and logistics services across multiple operating segments, and other investments in ArcBest technology and innovations. As a result of these ongoing investments and other corporate costs, we expect the loss reported in “Other and eliminations” for second quarter 2018 to be consistent with first quarter 2018 and to be approximately $20.0 million for full year 2018.

In addition to the above items, consolidated net income (loss) and earnings (loss) per share were impacted by nonunion defined benefit pension expense, including settlement, and income from changes in the cash surrender value of variable life insurance policies, both of which are reported below the operating income (loss) line in the consolidated statements of operations. A portion of our variable life insurance policies have investments, through separate accounts, in equity and fixed income securities and, therefore, are subject to market volatility. Changes in the cash surrender value of life insurance policies did not impact our diluted earnings per share for the three months ended March 31, 2018, but contributed $0.02 per diluted share for the three months ended March 31, 2017.

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Consolidated after-tax pension expense, including settlement charges, recognized for the nonunion defined benefit pension plan totaled $1.5 million, or $0.06 per diluted share, and $1.2 million, or $0.05 per diluted share, for the three months ended March 31, 2018 and 2017, respectively. These expenses include net periodic benefit costs (as detailed in Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q), including pension settlement charges due to lump-sum benefit distributions and an annuity contract purchase made by the plan in first quarter 2017. In October 2017, our Board of Directors adopted a resolution authorizing the execution of an amendment to terminate the nonunion defined benefit pension plan, and such amendment was executed in November 2017 with a termination date of December 31, 2017. The plan has filed for a determination letter from the Internal Revenue Service (the “IRS”) regarding qualification of the plan termination. Following receipt of a favorable determination letter, benefit election forms will be provided to plan participants, and they will have an election window in which they can choose any form of payment allowed by the plan for immediate commencement of payment or defer payment until a later date. Pension settlement charges related to the plan termination, including settlements for lump sum benefit distributions and the cost to purchase an annuity contract to settle the pension obligation related to benefits for which participants elect to defer payment until a later date, may occur in 2018. However, the timing of recognizing these settlements in our consolidated financial statements is highly dependent on when and if we receive the favorable determination letter from the IRS.

We expect to continue to recognize pension settlement expense related to the nonunion defined benefit pension plan, the amount of which will fluctuate based on the amount of lump-sum benefit distributions paid to participants, actual returns on plan assets, and changes in the discount rate used to remeasure the projected benefit obligation of the plan upon settlement. Total nonunion pension expense, including settlement, is estimated to be approximately $2.0 million, or $1.5 million after-tax, for the second quarter of 2018; however, settlement charges could be higher if eligible plan participants elect to receive a lump sum distribution of their pension benefit ahead of the plan termination.

For the three months ended March 31, 2018, consolidated net income and earnings per share were impacted by a provisional tax benefit of $2.7 million, or $0.10 per diluted share, as a result of recognizing a reasonable estimate of the tax effects of the Tax Reform Act, which was signed into law on December 22, 2017 and reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. (The impact of the Tax Reform Act is discussed further in the Income Taxes section of MD&A and in Note D to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q.) Consolidated net income and earnings per share for the three months ended March 31, 2018 were also impacted by a tax credit of $1.2 million, or $0.05 per diluted share, for the February 2018 retroactive reinstatement of the alternative fuel tax credit related to the year ended December 31, 2017. The tax benefits and credits, as well as other changes in the effective tax rates, which impacted consolidated net income and earnings per share for the three months ended March 31, 2018, are further described within the Income Taxes section of MD&A.

Consolidated Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)

We report our financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures and ratios, such as Adjusted EBITDA, utilized for internal analysis provide analysts, investors, and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Accordingly, using these measures improves comparability in analyzing our performance because it removes the impact of items from operating results that, in management's opinion, do not reflect our core operating performance. Management uses Adjusted EBITDA as a key 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 our Asset-Light businesses, which are significant expenses resulting from strategic decisions rather than core daily operations. Additionally, Adjusted EBITDA is a primary component of the financial covenants contained in our Second Amended and Restated Credit Agreement (see Financing Arrangements within the Liquidity and Capital Resources section of MD&A). Other companies may calculate Adjusted EBITDA differently; therefore, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results. Adjusted EBITDA should not be construed as a better measurement than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.

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Consolidated Adjusted EBITDA


	Three Months Ended
	March 31
	2018		2017
	(in thousands)
Net income (loss)	$	9,954	$	(7,407)
Interest and other related financing costs		2,059		1,315
Income tax benefit (1)		(963)		(5,240)
Depreciation and amortization		26,486		25,394
Amortization of share-based compensation		1,870		1,731
Amortization of net actuarial losses of benefit plans and pension settlement expense		1,528		3,037
Restructuring charges (2)		376		1,631
Consolidated Adjusted EBITDA	$	41,310	$	20,461

⁽¹⁾

Includes a tax benefit of $2.7 million in 2018 as a result of recognizing a reasonable estimate of the tax effects of the Tax Cuts and Jobs Act. See the Income Taxes section of MD&A and Note D to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion of the impact of the Tax Cuts and Jobs Act.

⁽²⁾

Restructuring charges relate to the realignment of the Company’s organizational structure.

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 operations are affected by general economic conditions, as well as a number of other competitive factors that are more fully described in Item 1 (Business) and in Item 1A (Risk Factors) of Part I of our 2017 Annual Report on Form 10‑K.

The key indicators necessary to understand the operating results of our Asset-Based segment include:

overall customer demand for Asset-Based transportation services, including the impact of economic factors;

volume of transportation services provided, primarily measured by average daily shipment weight (“tonnage”), which influences operating leverage as the level of tonnage and number of shipments vary;

prices obtained for services, primarily measured by yield (“revenue per hundredweight”), including fuel surcharges; and

ability to manage cost structure, primarily in the area of salaries, wages, and benefits (“labor”), with the total cost structure measured by the percent of operating expenses to revenue levels (“operating ratio”).

As previously disclosed within the General section of MD&A, we have reclassified certain prior period segment operating expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses allocated from shared services and the presentation of components of net periodic benefit cost in other income (costs) in our consolidated financial statements. See Note J to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q for description of the Asset-Based segment and additional segment information, including revenues and operating income for the three months ended March 31, 2018 and 2017, as well as explanation of the expense category reclassifications for shared services.

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The Asset-Based segment represented approximately 68% of our total revenues before other revenues and intercompany eliminations for the three months ended March 31, 2018. As of March 2018, approximately 82% of the Asset-Based segment’s employees were covered under the ABF NMFA with the IBT. The ABF NMFA included a 7% wage rate reduction effective on the November 3, 2013 implementation date, followed by wage rate increases of 2% on July 1 in each of the next three years, which began in 2014, and a 2.5% increase on July 1, 2017; a one-week reduction in annual compensated vacation effective for employee anniversary dates on or after April 1, 2013; the option to expand the use of purchased transportation; and increased flexibility in labor work rules. The ABF NMFA and the related supplemental agreements provided for continued contributions to various multiemployer health, welfare, and pension plans maintained for the benefit of Asset-Based employees who are members of the IBT. The estimated net effect of the November 3, 2013 wage rate reduction and the benefit rate increase which was applied retroactively to August 1, 2013 was an initial reduction of approximately 4% to the combined total contractual wage and benefit rate under the ABF NMFA. Following the initial reduction, the combined contractual wage and benefit contribution rate under the ABF NMFA increased approximately 2.5% on a compounded annual basis throughout the contract period which extended through March 31, 2018.

As previously disclosed in the General section of MD&A, on March 28, 2018, ABF Freight and the Teamsters National Freight Industry Negotiating Committee, the negotiating arm of the IBT, reached a tentative agreement on a new collective bargaining agreement for the next contract period and agreed to an extension of the existing ABF NMFA to allow for the ratification process of the new agreement to take place.

The tentative contract agreement is currently subject to ratification by ABF Freight’s IBT member employees. As previously announced in our Current Report on Form 8-K on April 13, 2018, the major economic provisions of the tentative contract agreement, which has a 63-month contract term extending from April 1, 2018 to June 30, 2023, include:

restoration of a week of vacation which begins accruing on anniversary dates that begin on or after April 1, 2018, with the new vacation eligibility schedule being the same as the applicable 2008 to 2013 supplemental agreements;

wage increases in each year of the contract, beginning July 1, 2018;

ratification bonuses for qualifying employees;

contributions to multiemployer pension plans at current rates for each fund;

continuation of existing health coverage and annual multiemployer health and welfare contribution rate increases in accordance with the contract;

changes to purchased transportation provisions with certain protections for road drivers as specified in the contract; and

profit-sharing bonuses upon the Asset-Based segment’s achievement of certain annual operating ratios for any full calendar year during the contract.

Tonnage

The level of 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, customers’ business cycles, and changes in customers’ business practices. The Asset-Based segment actively competes for freight business based primarily on price, service, and availability of flexible shipping options to customers. The Asset-Based segment seeks to offer value through identifying specific customer needs, then providing operational flexibility and seamless access to its services and those of our Asset-Light operations in order to respond with customized solutions.

Pricing

The industry pricing environment, another key factor to our Asset-Based results, influences the ability to obtain appropriate margins and price increases on customer accounts. Generally, 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.

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Approximately 30% of Asset-Based business is subject to base LTL tariffs, which are affected by general rate increases, combined with individually negotiated discounts. Rates on the other 70% of Asset-Based business, including business priced in the spot market, are subject to individual pricing arrangements that are 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, and the remaining business is priced on an individual shipment basis considering each shipment’s unique profile, value provided to the customer, 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. This is due to the difficulty of quantifying, with sufficient accuracy, the impact of changes in freight profile characteristics, which is necessary in estimating true price changes.

Effective August 1, 2017, we began applying space-based pricing on shipments subject to LTL tariffs to better reflect freight shipping trends that have evolved over the last several years. These trends include the overall growth and ongoing profile shift of bulkier shipments across the entire supply chain, the acceleration in e-commerce, and the unique requirements of many shipping and logistics solutions. 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). Management believes space-based pricing better aligns our pricing mechanisms with the metrics which affect our costs to ship the freight. We seek to provide logistics solutions to our customers’ business and the unique shipment characteristics of their various products and commodities, and we believe that we are particularly experienced in handling complicated freight. The CMC is an additional pricing mechanism to better capture the value we provide in transporting these shipments. Management believes the implementation of space-based pricing has been well-accepted by customers with shipments to which CMC charges have been applied; however, overall customer acceptance of the CMC is difficult to ascertain. Management cannot predict, with reasonable certainty, the effect of changes in business levels and the impact on the total revenue per hundredweight measure due to the implementation of the CMC mechanism.

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 35% 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 the first quarter of 2018, 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, and the revenue decline may be disproportionate to our fuel costs.

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The year-over-year Asset-Based revenue comparison for the three months ended March 31, 2018 was impacted by higher fuel surcharge revenue due to an increase in the nominal fuel surcharge rate, while total fuel costs were also higher. 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, are impacted by contractual obligations under the ABF NMFA and other related supplemental agreements. Salaries, wages, and benefits expense of the Asset-Based segment amounted to 56.0% of revenue for the three months ended March 31, 2018 compared to 60.2% for the same period of 2017. Changes in salaries, wages, and benefits expense as a percentage of revenue are discussed in the following Asset-Based Segment Results section.

ABF Freight operates in a highly competitive industry which consists predominantly 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. Wage and benefit concessions granted to certain union competitors also allow for a lower cost structure. During negotiations for the tentative contract agreement, ABF Freight continued to address with the IBT the effect of the segment’s wage and benefit cost structure on its operating results.

