ARCBEST CORP /DE/ (Form: 10-Q, Received: 11/08/2018 15:27:22)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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


	Large accelerated filer ☐		Accelerated filer ☒
	Non-accelerated filer ☐		Smaller reporting company ☐
	Emerging growth company ☐

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

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

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


Class		Outstanding at October 31, 2018
Common Stock, $0.01 par value		25,690,118 shares

Table of Contents

ARCBEST CORPORATION

IN DEX


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets — September 30, 2018 and December 31, 2017	3

	Consolidated Statements of Operations — For the Three Months and Nine Months Ended September 30, 2018 and 2017	4

	Consolidated Statements of Comprehensive Income — For the Three Months and Nine Months Ended September 30, 2018 and 2017	5

	Consolidated Statement of Stockholders’ Equity — For the Nine Months Ended September 30, 2018	6

	Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2018 and 2017	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 4.	Controls and Procedures	59

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 3.	Defaults Upon Senior Securities	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	61

SIGNATURES		62

Table of Contents

PART I .

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEET S


	September 30		December 31
	2018		2017
	(Unaudited)
	(in thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	177,436	$	120,772
Short-term investments		75,879		56,401
Accounts receivable, less allowances (2018 – $7,475; 2017 – $7,657)		323,212		279,074
Other accounts receivable, less allowances (2018 – $975; 2017 – $921)		17,992		19,491
Prepaid expenses		21,291		22,183
Prepaid and refundable income taxes		6,726		12,296
Other		9,038		12,132
TOTAL CURRENT ASSETS		631,574		522,349
PROPERTY, PLANT AND EQUIPMENT
Land and structures		338,046		344,224
Revenue equipment		857,846		793,523
Service, office, and other equipment		192,241		179,950
Software		133,816		129,589
Leasehold improvements		9,177		8,888
		1,531,126		1,456,174
Less allowances for depreciation and amortization		904,180		865,010
PROPERTY, PLANT AND EQUIPMENT, net		626,946		591,164
GOODWILL		108,320		108,320
INTANGIBLE ASSETS, net		70,075		73,469
DEFERRED INCOME TAXES		5,967		5,965
OTHER LONG-TERM ASSETS		74,800		64,374
TOTAL ASSETS	$	1,517,682	$	1,365,641

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	154,484	$	129,099
Income taxes payable		138		324
Accrued expenses		233,076		210,484
Current portion of long-term debt		54,556		61,930
Current portion of pension and postretirement liabilities		12,640		753
TOTAL CURRENT LIABILITIES		454,894		402,590
LONG-TERM DEBT, less current portion		235,970		206,989
PENSION AND POSTRETIREMENT LIABILITIES, less current portion		27,614		39,827
OTHER LONG-TERM LIABILITIES		40,372		15,616
DEFERRED INCOME TAXES		53,741		49,157
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2018: 28,547,578 shares; 2017: 28,495,628 shares		285		285
Additional paid-in capital		325,533		319,436
Retained earnings		488,158		438,379
Treasury stock, at cost, 2018: 2,857,460 shares; 2017: 2,851,578 shares		(86,265)		(86,064)
Accumulated other comprehensive loss		(22,620)		(20,574)
TOTAL STOCKHOLDERS’ EQUITY		705,091		651,462
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,517,682	$	1,365,641

See notes to consolidated financial statements.

Table of Contents

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATION S


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(Unaudited)
	(in thousands, except share and per share data)
REVENUES	$	826,158	$	744,280	$	2,319,509	$	2,115,736

OPERATING EXPENSES		770,103		717,538		2,247,573		2,073,127

OPERATING INCOME		56,055		26,742		71,936		42,609

OTHER INCOME (COSTS)
Interest and dividend income		1,120		346		2,360		905
Interest and other related financing costs		(2,470)		(1,706)		(6,542)		(4,410)
Other, net		(714)		(1,314)		(4,038)		(3,548)
		(2,064)		(2,674)		(8,220)		(7,053)

INCOME BEFORE INCOME TAXES		53,991		24,068		63,716		35,556

INCOME TAX PROVISION		13,215		9,280		11,753		12,398

NET INCOME	$	40,776	$	14,788	$	51,963	$	23,158

EARNINGS PER COMMON SHARE
Basic	$	1.58	$	0.57	$	2.02	$	0.90
Diluted	$	1.52	$	0.56	$	1.94	$	0.87

AVERAGE COMMON SHARES OUTSTANDING
Basic		25,697,509		25,671,535		25,670,435		25,699,306
Diluted		26,795,659		26,393,359		26,708,259		26,373,382

CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.08	$	0.08	$	0.24	$	0.24

See notes to consolidated financial statements .

Table of Contents

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOM E


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(Unaudited)
	(in thousands)
NET INCOME	$	40,776	$	14,788	$	51,963	$	23,158

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

Pension and other postretirement benefit plans:
Net actuarial loss, net of tax of: (2018 – Three-month period $2,038, Nine-month period $689; 2017 – Three-month period $1,011, Nine-month period $2,010)		(5,877)		(1,589)		(1,987)		(3,158)
Pension settlement expense, net of tax of: (2018 – Three-month period $134, Nine-month period $413; 2017 – Three-month period $366, Nine-month period $1,417)		384		577		1,190		2,227
Amortization of unrecognized net periodic benefit costs, net of tax of: (2018 – Three-month period $146, Nine-month period $536; 2017 – Three-month period $331, Nine-month period $1,084)
Net actuarial loss		438		547		1,598		1,788
Prior service credit		(17)		(29)		(52)		(87)

Interest rate swap and foreign currency translation:
Change in unrealized income on interest rate swap, net of tax of: (2018 – Three-month period $59, Nine-month period $334; 2017 – Three-month period $16, Nine-month period $156)		167		25		946		241
Change in foreign currency translation, net of tax of: (2018 – Three-month period $45 Nine month-period $58; 2017 – Three-month period $190, Nine-month period $132)		127		294		(165)		205

OTHER COMPREHENSIVE INCOME (LOSS), net of tax		(4,778)		(175)		1,530		1,216

TOTAL COMPREHENSIVE INCOME	$	35,998	$	14,613	$	53,493	$	24,374

See notes to consolidated financial statements.

Table of Contents

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							51,963							51,963
Other comprehensive income, net of tax												1,530		1,530
Issuance of common stock under share-based compensation plans	52		—		—									—
Tax effect of share-based compensation plans					(88)									(88)
Share-based compensation expense					6,185									6,185
Purchase of treasury stock								5		(201)				(201)
Dividends declared on common stock							(6,176)							(6,176)
Balance at September 30, 2018	28,548	$	285	$	325,533	$	488,158	2,857	$	(86,265)	$	(22,620)	$	705,091

See notes to consolidated financial statements .