The combined effect of cost reductions under the ABF NMFA that is currently in effect, lowered cost increases throughout the contract period, and increased flexibility in labor work rules were important factors in bringing ABF Freight’s labor cost structure closer in line with that of its competitors; however, ABF Freight continues to pay some of the highest benefit contribution rates in the industry. These rates include contributions to multiemployer plans, a portion of which are used to fund benefits for individuals who were never employed by ABF Freight. Information provided by a large multiemployer pension plan to which ABF Freight contributes indicates that approximately 50% of the plan’s benefit payments are made to retirees of companies that are no longer contributing employers to that plan. In consideration of the impact of high multiemployer pension contribution rates, certain funds have not increased ABF Freight’s pension contribution rate for the annual contribution period which began August 1, 2017. Rate freezes for the annual contribution period which began August 1, 2017 impacted multiemployer pension plans to which ABF Freight made approximately 70% of its total multiemployer pension contributions for the year ended December 31, 2017. Including the effect of these rate freezes, the average health, welfare, and pension benefit contribution rate increased approximately 2.8% and 2.0% effective primarily on August 1, 2016 and 2017, respectively. Effective July 1, 2017, the ABF NMFA contractual wage rate increased 2.5%. As previously outlined, the tentative contract agreement provides for ABF Freight’s contributions to multiemployer pension plans to remain at the rates currently being paid under the ABF NMFA that is currently in effect, while wage rates and health and welfare contribution rates for most plans would increase annually in accordance with the terms of the tentative contract agreement once ratified.

Some employer companies that participate in multiemployer plans, in which ABF Freight also participates, have received proposals from, and entered into transition agreements with, certain multiemployer plans to restructure future plan contributions to be more in line with benefit levels. These transition agreements, which require mutual agreement of numerous elements between the multiemployer plan and the contributing employer, may also result in recognition of significant withdrawal liabilities. We monitor and evaluate any such proposals we receive, including the potential economic impact to our business. At the current time, there are no proposals that have been provided to ABF Freight that management considers acceptable.

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Asset-Based Segment Results

The following table sets forth a summary of operating expenses and operating income as a percentage of revenue for the Asset-Based segment:


	Three Months Ended
	March 31
	2018		2017
Asset-Based Operating Expenses (Operating Ratio)
Salaries, wages, and benefits	56.0	%	60.2	%
Fuel, supplies, and expenses	12.9		12.6
Operating taxes and licenses	2.4		2.5
Insurance	1.4		1.5
Communications and utilities	0.9		1.0
Depreciation and amortization	4.3		4.4
Rents and purchased transportation	9.6		10.0
Shared services	9.4		9.4
Gain on sale of property and equipment	—		(0.1)
Other	0.3		0.3
	97.2	%	101.8	%

Asset-Based Operating Income (Loss)	2.8	%	(1.8)	%

The following table provides a comparison of key operating statistics for the Asset-Based segment:


	Three Months Ended
	March 31
	2018		2017		% Change
Workdays		63.5		64.0
Billed revenue (1) per hundredweight, including fuel surcharges	$	32.10	$	29.47	8.9	%
Pounds		1,519,112,981		1,590,350,243	(4.5)	%
Pounds per day		23,923,039		24,849,223	(3.7)	%
Shipments per day		18,634		20,577	(9.4)	%
Shipments per DSY (2) hour		0.439		0.449	(2.2)	%
Pounds per DSY (2) hour		563.10		541.83	3.9	%
Pounds per shipment		1,284		1,208	6.3	%
Pounds per mile (3)		20.09		19.84	1.3	%

⁽¹⁾

Revenue for undelivered freight is deferred for financial statement purposes in accordance with the revenue recognition policy. Billed revenue used for calculating revenue per hundredweight measurements has not been adjusted for the portion of revenue deferred for financial statement purposes.

⁽²⁾

Dock, street, and yard (“DSY”) measures are further discussed in Asset-Based Operating Expenses within this section of Asset-Based Segment Results. The Asset-Based segment uses shipments per DSY hour to measure labor efficiency in its local operations, although total pounds per DSY hour is also a relevant measure when the average shipment size is changing.

⁽³⁾

Total pounds per mile is used to measure labor efficiency of linehaul operations, although this metric 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.

Asset-Based Revenues

Asset-Based segment revenues for the three months ended March 31, 2018 totaled $482.1 million compared to $464.4 million for the same period of 2017. Billed revenue (as described in footnote (1) to the key operating statistics table above) increased 4.9% on a per-day basis for the three months ended March 31, 2018 compared to the same prior-year period, primarily reflecting an 8.9% increase in total billed revenue per hundredweight, including fuel surcharges, partially offset by a 3.7% decrease in tonnage per day. The number of workdays was lower by one half day in first quarter 2018 versus first quarter 2017.

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The increase in total billed revenue per hundredweight benefited from yield improvement initiatives, including a general rate increase, contract renewals, and CMC pricing which was introduced in the third quarter of 2017, and higher fuel surcharge revenues associated with increased fuel prices during the three-month period ended March 31, 2018, compared to the same period of 2017. The Asset-Based segment implemented a nominal general rate increase on its LTL base rate tariffs of 4.9% effective May 22, 2017, although the rate changes vary by lane and shipment characteristics. Prices on accounts subject to deferred pricing agreements and annually negotiated contracts which were renewed during the period increased approximately 4.8% for the three months ended March 31, 2018, compared to the same period of 2017. For first quarter 2018, the Asset-Based segment’s average nominal fuel surcharge rate increased approximately 260 basis points from the first quarter 2017 level. Excluding changes in fuel surcharges, average pricing on the Asset-Based segment’s LTL business for the three months ended March 31, 2018 had high-single-digit percentage increases when compared to the same prior-year period.

Tonnage per day declined 3.7% for the three months ended March 31, 2018, compared to the same period of 2017, primarily reflecting the effect of yield improvement initiatives, including the space-based pricing program, that led to lower total shipment counts but an increase in average weight per shipment. Market capacity was more constrained in the current year quarter and contributed to growth in volume-quoted truckload-rated shipments, which generally weigh more per shipment. As a result, average weight per shipment increased 6.3% for the three month period ended March 31, 2018, compared to the same prior year period, while daily shipment counts decreased 9.4% compared to the same period of 2017.

Asset-Based Revenues — April 2018

Asset-Based billed revenues for the month of April 2018 increased approximately 7% above April 2017 on a per-day basis, reflecting an increase in total billed revenue per hundredweight of approximately 11%, partially offset by a decrease in average daily total tonnage of approximately 4%. The higher revenue per hundredweight measure benefited from the effect of yield improvement initiatives and higher fuel surcharges. The decrease in tonnage levels for April 2018, compared to the same prior-year period, reflects reductions in LTL tonnage related to our ongoing yield management initiatives and changes in account mix, partially offset by year-over-year growth in our Asset-Based truckload-rated business. Total shipments per day decreased approximately 9% in April 2018, compared to April 2017. Influenced by improved yield and lower shipment counts, total revenue per shipment increased approximately 17% in April 2018, versus the same prior-year period. Total weight per shipment increased approximately 5% in April 2018, compared to April 2017, as a result of the Asset-Based segment handling more spot volume truckload-rated shipments during April 2018.

The Asset-Based segment implemented a nominal general rate increase on its LTL base rate tariffs of 5.9% effective April 16, 2018, although the rate changes vary by lane and shipment characteristics. There can be no assurances that the current pricing trend will continue. 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.

Asset-Based Operating Income

The Asset-Based segment operating ratio for the three-month period ended March 31, 2018 improved by 4.6 percentage points over the same prior-year period. The Asset-Based segment generated operating income of $13.4 million for the three months ended March 31, 2018, compared to an operating loss of $8.3 million for the same period of 2017. The operating income improvement primarily reflects yield initiatives and efficiencies in managing operating resources to business levels and freight profile characteristics. 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 56.0% of Asset-Based segment revenues for the three-month period ended March 31, 2018 compared to 60.2% for the same period of 2017. Salaries, wages, and benefits costs decreased $9.6 million for the three months ended March 31, 2018, compared to the same prior-year period, primarily due to adjustments made to better align our cost structure to business levels as shipment levels were 9.4% lower on a per day basis in first quarter 2018. The decrease in labor costs was also impacted by lower nonunion healthcare costs for the three months ended March 31, 2018, compared to the same period of 2017, primarily due to a decrease in the number of health claims filed and in the average cost per claim.

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Although the Asset-Based segment manages costs with shipment levels, portions of salaries, wages, and benefits are fixed in nature and the adjustments which would otherwise be necessary to align the labor cost structure throughout the system to corresponding tonnage levels are limited as the segment strives to maintain customer service. Management believes that this service emphasis provides for the opportunity to generate improved yields and business levels. Shipments per DSY hour decreased 2.2% for the three months ended March 31, 2018, compared to the same prior-year period, reflecting a decrease in the use of purchased transportation agents and the challenges of managing local delivery efforts during periods of lower shipment levels. The increase in pounds per shipment for the three months ended March 31, 2018, which reflects the yield initiatives previously discussed, led to the improvement in pounds per DSY hour compared to the same period of 2017. The 1.3% increase in pounds per mile for the three months ended 2018 reflects more efficient linehaul operations compared to the same prior-year period combined with the increase in weight per shipment.

Fuel, supplies, and expenses as a percentage of revenue increased 0.3 percentage points for the three months ended March 31, 2018 compared to the same prior-year period, primarily due to an increase in the Asset-Based segment’s average fuel price per gallon (excluding taxes) of approximately 24%. The increase in fuel, supplies, and expenses was partially offset by fewer miles driven during first quarter 2018 versus first quarter 2017.

Rents and purchased transportation as a percentage of revenue decreased 0.4 percentage points for first quarter 2018, compared to first quarter 2017, primarily due to lower utilization of purchased linehaul and local transportation resulting from improved utilization of owned assets, as well as alignment of these costs with lower shipment levels during first quarter 2018.

Asset-Light Operations

Asset-Light Overview

The ArcBest and FleetNet reportable segments, combined, represent our Asset-Light operations. Our Asset-Light operations are a key component of our strategy to offer customers a single source of end-to-end logistics solutions, designed to satisfy the complex supply chain and unique shipping requirements customers encounter. We have unified our sales, pricing, customer service, marketing, and capacity sourcing functions to better serve our customers through delivery of integrated logistics solutions.

Our Asset-Light operations are affected by general economic conditions, as well as a number of other competitive factors that are more fully described in Item 1 (Business) and in Item 1A (Risk Factors) of Part I of our 2017 Annual Report on Form 10‑K. The key indicators necessary to understand our Asset-Light operating results include:

customer demand for logistics and premium transportation services combined with economic factors which influence the number of shipments or service events used to measure changes in business levels;

prices obtained for services, primarily measured by revenue per shipment or event;

availability of market capacity of purchased transportation to fulfill customer shipments;

net revenue for the ArcBest segment, which is defined as revenues less purchased transportation costs; and

management of operating costs.

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As previously disclosed within the General section of MD&A, we have reclassified certain prior period segment operating expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses allocated from shared services and the presentation of components of net periodic benefit cost in other income (costs) in our consolidated financial statements. See Note J to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q for descriptions of the ArcBest and FleetNet segments and additional segment information, including revenues and operating income for the three months ended March 31, 2018 and 2017, as well as explanation of the expense category reclassifications for shared services.

For the three months ended March 31, 2018, the combined revenues of our Asset-Light operations totaled $229.7 million, compared to $193.1 million for the same period of 2017. The combined revenues of our Asset-Light operating segments generated approximately 32% of our total revenues before other revenues and intercompany eliminations for the three months ended March 31, 2018 compared to 29% for the three months ended March 31, 2017.