Table of Contents

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW S


	Nine Months Ended
	September 30
	2018		2017
	(Unaudited)
	(in thousands)
OPERATING ACTIVITIES
Net income	$	51,963	$	23,158
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		78,305		73,417
Amortization of intangibles		3,394		3,404
Pension settlement expense		1,603		3,644
Share-based compensation expense		6,185		5,070
Provision for losses on accounts receivable		1,937		705
Deferred income tax benefit		3,697		5,846
Gain on sale of property and equipment		(188)		(257)
Gain on sale of subsidiaries		(1,945)		(152)
Changes in operating assets and liabilities:
Receivables		(47,287)		(35,590)
Prepaid expenses		1,013		(37)
Other assets		(4,826)		(5,932)
Income taxes		5,675		5,180
Multiemployer pension fund withdrawal liability		22,744		—
Accounts payable, accrued expenses, and other liabilities		51,309		17,915
NET CASH PROVIDED BY OPERATING ACTIVITIES		173,579		96,371

INVESTING ACTIVITIES
Purchases of property, plant and equipment, net of financings		(39,249)		(44,377)
Proceeds from sale of property and equipment		2,917		3,585
Proceeds from sale of subsidiaries		4,680		1,970
Purchases of short-term investments		(67,121)		(50,274)
Proceeds from sale of short-term investments		47,878		49,980
Capitalization of internally developed software		(7,411)		(7,225)
NET CASH USED IN INVESTING ACTIVITIES		(58,306)		(46,341)

FINANCING ACTIVITIES
Borrowings under accounts receivable securitization program		—		10,000
Payments on long-term debt		(49,967)		(52,262)
Net change in book overdrafts		(1,975)		2,289
Deferred financing costs		(202)		(959)
Payment of common stock dividends		(6,176)		(6,207)
Purchases of treasury stock		(201)		(6,019)
Payments for tax withheld on share-based compensation		(88)		(3,080)
NET CASH USED IN FINANCING ACTIVITIES		(58,609)		(56,238)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		56,664		(6,208)
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	$	177,436	$	109,034

NONCASH INVESTING ACTIVITIES
Equipment financed	$	71,575	$	61,607
Accruals for equipment received	$	438	$	851

See notes to consolidated financial statements .

Table of Contents

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 69% of the Company’s total revenues before other revenues and intercompany eliminations for the nine months ended September 30, 2018. As of September 2018, approximately 83% of the Asset-Based segment’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “2018 ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”), which was ratified on May 10, 2018 by a majority of ABF’s IBT member employees who chose to vote. A majority of the supplements to the 2018 ABF NMFA also passed. Following ratification of the remaining supplements, the 2018 ABF NMFA was implemented on July 29, 2018, effective retroactive to April 1, 2018, and will remain in effect through June 30, 2023.

The major economic provisions of the 2018 ABF NMFA include restoration of one week of vacation which begins accruing on anniversary dates on or after April 1, 2018, with the new vacation eligibility schedule being the same as the applicable 2008 to 2013 supplemental agreements; wage rate increases in each year of the contract, beginning July 1, 2018; ratification bonuses for qualifying employees; profit-sharing bonuses upon the Asset-Based segment’s achievement of certain annual operating ratios for any full calendar year under the contract; and changes to purchased transportation provisions with certain protections for road drivers as specified in the contract. The 2018 ABF NMFA and the related supplemental agreements provide for contributions to multiemployer pension plans frozen at the current rates for each fund, continuation of existing health coverage, and annual contribution rate increases to multiemployer health and welfare plans maintained for the benefit of ABF's employees who are members of the IBT. Under the 2018 ABF NMFA, the contractual wage and benefits costs, including the ratification bonuses and vacation restoration, are estimated to increase approximately 2.0% on a compounded annual basis through the end of the agreement.

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.

Reclassifications have been made to the prior period operating segment expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses and the presentation of components of net periodic benefit cost in other income (costs) in our consolidated financial statements in accordance with the amendment to ASC Topic 715, Compensation – Retirement Benefits , which was effective for the Company on January 1, 2018 (see the Adopted Accounting Pronouncements section within this Note). There was no change to consolidated net income or earnings per share as a result of the change in presentation under the new standard.

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.

Table of Contents

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 nine months ended September 30, 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 consist primarily of less-than-truckload freight delivery. Performance obligations are satisfied upon final delivery of the freight to the specified destination. Revenue is recognized based on the relative transit time in each reporting period with expenses recognized as incurred. A bill-by-bill analysis is used to establish estimates of revenue in transit for recognition in the appropriate period. Because the bill-by-bill methodology utilizes the approximate location of the shipment in the delivery process to determine the revenue to recognize, management believes it to be a reliable method.

Certain contracts may provide for volume-based or other discounts which are accounted for as variable consideration. The Company estimates these amounts based on a historical expectation of discounts to be earned by customers, and revenue is recognized based on the estimates. 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 utilizes a third-party carrier for pickup and delivery but remains primarily responsible to the customer for delivery and maintains discretion in setting the price for the service.

FleetNet Segment

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

Table of Contents

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 $0.8 million and $0.6 million at September 30, 2018 and December 31, 2017, respectively, and are recorded in accrued expenses in the consolidated balance sheets.

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 revenues for the three and nine months ended September 30, 2018 was an increase of $0.6 million and $1.4 million, respectively, and the impact to purchased transportation expense was an increase of $0.6 million and $1.1 million, respectively, 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.

Table of Contents

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 was 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, the SBP, and the 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 and $5.8 million was reclassified from operating expenses to other income (costs) for the three and nine months ended September 30, 2017, respectively. There was no change to consolidated net income or earnings per share as a result of the change in presentation under the new standard.

In February 2018, the Financial Accounting Standards Board (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 nine months ended September 30, 2018.

Accounting Pronouncements Not Yet Adopted

The U.S. Securities and Exchange Commission issued Final Rule 33-10532, Disclosure Update and Simplification , in August 2018. The Company will apply the disclosure requirements of the final rule in its 2018 Annual Report on Form 10‑K and will modify its consolidated statement of stockholders’ equity for interim periods, beginning with its first quarter 2019 Quarterly Form on 10-Q, to include changes in stockholders’ equity for each current and comparative quarterly period presented. The final rule is not expected to have a significant impact on the presentation of the Company’s consolidated financial statements and disclosures.

ASC Subtopic 715-20, Compensation – Retirement Benefits – Defined Benefit Plans , was amended to eliminate certain disclosure requirements related to defined benefit plans. The changes are not expected to have a significant impact on the Company’s financial statement disclosures. The Company plans to early adopt these amendments in its Annual Report on Form 10-K for the year ended December 31, 2018.

Table of Contents

ASC Topic 842, Leases , (“ASC Topic 842”) which is effective for the Company beginning January 1, 2019, requires lessees to recognize right-of-use assets and lease liabilities for operating leases with terms greater than 12 months. The standard also requires additional qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the FASB issued an amendment to ASC Topic 842 which provides an optional transition method that will give companies the option to use the effective date as the date of initial application upon transition. The Company plans to elect this transition method and, as a result, will not adjust comparative period financial information or make the new required lease disclosures for periods before the effective date. The Company has established an implementation team which is in the process of implementing the new accounting standard, including accumulating necessary information, assessing the current lease portfolio, and implementing software to meet the new reporting requirements. The Company is also evaluating current processes and controls and identifying necessary changes to support the adoption of the new standard. The Company anticipates it will exclude short-term leases from accounting under ASC Topic 842 and plans to elect the package of practical expedients upon transition that will retain lease classification and other accounting conclusions made in the assessment of existing lease contracts. Management expects the new standard to have a material impact on the Company’s consolidated balance sheets related to the addition of the right-of-use asset and associated lease liabilities; however, the impact on the consolidated statements of operations is expected to be minimal, if any. As the impact of this standard is non-cash in nature, no impact is expected on the Company’s 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.

ASC Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement , (“ASC 350-40”) was amended by the FASB in August 2018 and is effective for the Company beginning January 1, 2020. The amendments to ASC 350-40 clarify the accounting treatment for implementation costs incurred by the customer in a cloud computing software arrangement. The amendments allow implementation costs of cloud computing arrangements to be capitalized using the same method prescribed by Subtopic 350-40, Internal-Use Software . The amendments to ASC 350-40 are not expected to have a significant impact on the Company’s consolidated financial statements. The Company plans to early adopt the amendments effective January 1, 2019.

ASC Topic 820, Fair Value Measurement , was amended to modify the disclosure requirements of fair value measurements, primarily impacting the disclosures for Level 3 fair value measurements. The amendment is effective for the Company beginning January 1, 2020 and is not expected to have a significant impact on the Company’s financial statement disclosures.

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

Table of Contents

NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial Instruments

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


	September 30		December 31
	2018		2017
	(in thousands)
Cash and cash equivalents
Cash deposits (1)	$	126,607	$	86,510
Variable rate demand notes (1)(2)		17,980		19,744
Money market funds (3)		32,849		14,518
Total cash and cash equivalents	$	177,436	$	120,772

Short-term investments
Certificates of deposit (1)	$	75,879	$	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 September 30, 2018 and December 31, 2017, cash and cash equivalents totaling $85.2 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.

Table of Contents

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


	September 30				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)		175,206		173,309		153,441		152,131
	$	290,206	$	288,309	$	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).

Table of Contents

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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


	September 30, 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)	$	32,849	$	32,849	$	—	$	—
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan (2)		2,628		2,628		—		—
Interest rate swaps (3)		1,761		—		1,761		—
	$	37,238	$	35,477	$	1,761	$	—
Liabilities:
Contingent consideration (4)	$	4,472	$	—	$	—	$	4,472


	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 September 30, 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. At September 30, 2018, the fair value of the contingent consideration for an earn-out agreement related to the September 2016 acquisition of LDS was based on calculations performed for the earn-out period which ended August 31, 2018. Prior to September 30, 2018, the estimated fair value of contingent consideration was determined by assessing Level 3 inputs with a discounted cash flow approach using various probability-weighted scenarios. As of December 31, 2017, the Level 3 assessments utilized 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 of 12.5%. Subsequent changes to the fair value as a result of recurring assessments were recognized in operating income.

Table of Contents

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		1,030
Balances at September 30, 2018	$	4,472

⁽¹⁾

Payments released from escrow account that is reported in other current assets in the consolidated balance sheets.

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 September 30, 2018 and December 31, 2017.

Intangible assets consisted of the following:


		September 30, 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	$	23,034	$	37,397	$	60,431	$	19,745	$	40,686
Driver network	3		3,200		3,200		—		3,200		3,200		—
Other	9		1,032		654		378		1,032		549		483
	13		64,663		26,888		37,775		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	$	26,888	$	70,075	$	96,963	$	23,494	$	73,469

The future amortization for intangible assets and acquired software as of September 30, 2018 were as follows:


			Intangible		Acquired
	Total		Assets		Software (1)
	(in thousands)
2018	$	1,658	$	1,128	$	530
2019		5,463		4,482		981
2020		4,471		4,454		17
2021		4,418		4,412		6
2022		4,385		4,385		—
Thereafter		18,914		18,914		—
Total amortization	$	39,309	$	37,775	$	1,534

⁽¹⁾

Acquired software is reported in property, plant and equipment.

Table of Contents

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 $0.8 million and $3.5 million was recognized in the three and nine months ended September 30, 2018, respectively. The additional reductions relate 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 rate was 24.5% and 18.4% for the three and nine months ended September 30, 2018, respectively, compared to an effective tax rate of 38.6% and 34.9% for the three and nine months ended September 30, 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 three and nine months ended September 30, 2018, a 32.74% blended federal statutory rate was applied to the two months ended February 28, 2018, and a 21.0% federal statutory rate was applied to the months of March 2018 through September 2018.

For the nine months ended September 30, 2018, the difference between the Company’s effective tax rate and the federal statutory rate primarily results from the $3.5 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 and nine months ended September 30, 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, the tax benefit from the vesting of stock awards, and changes in the cash surrender value of life insurance.

As of September 30, 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 September 30, 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 $0.9 million and $0.8 million at September 30, 2018 and December 31, 2017, respectively.

The Company had reserves for uncertain tax positions of $1.0 million and less than $0.1 million at September 30, 2018 and December 31, 2017, respectively.

The Company paid state and foreign income taxes of $3.6 million and $1.2 million during the nine months ended September 30, 2018 and 2017, respectively. During the nine months ended September 30, 2018 and 2017, the Company received refunds of $1.1 million and $0.2 million, respectively, of federal and state income taxes that were paid in prior years.

Table of Contents

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:


	September 30		December 31
	2018		2017
	(in thousands)
Credit Facility (interest rate of 3.5% (1) at September 30, 2018)	$	70,000	$	70,000
Accounts receivable securitization borrowings (interest rate of 3.0% at September 30, 2018)		45,000		45,000
Notes payable (weighted-average interest rate of 3.3% at September 30, 2018)		175,206		153,441
Capital lease obligations (weighted-average interest rate of 5.6% at September 30, 2018)		320		478
		290,526		268,919
Less current portion		54,556		61,930
Long-term debt, less current portion	$	235,970	$	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 3.10% based on the margin of the Credit Facility as of September 30, 2018.