ArcBest Segment

The following table sets forth a summary of operating expenses and operating income as a percentage of revenue for the ArcBest segment:


	Three Months Ended
	March 31
	2018		2017
ArcBest Segment Operating Expenses (Operating Ratio)
Purchased transportation	81.6	%	79.8	%
Supplies and expenses	1.8		2.4
Depreciation and amortization	1.9		2.1
Shared services	12.0		12.9
Other	1.0		1.6
Restructuring costs	—		0.5
	98.3	%	99.3	%

ArcBest Segment Operating Income	1.7	%	0.7	%

Under our enhanced marketing approach to offer customers a single source of end-to-end logistics, the service offerings of the ArcBest segment continue to become more integrated. Management’s operating decisions have become more focused on the ArcBest segment’s combined operations, rather than individual service offerings within the segment’s operations. As such, the comparison of key operating statistics for the ArcBest segment presented in the following table has been revised to reflect the segment’s combined operations, including the expedite, truckload, and truckload-dedicated operations for which statistics were previously reported, as well as other service offerings of the segment.


	Year Over Year % Change
	Three Months Ended
	March 31, 2018

Revenue / Shipment		23.8%

Shipments / Day		(5.9%)

The ArcBest segment revenues totaled $181.9 million for the three months ended March 31, 2018, compared to $152.9 million for the same period of 2017. The 19.0% increase in revenues primarily reflects higher revenue per shipment associated with increased market prices for the three months ended March 31, 2018, compared to the same prior-year period. ArcBest segment net revenue, which is a measure of revenues less costs of purchased transportation, increased $2.7 million, or 8.7%, for the three months ended March 31, 2018, compared to the same period of 2017. Net revenue margin for the ArcBest segment was 18.4% for the three months ended March 31, 2018, versus 20.2% for the same prior-year period, with the year-over-year decline reflecting the increased cost of purchased transportation outpacing improvements in customer rates. Purchased transportation costs as a percentage of revenue increased 1.8 percentage points for first quarter 2018, compared to first quarter 2017, as capacity in the spot market tightened versus the prior year.

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Operating income increased $2.1 million for the three months ended March 31, 2018 compared to the same period of 2017, primarily reflecting the segment’s increase in net revenue. Operating income for first quarter 2018 also benefited from an $0.8 million decrease in restructuring charges related to our corporate realignment under our enhanced marketing approach, versus first quarter 2017. (See Note J and Note K to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for discussion of our corporate restructuring.)

FleetNet Segment

FleetNet’s revenues totaled $47.8 million for the three months ended March 31, 2018, compared to $40.2 million for the same period of 2017. The 18.7% increase in revenues for first quarter 2018, compared to first quarter 2017, was due primarily to increased service event volume.

FleetNet’s operating income improved to $1.5 million for the three months ended March 31, 2018, from $1.0 million in the same prior-year period. The year-over-year operating income improvement reflects the revenue growth combined with improved labor efficiencies.

Asset-Light Revenues – April 2018

Revenues of our Asset-Light operations, on a combined basis (ArcBest Asset-Light and FleetNet combined), increased approximately 16% on a per-day basis in April 2018 above the same prior-year period, primarily due to increases in ArcBest segment revenue per shipment. However, we continue to experience increased compression on net revenue in our ArcBest segment associated with rising purchased transportation costs and the challenges of adequately passing these costs on to our customers.

Asset-Light Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)

We report our financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures and ratios, such as Adjusted EBITDA, utilized for internal analysis provide analysts, investors, and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Accordingly, using these measures improves comparability in analyzing our performance because it removes the impact of items from operating results that, in management's opinion, do not reflect our core operating performance. Management uses Adjusted EBITDA as a key measure of performance and for business planning. The measure is particularly meaningful for analysis of our Asset-Light businesses, because it excludes amortization of acquired intangibles and software, which are significant expenses resulting from strategic decisions rather than core daily operations. Management also believes Adjusted EBITDA to be relevant and useful information, as EBITDA is a standard measure commonly reported and widely used by analysts, investors, and others to measure financial performance of asset-light businesses and the ability to service debt obligations. Other companies may calculate Adjusted EBITDA differently; therefore, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results. Adjusted EBITDA should not be construed as a better measurement than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.

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Asset-Light Adjusted EBITDA


	Three Months Ended March 31
	2018								2017
	Operating		Depreciation and		Restructuring		Adjusted		Operating		Depreciation and		Restructuring		Adjusted
	Income (1)(2)		Amortization (3)		Charges (4)		EBITDA		Income (1)(2)		Amortization (3)		Charges (4)		EBITDA
	(in thousands)
ArcBest	$	3,165	$	3,408	$	9	$	6,582	$	1,093	$	3,266	$	810	$	5,169
FleetNet		1,521		279		—		1,800		1,021		280		—		1,301
Asset-Light Adjusted EBITDA	$	4,686	$	3,687	$	9	$	8,382	$	2,114	$	3,546	$	810	$	6,470

⁽¹⁾

The calculation of Adjusted EBITDA as presented in this table begins with operating income, as other income (costs), income taxes, and net income are reported at the consolidated level and not included in the operating segment financial information evaluated by management to make operating decisions. Consolidated Adjusted EBITDA is reconciled to consolidated net income in the Consolidated Results section of Results of Operations.

⁽²⁾

Certain reclassifications have been made to the prior year’s operating segment data to conform to the current year presentation, reflecting the presentation of segment expenses allocated from shared services and the presentation of components of net periodic benefit cost in other income (costs).

⁽³⁾

For the ArcBest segment, depreciation and amortization includes amortization of acquired intangibles of $1.1 million for each of the three-month periods ended March 31, 2018 and 2017, and amortization of acquired software of $0.5 million and $0.8 million for the three months ended March 31, 2018 and 2017, respectively.

⁽⁴⁾

Restructuring costs relate to the realignment of our corporate structure.

Seasonality

Our operations are impacted by seasonal fluctuations which affect tonnage, shipment levels, and demand for our services and, consequently, revenues and operating results. Freight shipments and operating costs of our Asset-Based and ArcBest segments can be adversely affected by inclement weather conditions. The second and third calendar quarters of each year usually have the highest tonnage levels, while the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, may influence quarterly freight tonnage levels.

Shipments of the ArcBest segment may decline during winter months because of post-holiday slowdowns, but expedite shipments can be subject to short-term increases depending on the impact of weather disruptions to customers’ supply chains. Plant shutdowns during summer months may affect shipments for automotive and manufacturing customers of the ArcBest segment, but severe weather events can result in higher demand for expedite services. Moving services of the ArcBest segment are impacted by seasonal fluctuations, generally resulting in higher business levels in the second and third quarters as the demand for moving services is typically stronger in the summer months.

Emergency roadside service events of the FleetNet segment are favorably impacted by severe weather conditions that affect commercial vehicle operations, and the segment’s results of operations will be influenced by seasonal variations in service event volume.

Effects of Inflation

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.

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In addition, partly as a result of inflationary pressures, our revenue equipment (tractors and trailers) have 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; however, in recent periods, improved mileage and lower maintenance costs on newer equipment have partially offset increases in depreciation expense. We consider these costs in setting our pricing policies, although the overall freight rate structure is governed by market forces based on value provided to the customer. The Asset-Based segment’s ability to fully offset inflationary and contractual cost increases can be challenging during periods of recessionary and uncertain economic conditions.

Generally, inflationary increases in labor and operating costs regarding our Asset-Light operations have historically been offset through price increases. The pricing environment, however, generally becomes more competitive during economic downturns, which may, as it has in the past, affect the ability to obtain price increases from customers.

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. See Note L to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of the environmental matters to which we are subject and the reserves we currently have recorded in our consolidated financial statements for amounts related to such matters.

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.

Information Technology and Cybersecurity

We depend on the proper functioning and availability of our information systems, including communications, data processing, financial, and operating systems and proprietary software programs, that are integral to the efficient operation of our business. Cybersecurity attacks and other cyber incidents that impact the availability, reliability, speed, accuracy, or other proper functioning of these systems or that result in confidential data being compromised could have a significant impact on our operations. We utilize certain software applications provided by third parties, or provide underlying data which is utilized by third parties who provide certain outsourced administrative functions, either of which may increase the risk of a cybersecurity incident. Although we strive to carefully select our third-party vendors, we do not control their actions and any problems caused by these third parties, including cyber attacks and security breaches at a vendor, could adversely affect our ability to provide service to our customers and otherwise conduct our business. Our information systems are protected through physical and software safeguards as well as backup systems considered appropriate by management. However, it is not practicable to protect against the possibility of power loss, telecommunications failures, cybersecurity attacks, and other cyber events in every potential circumstance that may arise. To mitigate the potential for such occurrences at our corporate headquarters, we have implemented various systems, including redundant telecommunication facilities; replication of critical data to an offsite location; a fire suppression system to protect our on-site data center; and electrical power protection and generation facilities. We also have a catastrophic disaster recovery plan and alternate processing capability available for our critical data processes in the event of a catastrophe that renders our corporate headquarters unusable.

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Our business interruption and cyber insurance would offset losses up to certain coverage limits in the event of a catastrophe or certain cyber incidents; however, losses arising from a catastrophe or significant cyber incident would likely exceed our insurance coverage and could have a material adverse impact on our results of operations and financial condition. Furthermore, a significant cyber incident, including denial of service, system failure, security breach, intentional or inadvertent acts by employees, disruption by malware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, cause errors or delays in financial reporting, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such 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 date, the systems employed have been effective in identifying these types of events at a point when the impact on our business could be minimized. We must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. We have made and continue to make significant financial investments in technologies and processes to mitigate these risks. We also provide employee awareness training around phishing, malware, and other cyber risks. Management is not aware of any cybersecurity incident that has had a material effect on our operations, although there can be no assurances that a cyber incident that could have a material impact to our operations could not occur.

Liquidity and Capital Resources

Our primary sources of liquidity are cash, cash equivalents, and short-term investments, cash generated by operations, and borrowing capacity under our revolving credit facility or accounts receivable securitization program.

Cash Flow and Short-Term Investments

Components of cash and cash equivalents and short-term investments were as follows:


	March 31		December 31
	2018		2017
	(in thousands)
Cash and cash equivalents (1)	$	124,652	$	120,772
Short-term investments, primarily FDIC-insured certificates of deposit		54,669		56,401
Total (2)	$	179,321	$	177,173

⁽¹⁾

Cash equivalents consist of money market funds and variable rate demand notes.

⁽²⁾

Cash, variable rate demand notes, and certificates of deposit are recorded at cost plus accrued interest, which approximates fair value. Money market funds are recorded at fair value based on quoted prices. At March 31, 2018 and December 31, 2017 cash and cash equivalents totaling $69.1 million and $61.1 million, respectively, were not FDIC insured.

Cash, cash equivalents, and short-term investments increased $2.1 million from December 31, 2017 to March 31, 2018. During the three-month period ended March 31, 2018, cash provided by operations of $31.8 million was used to repay $16.6 million of notes payable; fund $6.1 million of capital expenditures, net of proceeds from asset sales; and pay dividends of $2.1 million on common stock. Cash provided by operating activities during the three months ended March 31, 2018 increased $30.0 million compared to the same prior-year period, primarily due to improved operating results and changes in working capital.

Cash, cash equivalents, and short-term investments, including amounts restricted, decreased $31.9 million from December 31, 2016 to March 31, 2017. During the three-month period ended March 31, 2017, cash provided by operations of $1.8 million and cash on hand was used to repay $17.3 million of notes payable; fund $10.6 million of capital expenditures, net of proceeds from asset sales; and pay dividends of $2.1 million on common stock. Cash provided by operating activities during the three months ended March 31, 2017 was $10.6 million below the same prior-year period, primarily due to changes in working capital and lower operating results.