Scheduled maturities of long-term debt obligations as of September 30, 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	$	63,922	$	2,752	$	1,609	$	59,323	$	238
Due after one year through two years		45,366		3,041		1,794		40,446		85
Due after two years through three years		43,085		3,030		1,789		38,259		7
Due after three years through four years		149,390		72,292		45,151		31,944		3
Due after four years through five years		16,257		—		—		16,257		—
Due after five years		1,771		—		—		1,771		—
Total payments		319,791		81,115		50,343		188,000		333
Less amounts representing interest		29,265		11,115		5,343		12,794		13
Long-term debt	$	290,526	$	70,000	$	45,000	$	175,206	$	320

⁽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.

Table of Contents

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


	September 30		December 31
	2018		2017
	(in thousands)
Revenue equipment	$	276,268	$	269,950
Land and structures (service centers)		1,794		1,794
Software		486		486
Service, office, and other equipment		5,941		100
Total assets securing notes payable or held under capital leases		284,489		272,330
Less accumulated depreciation and amortization (1)		87,868		87,691
Net assets securing notes payable or held under capital leases	$	196,621	$	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 September 30, 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 September 30, 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 3.10% based on the margin of the Credit Facility as of September 30, 2018. The fair value of the interest rate swap of $0.5 million and $0.1 million was recorded in other long-term assets in the consolidated balance sheet at September 30, 2018 and December 31, 2017, respectively.

Table of Contents

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 3.24% based on the margin of the Credit Facility as of September 30, 2018. The fair value of the interest rate swap of $1.2 million and $0.4 million was recorded in other long-term assets in the consolidated balance sheet at September 30, 2018 and December 31, 2017, respectively.

The unrealized gain on the interest rate swap instruments was reported as a component of accumulated other comprehensive loss, net of tax, in stockholders’ equity at September 30, 2018 and December 31, 2017, and the change in the unrealized income on the interest rate swaps for the three months ended September 30, 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 September 30, 2018.

Accounts Receivable Securitization Program

The Company’s accounts receivable securitization program was amended and extended in August 2018 to modify certain covenants and conditions and extend the maturity date of the program to October 1, 2021. The program 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 September 30, 2018, $45.0 million was borrowed under the program. The Company was in compliance with the covenants under the accounts receivable securitization program at September 30, 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 September 30, 2018, standby letters of credit of $17.6 million have been issued under the program, which reduced the available borrowing capacity to $62.4 million.

In October 2018, the Company repaid $5.0 million of its borrowed amount under the accounts receivable securitization program.

Letter of Credit Agreements and Surety Bond Programs

As of September 30, 2018, the Company had letters of credit outstanding of $18.2 million (including $17.6 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 September 30, 2018, surety bonds outstanding related to the self-insurance program totaled $49.4 million.

Notes Payable and Capital Leases

The Company has financed the purchase of certain revenue equipment, other equipment, and software through promissory note arrangements, including $57.2 million and $71.6 million for revenue equipment, other equipment, and software during the three and nine months ended September 30, 2018, respectively.

Subsequent to September 30, 2018, the Company financed the purchase of $16.7 million of revenue equipment through promissory note arrangements as of November 1, 2018.

Table of Contents

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 September 30
	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		1,136		1,073		27		26		209		265
Expected return on plan assets		(363)		(763)		—		—		—		—
Amortization of prior service credit		—		—		—		—		(23)		(47)
Pension settlement expense		518		943		—		—		—		—
Amortization of net actuarial loss (1)		494		703		20		20		76		173
Net periodic benefit cost	$	1,785	$	1,956	$	47	$	46	$	354	$	513


	Nine Months Ended September 30
	Nonunion Defined				Supplemental				Postretirement
	Benefit Pension Plan				Benefit Plan				Health Benefit Plan
	2018		2017		2018		2017		2018		2017
	(in thousands)
Service cost	$	—	$	—	$	—	$	—	$	275	$	366
Interest cost		3,259		3,462		81		77		628		795
Expected return on plan assets		(1,142)		(4,984)		—		—		—		—
Amortization of prior service credit		—		—		—		—		(70)		(142)
Pension settlement expense		1,603		3,644		—		—		—		—
Amortization of net actuarial loss (1)		1,864		2,346		60		61		228		520
Net periodic benefit cost	$	5,584	$	4,468	$	141	$	138	$	1,061	$	1,539

⁽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. In September 2018, the plan received a favorable determination letter from the IRS regarding qualification of the plan termination. Following receipt of the determination letter, the plan’s actuarial assumptions were updated to remeasure the benefit obligation on a plan termination basis as of September 30, 2018 in connection with recognition of the quarterly pension settlement charge. The Company made assumptions for participant benefit elections, rate of return, and discount rates, including the annuity contract interest rate. Following an election window in which participants may choose their form of benefit payment, the plan will distribute immediate lump sum benefit payments and then settle remaining plan liabilities for benefits with the purchase of nonparticipating annuity contracts from insurance companies.

Table of Contents

The Company recognized pension settlement expense as a component of net periodic benefit cost of the nonunion defined benefit pension plan for the three and nine months ended September 30, 2018 of $0.5 million (pre-tax), or $0.4 million (after-tax), and $1.6 million (pre-tax), or $1.2 million (after-tax), respectively, related to $3.1 million and $11.6 million of lump-sum benefit distributions from the plan for the three and nine months ended September 30, 2018, respectively. For the three and nine months ended September 30, 2017, pension settlement expense of $0.9 million (pre-tax), or $0.6 million (after-tax), and $3.6 million (pre-tax), or $2.2 million (after-tax), respectively, was recognized related to $5.8 million and $23.1 million of lump-sum distributions from the plan for the three and nine months ended September 30, 2017, respectively, which included a $7.6 million nonparticipating annuity contract purchased from an insurance company during the first quarter 2017 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.

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, will occur in fourth quarter 2018 and first quarter 2019. Based on currently available information provided by the plan’s actuary, the Company estimates that noncash pension settlement charges could total approximately $15.0 million to $21.0 million and are expected to be recognized partially in fourth quarter 2018 and partially in first quarter 2019, and cash funding could total approximately $13.0 million in first quarter 2019, although there can be no assurances in this regard. The final pension settlement charges and the actual amount the Company 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. Liquidation of plan assets and settlement of plan obligations is expected to be complete in February 2019.

The following table discloses the changes in benefit obligations and plan assets of the nonunion defined benefit pension plan for the nine months ended September 30, 2018:


	Nonunion Defined
	Benefit Pension Plan
	(in thousands)
Change in benefit obligations
Benefit obligations at December 31, 2017	$	137,417
Interest cost		3,259
Actuarial loss (1)		3,562
Benefits paid		(11,781)
Benefit obligations at September 30, 2018		132,457
Change in plan assets
Fair value of plan assets at December 31, 2017		124,831
Actual return on plan assets		2,028
Employer contributions		5,500
Benefits paid		(11,781)
Fair value of plan assets at September 30, 2018		120,578
Funded status at period end (2)	$	(11,879)

Accumulated benefit obligation	$	132,457

⁽¹⁾

Actuarial loss resulted from remeasurement of the benefit obligation for plan termination assumptions at September 30, 2018, partially offset an actuarial gain recognized as of June 30, 2018 related primarily to the impact of an increase in the discount rate at the June 30, 2018 remeasurement upon settlement compared to the discount rate at the December 31, 2017 measurement date.

⁽²⁾

Recognized within current portion of pension and postretirement liabilities in the accompanying consolidated balance sheet at September 30, 2018.

Table of Contents

The Company did not have a minimum cash contribution requirement for the nonunion defined benefit pension plan for 2018; however, in anticipation of funding the nonunion pension plan for termination, the Company made a $5.5 million voluntary contribution to the plan in September 2018 which will be deductible for income tax purposes in the Company’s tax year ended February 28, 2018. The plan’s preliminary adjusted funding target attainment percentage (“AFTAP”) is 108.77% 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 2018 ABF NMFA and other related supplemental agreements. ABF Freight recognizes as expense the contractually required contributions for each period and recognizes as a liability any contributions due and unpaid.

The 25 multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. Contribution obligations to these plans are generally specified in the 2018 ABF NMFA, which will remain in effect through June 30, 2023. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006, which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Provisions of the Reform Act include, among others, providing qualifying plans the ability to self-correct funding issues, subject to various requirements and restrictions, including applying to the U.S. Department of the Treasury for the reduction of certain accrued benefits. Through the term of its current collective bargaining agreement, ABF Freight’s contribution obligations generally will be satisfied by making the specified contributions when due. However, the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees. If ABF Freight was to completely withdraw from certain multiemployer pension plans, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan.

Approximately one half of ABF Freight’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). 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%.

On July 9, 2018, ABF Freight reached a tentative agreement with the Teamster bargaining representatives for the Northern and Southern New England Supplemental Agreements on terms for new supplemental agreements to the 2018 ABF NMFA for 2018-2023 (the “New England Supplemental Agreements”). The New England Supplemental Agreements were ratified by the local unions in the region covered by the supplements on July 25, 2018. In accordance with the New England Supplemental Agreements, ABF Freight’s multiemployer pension plan obligation with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”) was restructured under a transition agreement effective on August 1, 2018. The New England Pension Fund is a multiemployer pension plan in critical and declining status to which ABF Freight made approximately 3% of its total multiemployer pension contributions in 2017. The New England Pension Fund was previously restructured to utilize a “two pool approach,” which effectively subdivides the plan assets and liabilities between two groups of beneficiaries. In accordance with ABF Freight’s transition agreement with the New England Pension Fund, ABF Freight agreed to withdraw from the original pool to which it has historically been a participant (“Existing Employer Pool”) and transition to the direct attribution liability pool (“New Employer Pool”), which does not have an associated unfunded liability. The terms of the transition are pursuant to the Second Chance Policy on Retroactive Withdrawal Liability, as adopted by the New England Pension Fund.

Table of Contents

ABF Freight’s transition agreement with the New England Pension Fund triggered a withdrawal liability settlement which satisfies ABF Freight’s existing potential withdrawal liability obligations to the Existing Employer Pool and minimizes the potential for future increases in withdrawal liability under the New Employer Pool. ABF Freight transitioned to the New Employer Pool at a lower pension contribution rate than its previous contribution rate under the Existing Employer Pool, and the new contribution rate will be frozen for a period of 10 years.

ABF Freight recognized a one-time charge of $37.9 million (pre-tax) to record the withdrawal liability as of June 30, 2018 when the transition agreement was determined to be probable. The withdrawal liability was partially settled through the initial lump sum cash payment of $15.1 million made in third quarter 2018, and the remainder will be settled with monthly payments to the New England Pension Fund over a period of 23 years with an initial aggregate present value of $22.8 million. In accordance with current tax law, these payments are deductible for income taxes when paid.

As of September 30, 2018, the outstanding withdrawal liability totaled $22.7 million, of which $0.5 million and $22.2 million was recorded in accrued expenses and other long-term liabilities, respectively. The fair value of the obligation was $23.0 million at September 30, 2018, which is equal to the present value of the future withdrawal liability payments, discounted at a 4.4% interest rate determined using the 20-year U.S. Treasury rate plus a spread (Level 2 of the fair value hierarchy).

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:


	September 30		December 31
	2018		2017
	(in thousands)
Pre-tax amounts:
Unrecognized net periodic benefit costs	$	(24,759)	$	(25,768)
Interest rate swap		1,761		481
Foreign currency translation		(2,117)		(1,894)

Total	$	(25,115)	$	(27,181)

After-tax amounts:
Unrecognized net periodic benefit costs	$	(22,357)	$	(19,715)
Interest rate swap		1,301		292
Foreign currency translation		(1,564)		(1,151)

Total	$	(22,620)	$	(20,574)

Table of Contents

The following is a summary of the changes in accumulated other comprehensive loss, net of tax, by component for the nine months ended September 30, 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		(1,206)		(1,987)		946		(165)
Amounts reclassified from accumulated other comprehensive loss		2,736		2,736		—		—
Net current-period other comprehensive income (loss)		1,530		749		946		(165)

Balances at September 30, 2018	$	(22,620)	$	(22,357)	$	1,301	$	(1,564)

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

Other comprehensive income (loss) before reclassifications		(2,712)		(3,158)		241		205
Amounts reclassified from accumulated other comprehensive loss		3,928		3,928		—		—
Net current-period other comprehensive income		1,216		770		241		205

Balances at September 30, 2017	$	(22,201)	$	(21,116)	$	(88)	$	(997)

⁽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)
	Nine Months Ended September 30
	2018		2017
	(in thousands)
Amortization of net actuarial loss	$	(2,152)	$	(2,927)
Amortization of prior service credit		70		142
Pension settlement expense		(1,603)		(3,644)
Total, pre-tax		(3,685)		(6,429)
Tax benefit		949		2,501
Total, net of tax	$	(2,736)	$	(3,928)

⁽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).

Table of Contents

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
Second quarter	$	0.08	$	2,058	$	0.08	$	2,078
Third quarter	$	0.08	$	2,060	$	0.08	$	2,063

On October 30, 2018, the Company’s Board of Directors declared a dividend of $0.08 per share to stockholders of record as of November 13, 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 nine months ended September 30, 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 September 30, 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	229,560	$	44.50
Vested	(54,039)	$	23.88
Forfeited (1)	(5,611)	$	24.27
Outstanding – September 30, 2018	1,629,170	$	25.97

¹⁾

Forfeitures are recognized as they occur.