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Financing Arrangements

Our financing arrangements are discussed further in Note E to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Credit Facility

We have a revolving credit facility (the “Credit Facility”) under our second amended and restated credit agreement. Our Credit Facility has an initial maximum credit amount of $200.0 million, including a swing line facility in an aggregate amount of up to $20.0 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. We may request additional revolving commitments or incremental term loans thereunder up to an aggregate additional amount of $100.0 million, subject to certain additional conditions as provided in the Credit Agreement. Principal payments under the Credit Facility are due upon maturity of the facility on July 7, 2022; however, borrowings may be repaid at our discretion in whole or in part at any time, without penalty, subject to required notice periods and compliance with minimum prepayment amounts. The Credit Agreement includes certain conditions, including limitations on incurrence of debt. As of March 31, 2018, we had available borrowing capacity of $130.0 million under our Credit Facility.

Interest Rate Swaps

We have a five-year interest rate swap agreement with a $50.0 million notional amount maturing on January 2, 2020. Under the interest rate swap agreement, we receive floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 1.85% over the life of the agreement. The interest rate swap mitigates interest rate risk by effectively converting $50.0 million of borrowings under our Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 3.35% based on the margin of the Credit Facility as of March 31, 2018. The fair value of the interest rate swap asset of $0.4 million and $0.1 million was recorded in other long-term assets in the consolidated balance sheet at March 31, 2018 and December 31, 2017, respectively.

In June 2017, we entered into a second forward-starting interest rate swap agreement with a $50.0 million notional amount which will start on January 2, 2020 upon maturity of the current interest rate swap agreement, and mature on June 30, 2022. Under the swap agreement we will receive floating-rate interest amounts based on one-month LIBOR in exchange for fixed-rate interest payments of 1.99% over the life of the agreement. The interest rate swap mitigates interest rate risk by effectively converting $50.0 million of borrowings under the Credit Facility from variable-rate interest to fixed-rate interest with a per annum rate of 3.49% based on the margin of the Credit Facility as of March 31, 2018. The fair value of the interest rate swap asset of $0.8 million and $0.4 million was recorded in other long-term assets in the consolidated balance sheet at March 31, 2018 and December 31, 2017, respectively.

Accounts Receivable Securitization Program

Our accounts receivable securitization program, which matures on April 1, 2020, allows for cash proceeds of $125.0 million to be provided under the facility and has an accordion feature allowing us to request additional borrowings up to $25.0 million, subject to certain conditions. Under this program, certain of our subsidiaries continuously sell a designated pool of trade accounts receivables to a wholly owned subsidiary which, in turn, may borrow funds on a revolving basis. As of March 31, 2018, we have $45.0 million borrowed under the program. It is possible that a financial ratio calculated under our accounts receivable securitization program could trigger an amortization event in the near term; however, we have the ability to amend the triggering events to avoid a breach of the financial covenant.

The accounts receivable securitization program includes a provision under which we 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 we are self-insured. The outstanding standby letters of credit reduce the availability of borrowings under the program. As of March 31, 2018, we had available borrowing capacity of $62.3 million under the accounts receivable securitization program.

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Letter of Credit Agreements and Surety Bond Programs

As of March 31, 2018, we had letters of credit outstanding of $18.3 million (including $17.7 million issued under the accounts receivable securitization program). We have programs in place with multiple surety companies for the issuance of surety bonds in support of our self-insurance program. As of March 31, 2018, surety bonds outstanding related to our self-insurance program totaled $61.0 million.

Notes Payable and Capital Leases

We have financed the purchase of certain revenue equipment, other equipment, and software through promissory note arrangements. We intend to utilize promissory note arrangements and will consider utilizing capital lease agreements to finance future purchases of certain revenue equipment, provided such financing is available and the terms are acceptable to us.

Contractual Obligations

We have purchase obligations, consisting of authorizations to purchase and binding agreements with vendors, relating to revenue equipment used in our Asset-Based operations, other equipment, software, certain service contracts, and other items for which amounts were not accrued in the consolidated balance sheet as of March 31, 2018. These purchase obligations totaled $119.9 million as of March 31, 2018, with $116.2 million estimated to be paid within the next year, $3.5 million estimated to be paid in the following two-year period, and $0.2 million to be paid within five years, provided that vendors complete their commitments to us. Purchase obligations for revenue equipment, and other equipment are included in our 2018 capital expenditure plan.

Our contractual obligations related to our notes payable, which provide financing for revenue equipment and software purchases, totaled $143.9 million, including interest, as of March 31, 2018, a decrease of $17.3 million from December 31, 2017. The scheduled maturities of our long-term debt obligations as of March 31, 2018 are disclosed in Note E to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no other material changes in the contractual obligations disclosed in our 2017 Annual Report on Form 10‑K during the three months ended March 31, 2018.

For 2018, our total net capital expenditures, including amounts financed, are estimated to range from $155.0 million to $165.0 million, net of asset sales. These 2018 estimated net capital expenditures include revenue equipment purchases of $100.0 million, primarily for our Asset-Based operations. The remainder of 2018 expected capital expenditures includes costs of other facility and handling equipment for our Asset-Based operations and technology investments across the enterprise. The timing and actual amount of our capital investments may be impacted by the ratification of ABF Freight,

Inc.’s tentative contract agreement with the IBT. We have the flexibility to adjust certain planned 2018 capital expenditures as business levels and timing of ratification of the tentative contract agreement dictate. Depreciation and amortization expense is estimated to be in a range of $100.0 million to $105.0 million in 2018.

Based upon currently available actuarial information, and except for the impact of funding for plan termination, we do not expect to have cash outlays for required minimum contributions to our nonunion defined benefit pension plan in 2018 (see Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

As previously disclosed within the Consolidated Results of the Results of Operations section of MD&A, an amendment was executed in November 2017 to terminate the nonunion defined benefit pension plan with an effective date of December 31, 2017. We may be required to fund the plan prior to the final distribution of benefits to plan participants, the amount of which will be determined by the plan’s actuary. Based on currently available information provided by the plan’s actuary, we estimate cash funding of approximately $10.0 million and noncash pension settlement charges of approximately $20.0 million in 2018, although there can be no assurances in this regard. The final pension settlement charges and the actual amount we will be required to contribute to the plan to fund benefit distributions in excess of plan assets cannot be determined at this time, as the actual amounts are dependent on various factors, including final benefit calculations, the benefit elections made by plan participants, interest rates, the value of plan assets, and the cost to purchase an annuity contract to settle the pension obligation related to benefits for which participants elect to defer payment until a later date. Although the timing of recognizing pension settlement charges related to plan termination and making

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contributions required to fund the plan upon termination are highly dependent on when and if we receive the favorable determination letter from the IRS, the settlements and contributions to the plan may occur in 2018.

ABF Freight System, Inc. and certain other subsidiaries reported in our Asset-Based operating segment contribute to multiemployer health, welfare, and pension plans based generally on the time worked by their contractual employees, as specified in the collective bargaining agreement and other supporting supplemental agreements (see Note F to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).

Other Liquidity Information

Cash, cash equivalents, and short-term investment totaled $179.3 million at March 31, 2018. General economic conditions, along with competitive market factors and the related impact on our business, primarily the tonnage and pricing levels that the Asset-Based segment receives for its services, could affect our ability to generate cash from operations and maintain cash, cash equivalents, and short-term investments on hand as operating costs increase. Our Credit Facility and accounts receivable securitization program provide available sources of liquidity with flexible borrowing and payment options. We believe these agreements will continue to provide borrowing capacity options necessary for growth of our businesses. We believe existing cash, cash equivalents, short-term investments, cash generated by operations, and amounts available under our Credit Agreement or accounts receivable securitization program will be sufficient to meet our liquidity needs, including financing potential acquisitions and the repayment of amounts due under our financing arrangements, for the foreseeable future. Notes payable, capital 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.

During the quarter, we continued to take actions to enhance shareholder value with our quarterly dividend payments and treasury stock purchases. On May 1, 2018, the Company’s Board of Directors declared a dividend of $0.08 per share to stockholders of record as of May 15, 2018. We expect to continue to pay quarterly dividends on our common stock in the foreseeable future, although there can be no assurances in this regard since future dividends will be at the discretion of the Board of Directors and are dependent upon our future earnings, capital requirements, and financial condition; contractual restrictions applying to the payment of dividends under our Credit Agreement; and other factors.

We have a program in place to repurchase our common stock in the open market or in privately negotiated transactions. The program has no expiration date but may be terminated at any time at the Board of Directors’ discretion. Repurchases may be made using cash reserves or other available sources. During the three months ended March 31, 2018, we purchased 5,882 shares of our common stock leaving $31.5 million available for repurchase under the current buyback program.

As of March 2018, approximately 82% of our Asset-Based segment’s employees were covered under the ABF NMFA which extends through March 31, 2018. On March 28, 2018, ABF Freight and the Teamsters National Freight Industry Negotiating Committee, the negotiating arm of the IBT, reached a tentative contract agreement and agreed to an extension of the existing ABF NMFA to allow for the ratification process of the new agreement to take place. The tentative contract agreement is currently subject to ratification by ABF Freight’s IBT member employees. In the event that the tentative contract agreement is not ratified, a work stoppage, the loss of customers, or other events could occur that could have a material adverse effect on our business, results of operations, financial condition, and cash flows in 2018 and subsequent years. In the event of a temporary work stoppage, we plan to meet our liquidity needs primarily through existing liquidity, cash flows from our Asset-Light operations, available net working capital, amounts available under our Credit Facility or our accounts receivable securitization program, or reduction of spending levels.

Financial Instruments

We have not historically entered into financial instruments for trading purposes, nor have we historically engaged in a program for fuel price hedging. No such instruments were outstanding as of March 31, 2018. We have interest rate swap agreements in place which are discussed in the Financing Arrangements section of Liquidity and Capital Resources.

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Balance Sheet Changes

Accounts Receivable

Accounts receivable increased $10.3 million from December 31, 2017 to March 31, 2018, reflecting higher business levels in March 2018 compared to December 2017.

Accounts Payable

Accounts payable increased $10.7 million from December 31, 2017 to March 31, 2018, primarily due to increased business levels in March 2018 compared to December 2017.

Off-Balance Sheet Arrangements

At March 31, 2018, our off-balance sheet arrangements of $176.9 million included purchase obligations, as previously discussed in the Contractual Obligations section of Liquidity and Capital Resources, and future minimum rental commitments, net of noncancelable subleases, under operating lease agreements primarily for our Asset-Based service centers.

We have no investments, loans, or any other known contractual arrangements with unconsolidated special-purpose entities, variable interest entities, or financial partnerships and have no outstanding loans with executive officers or directors.

Income Taxes

Our effective tax benefit rate was 10.7% and 41.4% for the three months ended March 31, 2018 and 2017, respectively. As a result of the Tax Reform Act and our use of a fiscal year rather than a calendar year for U.S. income tax filing, taxes are required to be calculated by applying a blended rate to the taxable income for the tax year ended February 28, 2018. In computing total tax expense for the first quarter of 2018, a 32.74% blended rate was applied to the two months ended February 28, 2018, and a projected combined tax rate of 25.8% (based on the federal statutory rate of 21% plus applicable state tax rates) was applied to the month of March 2018. The average state tax rate, net of the associated federal deduction, is approximately 5%. However, various factors may cause the full-year 2018 tax rate to vary significantly from the statutory rate.