Table of Contents

NOTE I – EARNINGS PER SHARE

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


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(in thousands, except share and per share data)
Basic
Numerator:
Net income	$	40,776	$	14,788	$	51,963	$	23,158
Effect of unvested restricted stock awards		(98)		(44)		(128)		(106)
Adjusted net income	$	40,678	$	14,744	$	51,835	$	23,052
Denominator:
Weighted-average shares		25,697,509		25,671,535		25,670,435		25,699,306
Earnings per common share	$	1.58	$	0.57	$	2.02	$	0.90

Diluted
Numerator:
Net income	$	40,776	$	14,788	$	51,963	$	23,158
Effect of unvested restricted stock awards		(94)		(43)		(124)		(104)
Adjusted net income	$	40,682	$	14,745	$	51,839	$	23,054
Denominator:
Weighted-average shares		25,697,509		25,671,535		25,670,435		25,699,306
Effect of dilutive securities		1,098,150		721,824		1,037,824		674,076
Adjusted weighted-average shares and assumed conversions		26,795,659		26,393,359		26,708,259		26,373,382
Earnings per common share	$	1.52	$	0.56	$	1.94	$	0.87

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. For each of the three- and nine-month periods ended September 30, 2018 and 2017, outstanding stock awards of 0.1 million were not included in the diluted earnings per share calculation because their inclusion would have the effect of increasing the earnings per share.

Table of Contents

NOTE J – OPERATING SEGMENT DATA

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

Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, 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 and nine months ended September 30, 2018 and 2017. Reclassifications have been made to the prior period operating segment expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses and the presentation of components of net periodic benefit cost in other income (costs) in our consolidated financial statements in accordance with the amendment to ASC Topic 715. The adoption of this accounting policy is further discussed in Note A and the detail of net periodic benefit costs is 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 (“ABF Freight”). 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.

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.

Table of Contents

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 extreme weather conditions that affect commercial vehicle operations and the segment’s results of operations will be influenced by seasonal variations in service event volume.

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.

Table of Contents

The following tables reflect reportable operating segment information:


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(in thousands)
REVENUES
Asset-Based	$	585,290	$	517,417	$	1,626,644	$	1,496,310
ArcBest		205,449		195,749		587,369		524,554
FleetNet		50,494		39,568		145,045		116,307
Other and eliminations		(15,075)		(8,454)		(39,549)		(21,435)
Total consolidated revenues	$	826,158	$	744,280	$	2,319,509	$	2,115,736

OPERATING EXPENSES (1)
Asset-Based
Salaries, wages, and benefits	$	292,082	$	287,270	$	848,611	$	853,554
Fuel, supplies, and expenses		64,133		57,395		191,366		174,326
Operating taxes and licenses		12,261		11,712		35,927		35,726
Insurance		9,448		8,348		24,055		23,068
Communications and utilities		4,308		4,575		12,964		13,260
Depreciation and amortization		22,200		20,543		64,492		61,777
Rents and purchased transportation		70,946		55,381		180,332		154,996
Shared services		58,354		47,608		160,786		137,712
Multiemployer pension fund withdrawal liability charge (2)		—		—		37,922		—
Gain on sale of property and equipment		(123)		(7)		(522)		(599)
Other		1,531		757		3,778		3,935
Restructuring costs (3)		—		95		—		268
Total Asset-Based		535,140		493,677		1,559,711		1,458,023

ArcBest
Purchased transportation		164,322		155,894		475,614		417,313
Supplies and expenses		3,522		3,853		10,290		11,265
Depreciation and amortization		3,558		3,015		10,563		9,511
Shared services		23,453		22,447		68,857		62,691
Other		2,546		2,854		6,973		8,192
Restructuring costs (3)		—		—		152		875
Gain on sale of subsidiaries (4)		(1,945)		(152)		(1,945)		(152)
Total ArcBest		195,456		187,911		570,504		509,695

FleetNet		49,406		38,646		141,407		113,617
Other and eliminations		(9,899)		(2,696)		(24,049)		(8,208)
Total consolidated operating expenses	$	770,103	$	717,538	$	2,247,573	$	2,073,127

⁽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, these costs are no longer classified within operating expenses within this table. Certain reclassifications have been made to the prior year’s operating segment data to conform to the current year presentation of segment expenses and the presentation of components of net periodic benefit cost in other income (costs).

⁽²⁾

ABF Freight recorded a one-time charge in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (see Note F).

⁽³⁾

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

⁽⁴⁾

Gains recognized in the 2018 and 2017 periods relate to the sale of the ArcBest segment’s military moving businesses in December 2017 and 2016, respectively.

Table of Contents


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(in thousands)
OPERATING INCOME (1)
Asset-Based	$	50,150	$	23,740	$	66,933	$	38,287
ArcBest		9,993		7,838		16,865		14,859
FleetNet		1,088		922		3,638		2,690
Other and eliminations		(5,176)		(5,758)		(15,500)		(13,227)
Total consolidated operating income	$	56,055	$	26,742	$	71,936	$	42,609

OTHER INCOME (COSTS)
Interest and dividend income	$	1,120	$	346	$	2,360	$	905
Interest and other related financing costs		(2,470)		(1,706)		(6,542)		(4,410)
Other, net (1)(2)		(714)		(1,314)		(4,038)		(3,548)
Total other income (costs)		(2,064)		(2,674)		(8,220)		(7,053)
INCOME BEFORE INCOME TAXES	$	53,991	$	24,068	$	63,716	$	35,556

⁽¹⁾

As previously discussed in this Note, for the three and nine months ended September 30, 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 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				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	363,348	$	349,294	$	1,048,018	$	1,023,803
Rents, purchased transportation, and other costs of services		265,042		235,346		742,338		651,131
Fuel, supplies, and expenses		82,188		75,716		245,718		226,666
Depreciation and amortization (1)		28,026		25,497		81,699		76,821
Other		31,449		30,948		91,112		91,975
Multiemployer pension fund withdrawal liability charge (2)		—		—		37,922		—
Restructuring costs (3)		50		737		766		2,731
	$	770,103	$	717,538	$	2,247,573	$	2,073,127

⁽¹⁾

Includes amortization of intangible assets.

⁽²⁾

⁽³⁾

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

Table of Contents

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 less than $0.1 million and $0.8 million of restructuring charges in operating expenses during the three and nine months ended September 30, 2018, respectively, and recorded $0.7 million and $2.7 million, primarily for employee-related costs, during the three and nine months ended September 30, 2017, respectively.

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

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 September 30, 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 $0.6 million and $0.4 million, respectively. 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.

Table of Contents

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.

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 and nine months ended September 30, 2018 and 2017. Reclassifications have been made to the prior period operating segment expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses and the presentation of components of net periodic benefit cost in other income (costs) in our consolidated financial statements. There was no change to consolidated net income or earnings 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.