At December 31, 2017, we remeasured deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future. Existing deferred tax assets and liabilities at December 31, 2017 that were reasonably estimated to reverse in the tax year ending February 28, 2018 were remeasured at a rate of 32.74%. Existing deferred tax assets and liabilities at December 31, 2017 that were reasonably estimated to reverse after the tax year ending February 28, 2018 were remeasured at a rate of 21.0%. In the first quarter of 2018, a provisional reduction of net deferred income tax liabilities was recognized related to the reversal of temporary differences through our tax year end of February 28, 2018. As a result, we recognized a provisional deferred tax benefit in continuing operations of $2.6 million as of March 31, 2018, which impacted the effective tax benefit rate for first quarter 2018 as noted in the following table. The three-month period ended March 31, 2018 was also impacted by the February 2018 passage of the Bipartisan Budget Act of 2018 which retroactively reinstated the alternative fuel tax credit that had previously expired on December 31, 2016. The credit was reinstated through December 31, 2017 and the $1.2 million credit related to 2017 recognized in the first quarter of 2018 resulted in a 13.4% tax benefit. For the three months ended March 31, 2017, the difference in the effective rate and the statutory federal rate, then in effect, primarily resulted from state income taxes, nondeductible expenses, changes in tax valuation allowances, and changes in the cash surrender value of life insurance.

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Reconciliation between the effective income tax rate, as computed on income (loss) before income taxes, and the statutory federal income tax rate is presented in the following table:


	Three Months Ended
	March 31
	2018				2017
	(in thousands)

Income tax provision (benefit) at the statutory federal rate (1)	$	1,888	21.0	%		(4,426)	(35.0)	%
Federal income tax effects of:
Impact of the Tax Reform Act on deferred tax		(2,591)	(28.8)	%		—	—	%
Impact of the Tax Reform Act on current tax		(59)	(0.6)	%		—	—	%
Alternative fuel credit		(1,203)	(13.4)	%		—	—	%
Nondeductible expenses and other		532	5.9	%		148	1.2	%
Increase (decrease) in valuation allowances		93	1.0	%		(108)	(0.9)	%
Tax benefit from vested RSUs (2)		(20)	(0.2)	%		(75)	(0.6)	%
Life insurance proceeds and changes in cash surrender value		(24)	(0.3)	%		(203)	(1.6)	%
Federal employment and R&D tax credits		(13)	(0.1)	%		(86)	(0.6)	%
Federal income tax benefit		(3,285)	(36.5)	%		(324)	(2.5)	%
State income tax provision (benefit)		434	4.8	%		(490)	(3.9)	%
Total benefit for income taxes		(963)	(10.7)	%		(5,240)	(41.4)	%

⁽¹⁾

For the three months ended March 31, 2018, the effect of the change in the U.S. corporate tax rate to 21% in accordance with the Tax Reform Act is reflected in separate components of the reconciliation. For the three months ended March 31, 2017, amounts in this reconciliation reflect the 35% statutory U.S. income tax rate in effect prior to the enactment of the Tax Reform Act.

⁽²⁾

In first quarter 2017, we adopted an amendment to ASC Topic 718, Compensation – Stock Compensation , which requires the income tax effects of awards to be recognized in the statement of operations when awards vest or are settled. We made a policy election to account for forfeitures as they occur. We may experience volatility in our income tax provision as a result of recording all excess tax benefits and tax deficiencies in the statement of operations upon settlement of awards, which for 2018 will occur primarily during the fourth quarter.

At March 31, 2018, we had $42.1 million of net deferred tax liabilities after valuation allowances. We evaluated the need for a valuation allowance for deferred tax assets at March 31, 2018 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 $0.6 million and $0.8 million at March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, deferred tax liabilities which will reverse in future years exceeded deferred tax assets. At March 31, 2018, we had a valuation allowance of $0.5 million relating to an anticipated foreign tax credit carryforward that is unlikely to be used as a result of the lower U.S. tax rate.

Financial reporting income differs significantly from taxable income because of such items as revenue recognition, accelerated depreciation for tax purposes, pension accounting rules, and a significant number of liabilities such as vacation pay, workers’ compensation, and other liabilities, which, for tax purposes, are generally deductible only when paid. For the three months ended March 31, 2018, taxable income determined under income tax law exceeded financial reporting pre-tax income. For the three months ended March 31, 2017, the financial reporting loss exceeded the loss determined under income tax law.

During the three months ended March 31, 2018, we made state and foreign tax payments of $1.1 million, and received refunds of $1.0 million of federal and state income taxes that were paid in prior years. Management does not expect the cash outlays for income taxes will materially exceed reported income tax expense for the foreseeable future.

Critical Accounting Policies

The accounting policies that are “critical,” or the most important, to understand our financial condition and results of operations and that require management to make the most difficult judgments are described in our 2017 Annual Report on Form 10-K. The following policies have been updated during the three months ended March 31, 2018 for the adoption of accounting standard updates disclosed within this section of MD&A.

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Goodwill

Effective January 1, 2018, we early adopted an amendment to ASC Topic 350, Intangibles – Goodwill and Other, Simplifying the Test of Goodwill Impairment, which removes Step 2 of the goodwill impairment test, and we updated our critical accounting policy related to goodwill accordingly. The adoption of the amendment did not have an impact on our consolidated financial statements for the three months ended March 31, 2018.

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. Our measurement of goodwill impairment involves a comparison of the estimated fair value of a reporting unit to its carrying value. Fair value is derived using a combination of valuation methods, including earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue multiples (market approach) and the present value of discounted cash flows (income approach). For annual and interim impairment tests, 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. Our annual impairment testing is performed as of October 1.

Revenue Recognition

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

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 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 based on the estimates. Revenue adjustments may also occur due to rating or other billing adjustments. We estimate revenue 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 remains primarily responsible for fulfilling delivery to the customer and maintains discretion in setting the price for the services. Purchased transportation expense is recognized as incurred.

For our FleetNet segment, service fee revenue is recognized upon response to the service event and repair revenue is recognized upon completion of the service by third-party vendors. Revenue and expense from repair and maintenance services performed by third-party vendors are reported on a gross basis as FleetNet controls the services prior to transfer to the customer and remains primarily responsible to the customer for completion of the services.

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

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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.

Accounting Pronouncements Not Yet Adopted

New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of financial statements. Accounting pronouncements which have been issued but are not yet effective for our financial statements are disclosed in Note A to our consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Management believes that there is no other new accounting guidance issued but not yet effective that will impact our critical accounting policies.

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Forward-Looking Statements

Certain statements and information in this report may constitute “forward-looking statements.” 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: a failure of our information systems, including disruptions or failures of services essential to our operations or upon which our information technology platforms rely, data breach, and/or cybersecurity incidents; relationships with employees, including unions, and our ability to attract and retain 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; the loss or reduction of business from large customers; the cost, timing, and performance of growth initiatives; competitive initiatives and pricing pressures; 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; greater than expected funding requirements for our nonunion defined benefit pension plan; 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; governmental regulations; environmental laws and regulations, including emissions-control regulations; the cost, integration, and performance of any recent or future acquisitions; not achieving some or all of the expected financial and operating benefits of our corporate restructuring or incurring additional costs or operational inefficiencies as a result of the restructuring; union and nonunion employee wages and benefits, including changes in required contributions to multiemployer plans; litigation or claims asserted against us; the loss of key employees or the inability to execute succession planning strategies; default on covenants of financing arrangements and the availability and terms of future financing arrangements; timing and amount of capital expenditures; self-insurance claims and insurance premium costs; 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; increased prices for and decreased availability of new revenue equipment, decreases in value of used revenue equipment, and higher costs of equipment-related operating expenses such as maintenance and fuel and related taxes; potential impairment of goodwill and intangible assets; maintaining our intellectual property rights, brand, and corporate reputation; seasonal fluctuations and adverse weather conditions; regulatory, economic, and other risks arising from our international business; antiterrorism and safety measures; and other financial, operational, and legal risks and uncertainties detailed from time to time in ArcBest’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 our projected results, refer to “Risk Factors” in Part I, Item 1A in our 2017 Annual Report on Form 10-K.

Readers are cautioned not to place undue reliance on forward-looking statements, which 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.

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FINANCIAL INFORMATION

ARCBEST CORPORATION

ITEM 3. QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

Since December 31, 2017, there have been no other significant changes in the Company’s market risks as reported in the Company’s 2017 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURE S

As of the end of the period covered by this report, an evaluation was performed with the participation of the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2018.

There were no changes in the Company’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II .

OTHER INFORMATION

ARCBEST CORPORATION

ITEM 1. LEGAL PROCEEDING S

For information related to the Company’s legal proceedings, see Note L, Legal Proceedings, Environmental Matters, and Other Events under Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTOR S

The Company’s risk factors are fully described in the Company’s 2017 Annual Report on Form 10-K. No material changes to the Company’s risk factors have occurred since the Company filed its 2017 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALE S OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent sales of unregistered securities.

None.

(b) Use of proceeds from registered securities.

None.

The Company has a program to repurchase its common stock in the open market or in privately negotiated transactions. The program has no expiration date but may be terminated at any time at the Board of Directors’ discretion. Repurchases may be made either from the Company’s cash reserves or from other available sources. As of December 31, 2017, the Company had $31.7 million remaining under the program for repurchases of its common stock. The Company repurchased 5,882 shares for an aggregate cost of $0.2 million during the three months ended March 31, 2018.


				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 (2)
	(in thousands, except share and per share data)
1/1/2018-1/31/2018	—	$	—	—	$	31,711
2/1/2018-2/28/2018	5,882		34.16	5,882	$	31,510
3/1/2018-3/31/2018	—		—	—	$	31,510
Total	5,882	$	34.16	5,882

⁽¹⁾

Represents the weighted average price paid per common share including commission.

⁽²⁾

In January 2003, the Company’s Board of Directors authorized a $25.0 million common stock repurchase program. The Board of Directors authorized an additional $50.0 million to the current program in July 2005. In October 2015, the Board of Directors extended the share repurchase program, making a total of $50.0 million available for purchases.

ITEM 3. DEFAULTS UPON SENIO R SECURITIES

None.

ITEM 4. MINE SAFET Y DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATIO N

None.

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ITEM 6. EXHIBIT S

The following exhibits are filed or furnished with this report or are incorporated by reference to previously filed material:


Exhibit
No.

3.1		Restated Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 under the Securities Act of 1933 filed with the Securities and Exchange Commission (the “SEC”) on March 17, 1992, File No. 33-46483, and incorporated herein by reference).

3.2		Certificate of Amendment to the Restated Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 24, 2009, File No. 000-19969, and incorporated herein by reference).

3.3		Fifth Amended and Restated Bylaws of the Company dated as of October 31, 2016 (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 4, 2016, File No. 000-19969, and incorporated herein by reference).

3.4		Certificate of Ownership and Merger, effective May 1, 2014, as filed on April 29, 2014 with the Secretary of State of the State of Delaware (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8‑K, filed with the SEC on April 30, 2014, File No. 000-19969, and incorporated herein by reference).

10.1#*		The ArcBest 16b Annual Incentive Compensation Plan and form of award .

10.2#*		The ArcBest Long-Term (3-Year) Incentive Compensation Plan and form of award.

31.1*		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32**		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

# Designates a compensation plan or arrangement for directors or executive officers.

* Filed herewith.

** Furnished herewith.

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SIGNATURE S

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	ARCBEST CORPORATION
	(Registrant)

Date: May 10, 2018	/s/ Judy R. McReynolds
	Judy R. McReynolds
	Chairman, President and Chief Executive Officer
	and Principal Executive Officer


Date: May 10, 2018	/s/ David R. Cobb
	David R. Cobb
	Vice President — Chief Financial Officer
	and Principal Financial Officer

Exhibit 10.1

[ ] – ArcBest 16b Annual Incentive Compensation Plan

Page 1 of 10

[ ] Schedule

ArcBest 16b Annual Incentive Compensation Plan

Pursuant to the Executive Officer Incentive Compensation Plan (the “Governing Plan”), the Compensation Committee of the ArcBest Corporation Board of Directors (the “Compensation Committee”) has adopted the following Individual Award Opportunities, Performance Measures, and Participants for ArcBest Corporation and its subsidiaries for the [ ] – ArcBest 16b Annual Incentive Compensation Plan (the “[ ] Plan”). The Compensation Committee has determined that the [ ] Plan incentive will include the following components:

[ ] Operating Income Improvement over Operating Income Baseline for [ ] (“Operating Income Component”)	50% weighting
ROCE Component	50% weighting

The weighting of the components is determined by the Compensation Committee for each Measurement Period.

I. Defined Terms

A. Base Salary for Executive Officers. Base Salary for Executive Officers (Executive Officer for this purpose is defined as an employee who, as of the last day of the applicable Plan Year, is covered by the compensation limitations of Code Section 162(m) or the regulations issued thereunder) is defined as an Executive Officer’s total base salary earned, while an eligible Participant in the [ ] Plan, for the designated Measurement Period, but in no event shall the Base Salary for an Executive Officer exceed the monthly base salary for the Executive Officer as most recently approved by the Compensation Committee as of the end of the day on which the Plan is approved for the Measurement Period or, if later, the day on which the Participant becomes an Executive Officer with a salary approved by the Compensation Committee, multiplied by twelve, multiplied by 150%. Base Salary is not reduced by any voluntary salary reductions or any salary reduction contributions made to any salary reduction plan, defined contribution plan or other deferred compensation plans of the Company, but does not include any payments under the Governing Plan, any stock option or other type of equity plan, or any other bonuses, incentive pay or special awards.

B. Base Salary. Base Salary for Participants other than Executive Officers is defined as a Participant’s total base salary earned, while an eligible Participant in the [ ] Plan, for the designated Measurement Period. Base Salary is not reduced by any voluntary salary reductions or any salary reduction contribution made to any salary reduction plan, defined contribution plan or other deferred compensation plans of the Company, but does not include any payments under the Governing Plan, any stock option or other type of equity plan, or any other bonuses, incentive pay or special awards.

C. Cause. Cause shall mean (i) Participant’s gross misconduct or fraud in the performance of Participant’s duties to the Company or any Subsidiary; (ii) Participant’s conviction or guilty plea or pleas of nolo contendere with respect to any felony or act of moral turpitude; (iii) Participant’s engaging in any material act of theft or material misappropriation of Company or any Subsidiary’s property, or (iv) Participant’s material breach of the Company’s Code of Conduct, as such Code may be revised from time to time.

D. Good Reason. Good Reason shall mean (i) any material adverse diminution in Participant’s title, duties, or responsibilities; (ii) any reduction in Participant’s base salary or employee benefits (including reducing Participant’s level of participation or bonus award opportunity in the Company’s or a Subsidiary’s incentive compensation plans) or (iii) a relocation of Participant’s principal place of employment by more than 50 miles without the prior consent of Participant.

E. Measurement Period. The Measurement Period is 1/1/[ ] to 12/31/[ ].

Exhibit 10.1

[ ] – ArcBest 16b Annual Incentive Compensation Plan

Page 2 of 10

F. Qualified Termination. Qualified Termination shall mean, within 24 full calendar months after a Change in Control, as defined in the Executive Officer Incentive Compensation Plan, a participant’s separation from service by the Company (or an Affiliate of the Company) without Cause (and not as a result of the Participant’s death or Disability), or by the Participant for Good Reason.

G. Retirement. Retirement shall mean Participant’s retirement from active employment at or after age 65 or retirement from the Company or Subsidiary at or after age 55, so long as the Participant has, as of the date of such retirement, at least 10 years of service with the Company or any Subsidiary. Officers and/or Executive Officers must be a Participant in the Plan during the Plan Year for not less than ninety (90) days prior to his or her Retirement to be eligible for an incentive under the [ ] Plan.

II. Participants

Eligible Participants in the [ ] Plan are listed in Appendix C and certain employees or positions may be specifically included or excluded by the Compensation Committee.

If you are promoted to an eligible position after November 30, [ ], you will not be eligible to participate in the [ ] Plan.

If an Eligible Participant in the [ ] Plan also participates in the ArcBest Corporation 2012 Change in Control Plan, the terms of the ArcBest Corporation 2012 Change in Control Plan shall govern.

III. Corporate Performance Metrics

Operating Income Component: The Individual Award Opportunities provided by the Operating Income Component are based on (a) achieving certain levels of Operating Income in [ ] that exceed the Operating Income Baseline for [ ] and (b) Your Target Payout Factor Earned. The formula below illustrates how your incentive is computed:

Your Incentive Payment= [Performance Factor Earned x Your Target Payout Factor x Your Base Salary x the Operating Income Component Weighting]

A. Performance Factor Earned. Performance Factor Earned is shown in Appendix A and depends on the Operating Income improvement achieved.

B. Target Payout Factor. Your Target Payout Factor is a percentage of your Base Salary. The Target Payout Factors are listed in Appendix C.

ROCE Component: The Individual Award Opportunities provided by the ROCE Component are based on (a) achieving certain levels of performance for ArcBest’s Consolidated Return on Capital Employed (“ROCE”) and (b) your Target Payout Factor. The formula below illustrates how your incentive is computed:

Your Incentive Payment = [Performance Factor Earned x Your Target Payout Factor x Your Base Salary x the ROCE Component Weighting]

A. Performance Factor Earned. Performance Factor Earned is shown in Appendix B and depends on the ROCE achieved by ArcBest for the year.

B. Target Payout Factor. Your Target Payout Factor is a percentage of your Base Salary. The Target Payout Factors are listed in Appendix C.

Exhibit 10.1

[ ] – ArcBest 16b Annual Incentive Compensation Plan

Page 3 of 10

If the performance result falls between two rows on Appendix A or Appendix B, interpolation is used to determine the factor used in the computation of the incentive.

The Compensation Committee has established maximum incentive amounts based on a maximum Performance Factor Earned of 200% of your Target Payout Factor for the Operating Income Component and the 300% of your Target Payout Factor for the ROCE Component subject to the applicable weighting for each component as provided in Appendix A and Appendix B.

IV. Effect of a Change in Control

Change in Control . Upon the occurrence of a Qualified Termination following a Change in Control, Participant shall be entitled to immediate payment of the greater of the following:

(a) The amount computed under the Plan based on 100% of the Participant’s “Target Payout Factor” in Appendix C using the date of the Change in Control as the end of the Measurement Period, or

(b) The amount computed under the Plan based on the actual percentage of Performance Factor Earned in Appendix A and Appendix B, calculated as if the Measurement Period ended on the date of the Change in Control.

V. Payment of Award

Payment will be made as soon as practicable following the end of the Measurement Period, and in any event, no later than 2 ½ months after the end of the Measurement Period.

VI. Annual Incentive Compensation Plan

Defined terms in this [ ] ArcBest 16b Annual Incentive Compensation Plan Schedule shall have the same meaning as in Executive Officer Incentive Compensation Plan and the Annual Incentive Compensation Plan except where the context otherwise requires.

Schedule A

[ ] Plan – Operating Income Component

ArcBest 16b Annual Incentive Compensation Plan

Pursuant to the Executive Officer Incentive Compensation Plan (the “Governing Plan”), the Compensation Committee of the ArcBest Corporation Board of Directors (“Compensation Committee”) has adopted this Operating Income Component as a component of the [ ] Plan, including the following Individual Award Opportunities and Performance Measures for ArcBest Corporation and its subsidiaries.

Exhibit 10.1

[ ] – ArcBest 16b Annual Incentive Compensation Plan

Page 4 of 10

I. Performance Measure

Operating Income is defined as operating income as shown by the consolidated financial statements and consistent with the historical determination of operating income in ArcBest’s consolidated financial statements after taking into account the Section II Required Adjustments.

[ ] Operating Income Improvement is defined as Operating Income for [ ] in excess of the Operating Income Baseline for [ ] as determined under the terms of the Plan.

Operating Income Baseline for [ ] is equal to [ ] ([ ] operating income of [ ] before Required Adjustments listed below).

II. Required Adjustments

The following adjustments shall be made when calculating Operating Income:

(i)

add back any annual or long-term incentive compensation accruals for nonunion employees of ArcBest and all subsidiaries related to plans that have performance metrics based solely on annual performance when determining Operating Income;

(ii)

add back the direct third-party expenses associated with an acquisition by ArcBest or any Subsidiary;

(iii)

exclude the operating results (all revenue and expenses) for any business acquired between the beginning of the Measurement Period and the end of the Measurement Period;

(iv)

exclude expenses resulting directly from reorganization and restructuring programs for which amounts are publicly disclosed;

(v)

exclude increases or decreases in Operating Income resulting from any extraordinary, unusual or non-recurring item as determined by the Compensation Committee in its discretion provided such item is described, at the time the performance goal is established, in a manner that is objectively determinable;

(vi)

exclude increases or decreases in Operating Income resulting from any change in accounting principle (other than the change in accounting principle under ASC 606) as defined in the Accounting Standards Codification topic(s) that replaced or were formerly known as Financial Accounting Standards Board (“FASB”) Statement 154, as amended or superseded;

(vii)

exclude any loss from a discontinued operation as described in the Accounting Standards Codification topic(s) as they existed at December 31, 2013, that replaced or were formerly known as FASB Statement 144, as amended or superseded;

(viii)

exclude goodwill impairment charges; and

(ix)

exclude settlement accounting charges incurred that relate to the qualified defined benefit pension plan.

III. Discretionary Adjustments

Prior to a Change in Control, the Compensation Committee may reduce any Participant’s Final Award if the Compensation Committee determines, in its sole discretion, that events have occurred or facts have become known which would make a reduction appropriate and equitable.

[ ] Schedule – ArcBest 16b Annual Incentive Compensation Plan

Page 5 of 10

Schedule B

[ ] Plan – ROCE Plan Component

ArcBest 16b Annual Incentive Compensation Plan

Pursuant to the Executive Officer Incentive Compensation Plan (the “Governing Plan”), the Compensation Committee of the ArcBest Corporation Board of Directors (“Compensation Committee”) has adopted this ROCE Component as a component of the [ ] Plan, including the following Individual Award Opportunities and Performance Measures for ArcBest Corporation and its subsidiaries.

I. Performance Measure

ROCE for ArcBest is calculated as the following ratio:

Net Income + After-tax Effect of Interest Expense

+ After-tax Effect of Imputed Interest Expense + After-tax Effect of Amortization of intangibles

– After-tax Effect of Income from

Cash and Short-term Investments Attributable to the reduction in Average Debt

Average Equity + Average Debt + Average Imputed Debt

“Net Income” for the ROCE calculation is consolidated net income determined in accordance with Generally Accepted Accounting Principles after taking into account the Section II Required Adjustments except that a combined federal and state income tax rate of 38% will be used in all cases in the determination of ROCE.

“Interest Expense” for the ROCE calculation is (i) interest on all long and short-term indebtedness, including capital leases, and other interest bearing obligations, and (ii) deferred financing cost amortization and other financing costs including letters of credit fees, reduced by the amount of interest expense on debt not included in Average Debt as defined below.