Labor Contract Agreement

As of September 2018, approximately 83% of our Asset-Based segment’s employees were covered under the ABF National Master Freight Agreement (the “2018 ABF NMFA”), the collective bargaining agreement with the International Brotherhood of Teamsters (the “IBT”) which was ratified on May 10, 2018 by a majority of ABF’s IBT member employees who chose to vote. A majority of the supplements to the 2018 ABF NMFA also passed. Following ratification of the remaining supplements, the 2018 ABF NMFA was implemented on July 29, 2018, effective retroactive to April 1, 2018, and will remain in effect through June 30, 2023.

Table of Contents

Results of Operations

Consolidated Results


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(in thousands, except per share data)
REVENUES
Asset-Based	$	585,290	$	517,417	$	1,626,644	$	1,496,310

ArcBest		205,449		195,749		587,369		524,554
FleetNet		50,494		39,568		145,045		116,307
Total Asset-Light		255,943		235,317		732,414		640,861

Other and eliminations		(15,075)		(8,454)		(39,549)		(21,435)
Total consolidated revenues	$	826,158	$	744,280	$	2,319,509	$	2,115,736

OPERATING INCOME (1)
Asset-Based (2)	$	50,150	$	23,740	$	66,933	$	38,287

ArcBest		9,993		7,838		16,865		14,859
FleetNet		1,088		922		3,638		2,690
Total Asset-Light		11,081		8,760		20,503		17,549

Other and eliminations		(5,176)		(5,758)		(15,500)		(13,227)
Total consolidated operating income	$	56,055	$	26,742	$	71,936	$	42,609

NET INCOME (2)	$	40,776	$	14,788	$	51,963	$	23,158

DILUTED EARNINGS PER SHARE (2)	$	1.52	$	0.56	$	1.94	$	0.87

⁽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 no longer classified within operating income for all periods presented.

⁽²⁾

As disclosed in this Consolidated Results section, ABF Freight recorded a one-time charge of $37.9 million (pre-tax), or $28.2 million (after-tax) and $1.05 per diluted share, in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Pension Fund.

Our consolidated revenues, which totaled $826.2 million and $2,319.5 million for the three and nine months ended September 30, 2018, respectively, increased 11.0% and 9.6% compared to the same prior-year periods. The increases in consolidated revenues for the three and nine months ended September 30, 2018 reflect a 13.1% and 8.7% increase in our Asset-Based revenues, respectively, and an 8.8% and 14.3% increase in revenues of our Asset-Light operations, respectively, which represent the combined operations of our ArcBest and FleetNet segments. Our Asset-Based revenue growth reflects a 10.1% and 9.6% improvement in yield, as measured by billed revenue per hundredweight, including fuel surcharges, for the three- and nine-month periods ended September 30, 2018, respectively, versus the same periods of 2017, reflecting the impact of pricing initiatives on the 2018 periods. Total tonnage per day increased 1.6% for the three months ended September 30, 2018, but declined 1.0% for the nine months ended September 30, 2018, compared to the same prior-year periods. Our Asset-Light revenue growth for the three and nine months ended September 30, 2018, compared to the same periods of 2017, was due to an increase in revenue per shipment for the ArcBest segment associated with higher market prices resulting from continued tightness in available truckload capacity and higher service event volume for the FleetNet segment. On a combined basis, the Asset-Light operating segments generated approximately 30% and 31% of our total revenues before other revenues and intercompany eliminations for both the three- and nine-month periods ended September 30, 2018, respectively.

Table of Contents

For the three and nine months ended September 30, 2018, consolidated operating income totaled $56.1 million and $71.9 million, compared to $26.7 million and $42.6 million, respectively, for the same periods of 2017. Our consolidated operating results for the three and nine months ended September 30, 2018, compared to the same prior-year periods, improved due to the higher revenues, as previously described, and cost management. Our operating results for the nine months ended September 30, 2018 were impacted by a one-time charge of $37.9 million (pre-tax), or $28.2 million (after-tax) and $1.05 per diluted share, recorded by ABF Freight in second quarter 2018 for a multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”), as further discussed within the Asset-Based Segment Overview section of Results of Operations.

The year-over-year comparisons of consolidated operating results were also impacted by higher expenses for nonunion employee retirement costs, including long-term incentive plans impacted by shareholder returns relative to peers, which increased $1.7 million and $6.5 million for the three and nine months ended September 30, 2018, respectively, and defined contribution plans, which increased $0.1 million and $5.2 million, for the three and nine months ended September 30, 2018, respectively, compared to the same prior-year periods. The increases in these fringe costs were partially offset by lower nonunion healthcare costs and lower restructuring charges. Nonunion healthcare costs decreased $1.2 million and $5.1 million for the three and nine months ended September 30, 2018, compared to the same prior-year periods, primarily due to a decrease in the average cost per health claim. Restructuring charges related to the realignment of our organizational structure totaled less than $0.1 million and $0.8 million for the three and nine months ended September 30, 2018, respectively, compared to $0.7 million and $2.7 million, respectively, for the same periods of 2017. Our consolidated operating results benefited from gains on sale of subsidiaries of $1.9 million in the three and nine months ended September 30, 2018, compared to $0.2 million in the same periods of 2017, related to the sale of ArcBest’s military moving businesses in December 2017 and 2016, respectively.

The loss reported in the “Other and eliminations” line of consolidated operating income which totaled $5.2 million and $15.5 million for the three and nine months ended September 30, 2018, respectively, compared to $5.8 million and $13.2 million, respectively, for the same periods of 2017, was impacted by the previously mentioned higher expenses for incentive plans, a portion of which are driven by shareholder returns relative to peers. The “Other and eliminations” line also includes less than $0.1 million and $0.6 million of the previously mentioned restructuring charges related to our enhanced market approach for the three and nine months ended September 30, 2018, respectively, compared to restructuring charges of $0.6 million and $1.6 million for the same respective periods of 2017. The “Other and eliminations” line 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 fourth quarter 2018 to approximate $6.0 million and to be approximately $21.5 million for full year 2018.

In addition to the above items, consolidated net income and earnings 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 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 contributed $0.05 and $0.08 to diluted earnings per share for each of the three- and nine-month periods ended September 30, 2018, and contributed $0.04 and $0.07 per diluted share for the three- and nine-month periods ended September 30, 2017, respectively.

Consolidated after-tax pension expense, including settlement charges, recognized for the nonunion defined benefit pension plan totaled $1.3 million, or $0.05 per diluted share, and $4.1 million, or $0.16 per diluted share, for the three and nine months ended September 30, 2018, respectively, compared to $1.2 million, or $0.05 per diluted share, and $2.7 million, or $0.10 per diluted share, for the three and nine months ended September 30, 2017, respectively. These 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) include pension settlement charges due to lump-sum benefit distributions and an annuity contract purchase made by the plan in first quarter 2017.