“Imputed Interest Expense” consists of the interest attributable to Average Imputed Debt assuming an interest rate of 7.5%.

“Average Debt” is the average of the beginning of the year and the end of the year current and long-term debt, with beginning of the year and end of the year current and long-term debt reduced by the respective amount of the beginning of the year and end of the year total of unrestricted cash, cash equivalents and short-term investments, and limited to a reduction of debt to zero.

“Average Equity” is the average of the beginning of the Measurement Period and the end of the Measurement Period stockholder’s equity.

“Average Imputed Debt” consists of the average of the beginning of the year and the end of the year present value of all payments determined using an interest rate of 7.5% on operating leases of revenue equipment with an initial term of more than two years.

“Amortization of intangibles” consists of amortization of intangibles and depreciation of software related to acquired businesses including any writedown or impairment charge related to those assets.

“Income from Cash and Short-term Investments Attributable to the reduction in Average Debt” consists of income earned on the amount by which Average Debt is reduced at the average interest rate earned in cash and short-term investments for the measurement period.

[ ] Schedule – ArcBest 16b Annual Incentive Compensation Plan

Page 6 of 10

II. Required Adjustments

The following adjustments shall be made when calculating ROCE:

(i)

add back any after-tax annual or long-term incentive compensation accruals for nonunion employees of ArcBest and all subsidiaries when determining Net Income;

(ii)

add back after-tax direct third party expenses associated with an acquisition by ArcBest or any Subsidiary;

(iii)

exclude the net results (all revenue, expenses and taxes) for any business acquired between the beginning of the Measurement Period and the end of the Measurement Period from the numerator of the ratio and exclude any Acquisition Debt attributable to the business acquired (either directly held by the business or incurred to acquire the business) from the denominator in the ratio calculation;

(iv)

exclude decreases in Net Income resulting directly from reorganization and restructuring programs for which amounts are publicly disclosed;

(v)

exclude increases or decreases to ROCE resulting from any extraordinary, unusual or non-recurring item as determined by the Compensation Committee in its discretion provided such item is described, at the time the performance goal is established, in a manner that is objectively determinable;

(vi)

exclude increases or decreases in Net Income resulting from any change in accounting principle (other than the change in accounting principle under ASC 606) as defined in the Accounting Standards Codification topic(s) that replaced or were formerly known as Financial Accounting Standards Board (“FASB”) Statement 154, as amended or superseded;

(vii)

exclude any loss from a discontinued operation as described in the Accounting Standards Codification topic(s) as they existed as of December 31, 2013 that replaced or were formerly known as FASB Statement 144, as amended or superseded;

(viii)

exclude the effect on ROCE of changes to net income, equity and debt as a result of any change in accounting principle as defined in the Accounting Standards Codification topic(s) that replaced or were formerly known as Accounting Principles Board Opinion No. 30, as amended or superseded;

(ix)

exclude the effect of changes in federal income tax law or regulations affecting reported results during the Measurement Period including increases or decreases in tax rates, changes in the taxability or deductibility of any item of income or expense or the addition or elimination of tax credits. A change for this purpose will be as compared to the laws and regulations in effect on January 1, [ ], without consideration of any retroactive changes in tax law after January 1, [ ];

(x)

exclude goodwill impairment charges; and

(xi)

exclude after-tax settlement accounting charges incurred that relate to the qualified defined benefit pension plan.

III. Discretionary Adjustments

[ ] Schedule – ArcBest 16b Annual Incentive Compensation Plan

Page 7 of 10

Appendix A

Operating Income Component

	[ ] Operating Income Improvement over Operating Income Baseline for [ ]	Performance Factor Earned
	Less than $ 5,800,000	0%
Threshold	$5,800,000	25%
Target	$18,000,000	100%
Maximum	$33,000,000	200%
	Greater than $ 33,000,000	200%

Operating Income Component Weighting: 50%

[ ] Schedule – ArcBest 16b Annual Incentive Compensation Plan

Page 8 of 10

Appendix B

[ ] ROCE Component

	Return on Capital Employed (“ROCE”)	Performance Factor Earned

	Less than 5%	0%
Threshold	5%	50%
Target	10%	100%
Maximum	15%	300%
	Greater than 15%	300%

ROCE Component Weighting: 50%

[ ] Schedule – ArcBest 16b Annual Incentive Compensation Plan

Page 9 of 10

Appendix C

Target Payout Factors

]
Participants/Job Title	Target Payout Factor
ArcBest Chairman, President & CEO	[ ]%
ABF Freight President ArcBest Vice President – CFO	[ ]%
ArcBest, COO, Asset-Light Logistics AB Tech President and ArcBest SVP - CINO	[ ]%
ArcBest Vice President – General Counsel & Corporate Sec. ArcBest Vice President – Chief Human Resources Officer ArcBest Vice President – Chief Sales Officer ArcBest Vice President – Chief Yield Officer ArcBest Vice President – Chief Customer Experience Officer	[ ]%
ArcBest Vice President – Controller ArcBest Vice President – Customer Solutions	[ ]%

Exhibit 10.2

ArcBest

Long-Term (3-Year) Incentive Compensation Plan

Pursuant to the ArcBest Corporation (“ArcBest” or “Company”) Executive Officer Incentive Compensation Plan, the Compensation Committee of the ArcBest Corporation Board of Directors (the “Compensation Committee”) has adopted the “Long-Term Incentive Compensation Plan” (the “Plan”) and has determined that the Plan will include the following components for the three-year period beginning 1/1/[ ] and ending 12/31/[ ]:

ROCE Component	50% weighting
Total Shareholder Return (“TSR”) Component	50% weighting

The ROCE Component weighting and TSR Component weighting are determined by the Compensation Committee for each Measurement Period.

Defined Terms

Base Salary. Base Salary for participants other than Executive Officers is defined as total base salary earned, while an eligible participant in the Plan, for the Measurement Period divided by the number of months in the Measurement Period multiplied by twelve. Base Salary is not reduced by any voluntary salary reductions or any salary reduction contributions made to any salary reduction plan, defined contribution plan or other deferred compensation plans of the Company, but does not include any payments under the Plan, any stock option or other type of equity plan, or any other bonuses, incentive pay or special awards.

Base Salary for Executive Officers. Base Salary for Executive Officers (Executive Officer for this purpose is defined as an employee who, as of the last day of the applicable Plan Year, is covered by the compensation limitations of Code Section 162(m) or the regulations issued thereunder) is defined as total base salary earned, while an eligible participant in the Plan, for the Measurement Period divided by the number of months in the Measurement Period multiplied by twelve, but in no event shall the Base Salary for an Executive Officer exceed the monthly base salary for the Executive Officer as most recently approved by the Compensation Committee as of the end of the day on which the Plan is approved for the Measurement Period, multiplied by twelve, multiplied by 200%. Base Salary is not reduced by any voluntary salary reductions or any salary reduction contributions made to any salary reduction plan, defined contribution plan or other deferred compensation plans of the Company, but does not include any payments under the Plan, any stock option or other type of equity plan, or any other bonuses, incentive pay or special awards.

Cause. Cause shall mean (i) Participant’s gross misconduct or fraud in the performance of Participant’s duties to the Company or any Subsidiary; (ii) Participant’s conviction or guilty plea or pleas of nolo contendere with respect to any felony or act of moral turpitude; (iii) Participant’s engaging in any material act of theft or material misappropriation of Company or any Subsidiary’s property, or (iv) Participant’s material breach of the Company’s Code of Conduct, as such Code may be revised from time to time.

Disability. Disability shall mean a condition under which the Participant either (A) is unable to engage in any substantial gainful activity by reason of medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, or (B) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than three months under an accident or health plan covering employees of the Company or any Subsidiary.

Good Reason. Good Reason shall mean (i) any material adverse diminution in Participant’s title, duties, or responsibilities; (ii) any reduction in Participant’s base salary or employee benefits (including reducing Participant’s level of participation or bonus award opportunity in the Company’s or a Subsidiary’s incentive compensation plans) or (iii) a relocation of Participant’s principal place of employment by more than 50 miles without the prior consent of Participant.

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

Measurement Period. The Measurement Period is 1/1/[ ] to 12/31/[ ].

Qualified Termination. Qualified Termination shall mean, within 24 full calendar months after a Change in Control, as defined in the Executive Officer Incentive Compensation Plan, a participant’s Separation from Service by the Company (or an Affiliate of the Company) without Cause (and not as a result of the Participant’s death or Disability), or by the Participant for Good Reason.

Retirement. Retirement shall mean Participant’s retirement from active employment at or after age 65 or retirement from the Company or Subsidiary at or after age 55, so long as the Participant has, as of the date of such retirement, at least 10 years of service with the Company or any Subsidiary.

II. Participants

Participants in the Plan (who are not active participants in ArcBest or a Subsidiary’s Supplemental Benefit Plan or Deferred Salary Agreement program or who selected Option 1 for their 12/31/2009 SBP Freeze election) are listed in Appendix C and certain employees may be specifically included or excluded by the Compensation Committee. For purposes of Appendix C, the term “ArcBest’ refers to both ArcBest Corporation and ArcBest II, Inc.

An employee may not become a Participant after the end of the 12 th month of the Measurement Period.

If an Eligible Participant in the Plan also participates in the ArcBest Corporation 2012 Change in Control Plan, the terms of the ArcBest Corporation 2012 Change in Control Plan shall govern.

III. Corporate Performance Metrics

ROCE Component: The Individual Award Opportunities provided by the ROCE Component are based on (a) achieving certain levels of performance for ArcBest’s consolidated Return on Capital Employed (“ROCE”) and (b) your Target Payout Factor. The formula below illustrates how your incentive is computed:

Your Incentive Payment = [Performance Factor Earned x Your Target Payout Factor x Your Base Salary x the ROCE Component Weighting].

If your job position changes during the Measurement Period, your Incentive Payment will be prorated based on the Base Salary you receive while you are in an eligible Job Position listed in the Plan, the applicable Performance Factor Earned and Your Target Payout Factor. If you die, are Disabled or Retire as provided for under Section IV of the ROCE Component, your Incentive Payment will be prorated based on the Base Salary you receive from the beginning of the Measurement Period until the applicable date of death, Disability or retirement date.

A. Performance Factor Earned. Performance Factor Earned is shown in Appendix A and depends on the ROCE achieved by ArcBest for the Measurement Period.

B. Target Payout Factor. Your Target Payout Factor is a percentage of your Base Salary. The Target Payout Factors are listed in Appendix C.

TSR Component: The Individual Award Opportunities provided by the TSR Component are based on (a) the percentile rank of the Company’s Compounded Annual Growth Rate (“CAGR”) of Total Shareholder Return relative to the Peer Companies over the Measurement Period and (b) your Target Payout Factor. At the end of the Measurement Period, the percentile rank of the Company’s CAGR Total Shareholder Return will be calculated. Any Peer Company that is no longer publicly traded shall be excluded from this calculation. The formula below illustrates how this portion of your incentive is computed:

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

Your Incentive Payment = [Performance Factor Earned x Your Target Payout Factor x Your Base Salary x TSR Component Weighting].

If your job position changes during the Measurement Period, your Incentive Payment will be prorated based on the Base Salary you receive while you are in an eligible Job Position listed in the Plan, the applicable Performance Factor Earned and Your Target Payout Factor. If you die, are Disabled or Retire as provided for under Section IV of the TSR Component, your Incentive Payment will be prorated based on the Base Salary you receive from the beginning of the Measurement Period until your date of death, Disability or retirement date.

A. Performance Factor Earned. The Performance Factor Earned is shown in Appendix B and depends on the Company’s Compounded Annual Growth Rate of Total Shareholder Return over the Measurement Period as compared to the Peer Companies.

B. Target Payout Factor. Your Target Payout Factor is a percentage of your Base Salary. The percentage varies for each level of management within the Company. The Target Payout Factors are listed in Appendix C.

If the performance result falls between two rows on Appendix A or Appendix B, interpolation is used to determine the factor used in the computation of the incentive.

The Compensation Committee has established maximum incentive amounts based on a maximum Performance Factor Earned of 200% for the TSR Component and 300% for the ROCE Component subject to the applicable weighting for each component as provided in Appendix A and Appendix B.

The terms of the Long-Term Incentive Compensation Plan – ROCE Component and the Long-Term Incentive Compensation Plan – TSR Component are incorporated into the Plan.

IV. Payment of Award

Payment will be made as soon as practicable following the end of the Measurement Period, and in any event, no later than 2 ½ months after the end of the Measurement Period.

V. Executive Officer Incentive Compensation Plan

Defined terms in this Plan shall have the same meaning as in the Executive Officer Incentive Compensation Plan, except where the context otherwise requires.

No term or provision in this Plan may conflict with any term or provision of the Executive Officer Incentive Compensation Plan. It is specifically intended that the Plan, ROCE Component and TSR Component be an “Award Agreement” and the incentives paid hereunder be an “Award” under the terms of the Executive Officer Incentive Compensation Plan .

VI. Discretionary Adjustments

VI. Effect of Termination of Employment; Change in Control

(a)

General . Except as provided in subparts (b) or (c), upon a termination of Participant’s employment with the Company or any Subsidiary for any reason prior to the completion of the Measurement Period, the Participant shall not be entitled to any Incentive Payment under the Plan.

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

(b)

Death; Disability; Retirement . Upon termination of Participant’s employment with the Company or any Subsidiary by reason of Participant’s death, Disability or Retirement (as defined in the Plan), Participant’s Incentive Payment shall be prorated based on the period of participation in the Plan, provided that Participant’s Incentive Payment shall be computed and paid in the normal course of business after the end of the Measurement Period. Provided, however, an employee must have completed at least 12 months of the Measurement Period to be entitled to an Incentive Payment under this Section IV(b).

(c)

Change in Control . Upon the occurrence of a Qualified Termination following a Change in Control, Participant shall be entitled to immediate payment of the greater of the following:

(A) The amount computed under the Plan based on 100% of the Participant’s “Target Payout Factor” in Appendix C using the date of the Change in Control as the end of the Measurement Period, or

(B) The amount computed under the Plan based on the actual percentage of Performance Factor Earned in Appendix A and Appendix B, calculated as if the Measurement Period ended on the date of the Change in Control and using the Company share price as of the date of the Change in Control to calculate TSR rather than the 60-day average price for the ending of the Measurement Period.

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

LTIP - ROCE Component

The Compensation Committee of the ArcBest Corporation Board of Directors has adopted this ROCE Component of the Plan (“ROCE Component”), including the following Individual Award Opportunities, Performance Measures and Participants for ArcBest Corporation and its subsidiaries for the three-year period beginning 1/1/[ ] and ending 12/31/[ ].

I. Performance Measure

ROCE for ArcBest is calculated as the following ratio for the Measurement Period:

Net Income + After-tax Effect of Interest Expense + After-tax Effect of Imputed Interest Expense + After-tax Effect of Amortization of intangibles – After-tax Effect of Income from Cash and Short-term Investments Attributable to the reduction in Avg. Debt

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________-________________

Average Equity + Average Debt + Average Imputed Debt

Divided by 3

“Net Income” for the ROCE calculation is consolidated net income for the Measurement Period determined in accordance with Generally Accepted Accounting Principles after taking into account the Section II Required Adjustments except that a combined federal and state income tax rate of 38% will be used in all cases in the determination of ROCE.

“Interest Expense” for the ROCE calculation is (i) interest on all long and short-term indebtedness and other interest bearing obligations and (ii) deferred financing cost amortization and other financing costs, including letters of credit fees for the Measurement Period, reduced by the amount of interest expense on debt not included in Average Debt as defined below.

“Imputed Interest Expense” consists of the interest attributable to Average Imputed Debt assuming an interest rate of 7.5% for the Measurement Period.

“Average Equity” is the average of the beginning of the Measurement Period and the end of the Measurement Period stockholder’s equity.

“Average Debt” is the average of the beginning of the Measurement Period and the end of the Measurement Period current and long-term debt, with beginning of the Measurement Period and end of the Measurement Period current and long-term debt reduced by the respective amount of the beginning of the Measurement Period and end of the Measurement Period total of unrestricted cash, cash equivalents and short-term investments, and limited to a reduction of debt to zero.

“Average Imputed Debt” consists of the average of the beginning of the Measurement Period and the end of the Measurement Period present value of all payments determined using an interest rate of 7.5% on operating leases of revenue equipment with an initial term of more than two years.

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

II. Required Adjustments

The following adjustments shall be made when calculating ROCE:

(i)

add back the after-tax total long-term incentive compensation accruals during the Measurement Period for any Long-term Incentive Compensation Plan for nonunion employees of ArcBest and any of its Subsidiaries when determining Net Income;

(ii)

add back after-tax direct third party expenses associated with an acquisition by ArcBest or any of its Subsidiaries, to the extent the items were added back under the [ ], [ ] and [ ] ArcBest and any of its Subsidiaries Annual Incentive Compensation Plans;

(iii)

exclude the operating results (all revenue and expenses) for any business acquired between the beginning of the Measurement Period and the end of the Measurement Period from the calculation of Net Income in the numerator of the ratio for the period from the acquisition date to the next December 31 (operating results of acquired businesses are included thereafter) and exclude any Acquisition Debt attributable to the business acquired (either directly held by the business or incurred to acquire the business) included in the denominator based on the weighted average of the Acquisition Debt for the period for which operating results are excluded from the numerator.

(iv)

exclude decreases in Net Income resulting directly from reorganization and restructuring programs for which amounts are publicly disclosed;

(v)

exclude increases or decreases to ROCE resulting from an extraordinary, unusual or non-recurring item as determined by the Compensation Committee in its discretion provided such item is described, at the time the performance goal is established, in a manner that is objectively determinable;

(vi)

(vii)

(viii)

(ix)

(x)

exclude goodwill impairment charges; and

(xi)

exclude after-tax settlement accounting charges incurred that relate to the qualified defined benefit pension plan.

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

LTIP - TSR Component

The Compensation Committee of the ArcBest Corporation Board of Directors has adopted this Total Shareholder Return Component of the Total Plan (“TSR Component”), including the following Individual Award Opportunities, Performance Measures, and Participants for ArcBest Corporation and its subsidiaries for the three-year period beginning 1/1/[ ] and ending 12/31/[ ].

I. Performance Measure

Total Shareholder Return. (“TSR”). Total Shareholder Return with respect to the Company and each Peer Company equals the annualized rate of return reflecting price appreciation between the beginning 60-day average share price (ending December 31 of the year immediately prior to the beginning of the Measurement Period) and the ending 60-day average share price (ending December 31 of the final year of the Measurement Period), adjusted for dividends paid and the compounding effect of dividends paid on reinvested dividends (the calculation assumes that all dividends paid are reinvested). Any Peer Company that is no longer publicly traded shall be excluded from this calculation.

Compounded Annual Growth Rate (“CAGR”). Compounded Annual Growth Rate converts the total return into a value that indicates what the return was on an annual basis for the 3-year period.

Peer Companies. The Peer Companies are the following publicly traded companies:

Company Name	Ticker
Echo Global Logistics, Inc.	ECHO
Forward Air Corporation	FWRD
Hub Group, Inc.	HUBG
JB Hunt Transport Services, Inc.	JBHT
Knight-Swift Transportation Holdings, Inc.	KNX
Landstar System, Inc.	LSTR
Old Dominion Freight Line, Inc.	ODFL
Roadrunner Transportation Systems, Inc.	RRTS
Saia, Inc.	SAIA
Werner Enterprises, Inc.	WERN
XPO Logistics, Inc.	XPO
YRC Worldwide Inc.	YRCW

II. Adjustments

In the event that there is any change in the common stock of the Company or the Peer Companies as the result of any stock dividend on, dividend of or stock split or stock combination of, or any like change in, stock of the same class or in the event of any change in the capital structure of the Company or the Peer Companies all share amounts and the TSR calculation will be adjusted appropriately.

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

Appendix A

[ ]-[ ] LTIP – ROCE Component

	Three-Year Average Return on Capital Employed (“ROCE”)	Performance Factor Earned
	Less than 5%	0%
Threshold	5%	50%
Target	10%	100%
Maximum	15%	300%
	Greater than 15%	300%

ROCE Component Weighting : 50%

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

Appendix B

[ ]-[ ] LTIP – TSR Component

	Percentile ranking of the Company’s Compounded Annual Growth Rate TSR relative to Peer Companies over the Measurement Period	Performance Factor Earned
	Below 25 th Percentile	0%
Threshold	25 th Percentile	25%
Target	50 th Percentile	100%
Maximum	75 th Percentile	200%
	Above 75 th Percentile	200%

TSR Component Weighting : 50%

ArcBest Corporation.

[ ] Long-Term Incentive Compensation Plan

Appendix C

LTIP Target Payout Factors

]
Participants/Job Title	Target Payout Factor
ArcBest – Chairman, President & CEO	[ ]%
ABF – President	[ ]%
ArcBest VP – CFO	[ ]%
ArcBest, COO, Asset-Light Logistics	[ ]%
AB Tech – President and ArcBest SVP – CINO	[ ]%
ABF SVP – Operations ArcBest VP – General Counsel & Corporate Secretary ArcBest VP – Chief Yield Officer ArcBest VP – Chief Customer Experience Officer ArcBest VP – Chief Human Resources Officer ArcBest VP – Chief Sales Officer	[ ]%
ArcBest VP – Controller ArcBest VP – Customer Solutions ArcBest VP – Financial Services and Risk Mgmt ArcBest VP – Talent and Growth Initiatives AB Tech VP – Business Insight & Analytics AB Tech VP – Chief Technology Officer AB Tech VP – Technology R&D AB Tech VP – CIO ABF Freight VP – Employee Relations ABF Freight VP – Terminal Operations ABF Freight VP – Maintenance ArcBest VP – Yield Management	[ ]%
ArcBest VP – Internal Audit ArcBest VP – Sales – East ArcBest VP – Sales – West ArcBest VP – People Services ABF Freight VP – Pricing, Treasurer & Controller	[ ]%
ArcBest EVP – Asset-Light Expedited Services & Capacity ArcBest VP – Strat. Cap. & Carr. Exp. ArcBest VP – Sales - Expedite ArcBest VP – Sales – Verticals ArcBest VP – Controller, Asset-Light Logistics ArcBest VP – Treasurer ArcBest VP – Customer Experience FleetNet – President	[ ]%
ABT – VP Change Management	[ ]%

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 Quarterly Report on Form 10-Q 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 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: May 10, 2018	/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, David R. Cobb, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ArcBest Corporation;

(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: May 10, 2018	/s/ David R. Cobb
	David R. Cobb
	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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, (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: May 10, 2018	/s/ Judy R. McReynolds
	Judy R. McReynolds
	Chairman, President and Chief Executive Officer
	and Principal Executive Officer


	ARCBEST CORPORATION
	(Registrant)

Date: May 10, 2018	/s/ David R. Cobb
	David R. Cobb
	Vice President — Chief Financial Officer
	and Principal Financial Officer