Table of Contents

In November 2017, an amendment was executed to terminate our nonunion defined benefit pension plan with a termination date of December 31, 2017. In September 2018, the plan received a favorable determination letter from the Internal Revenue Service (the “IRS”) regarding qualification of the plan termination. Following the election window in which participants may choose their form of benefit payment, the plan will distribute immediate lump sum benefit payments and then settle remaining plan liabilities for benefits with the purchase of nonparticipating annuity contracts from insurance companies. In anticipation of funding the nonunion pension plan for termination, we made a $5.5 million contribution to the plan in September 2018 which will be deductible for income tax purposes in our tax year ended February 28, 2018.

Nonunion pension expense, excluding settlement charges, is estimated to be approximately $1.3 million, or $1.0 million after-tax, for fourth quarter 2018. Based on currently available information provided by the plan’s actuary, we estimate noncash pension settlement charges could total approximately $15.0 million to $21.0 million and are expected to be recognized partially in fourth quarter 2018 and partially in first quarter 2019, and cash funding could total approximately $13.0 million in first quarter 2019, 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 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. Liquidation of plan assets and settlement of plan obligations is expected to be complete in February 2019.

For the three and nine months ended September 30, 2018, consolidated net income and earnings per share were impacted by a provisional tax benefit of $0.8 million, or $0.03 per diluted share, and $3.5 million, or $0.13 per diluted share, respectively, 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 nine months ended September 30, 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 and nine months ended September 30, 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.

Table of Contents

Consolidated Adjusted EBITDA


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(in thousands)
Net income	$	40,776	$	14,788	$	51,963	$	23,158
Interest and other related financing costs		2,470		1,706		6,542		4,410
Income tax provision (1)		13,215		9,280		11,753		12,398
Depreciation and amortization		28,026		26,218		81,699		76,821
Amortization of share-based compensation		2,641		1,471		6,185		5,070
Amortization of net actuarial losses of benefit plans and pension settlement expense		1,108		1,839		3,755		6,571
Multiemployer pension fund withdrawal liability charge (2)		—		—		37,922		—
Restructuring charges (3)		50		737		766		2,731
Consolidated Adjusted EBITDA	$	88,286	$	56,039	$	200,585	$	131,159

⁽¹⁾

Includes a tax benefit of $0.8 million and $3.5 million for the three and nine months ended September 30, 2018, respectively, 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⁾

As disclosed in this Consolidated Results section, ABF Freight recorded a one-time $37.9 million pre-tax charge in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Pension Fund.

⁽³⁾

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 (“ABF Freight”). Our Asset-Based operations are affected by general economic conditions, as well as a number of other competitive factors that are more fully described in Item 1 (Business) and in Item 1A (Risk Factors) of Part I of our 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 operating segment expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses 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 and nine months ended September 30, 2018 and 2017.

Table of Contents

As previously disclosed in the General section of MD&A, as of September 2018, approximately 83% of the Asset-Based segment’s employees were covered under the 2018 ABF NMFA with the IBT, which was ratified on May 10, 2018. Following ratification of the supplements to the contract, the 2018 ABF NMFA was implemented on July 29, 2018, effective retroactive to April 1, 2018, and will remain in effect through June 30, 2023.

Under the 2018 ABF NMFA, the contractual wage and benefits costs, including the ratification bonuses and vacation restoration, are estimated to increase approximately 2.0% on a compounded annual basis through the end of the agreement.

The major economic provisions of the 2018 ABF NMFA include:

restoration of one week of vacation which begins accruing on anniversary dates 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 annual operating ratios of 96.0% or below for a full calendar year under the contract period.

ABF Freight recognized a one-time charge of $37.9 million (pre-tax) to record the withdrawal liability in second quarter 2018 when the transition agreement was determined to be probable. The withdrawal liability was partially settled through the initial lump sum cash payment of $15.1 million made in third quarter 2018, and the remainder will be settled with monthly payments to the New England Pension Fund over a period of 23 years with an initial aggregate present value of $22.8 million. In accordance with current tax law, these payments are deductible for income taxes when paid. This transition agreement allowed ABF Freight to satisfy its withdrawal liability obligations to the existing employer pool of the New England Pension Fund to which it had historically been a participant; will minimize the potential for future increases in withdrawal liability and contribution rates; and will reduce operating costs and improve cash flow in future periods. ABF Freight transitioned to the new employer pool of the New England Pension Fund at a lower pension contribution rate, which is frozen for a period of 10 years, compared to its pension contribution rate under the previous employer pool. The transition agreement with the New England Pension Fund has no impact or bearing on any of the other multiemployer pension plans to which ABF Freight contributes.

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.

Table of Contents

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.

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 individual 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 resources and, therefore, our costs to provide logistics services. 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.

Table of Contents

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 third 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.

The year-over-year Asset-Based revenue comparison for the three and nine months ended September 30, 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 2018 ABF NMFA and other related supplemental agreements. Salaries, wages, and benefits expense of the Asset-Based segment amounted to 49.9% and 52.2% of revenues for the three and nine months ended September 30, 2018, respectively, compared to 55.5% and 57.0% for the same periods of 2017, respectively. 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. ABF Freight has 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 previous ABF NMFA, lowered cost increases throughout the previous 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 did not increase ABF Freight’s pension contribution rate for the annual contribution period which began August 1, 2017. The average health, welfare, and pension benefit contribution rate increased approximately 2.8% and 2.0% effective primarily on August 1, 2017 and 2016, respectively, inclusive of the rate freezes in 2017. Effective July 1, 2017, the ABF NMFA contractual wage rate increased 2.5%.

As previously outlined, the 2018 ABF NMFA provides for ABF Freight’s contributions to multiemployer pension plans to remain at the rates that were paid under the prior ABF NMFA, while wage rates and health and welfare contribution rates for most plans will increase annually in accordance with the terms of the 2018 ABF NMFA. Under the 2018 ABF NMFA, the contractual wage rate increased approximately 1.2% effective July 1, 2018, and the average health, welfare, and pension contribution rate increased approximately 2.2% effective primarily on August 1, 2018.

Table of Contents

Asset-Based Segment Results

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


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
Asset-Based Operating Expenses (Operating Ratio)
Salaries, wages, and benefits	49.9	%	55.5	%	52.2	%	57.0	%
Fuel, supplies, and expenses	10.9		11.1		11.7		11.6
Operating taxes and licenses	2.1		2.3		2.2		2.4
Insurance	1.6		1.6		1.5		1.5
Communications and utilities	0.7		0.9		0.8		0.9
Depreciation and amortization	3.8		4.0		4.0		4.1
Rents and purchased transportation	12.1		10.7		11.1		10.4
Shared services	10.0		9.2		9.9		9.2
Multiemployer pension fund withdrawal liability charge (1)	—		—		2.3		—
Gain on sale of property and equipment	—		—		—		—
Other	0.3		0.1		0.2		0.3
Restructuring costs	—		—		—		—
	91.4	%	95.4	%	95.9	%	97.4	%

Asset-Based Operating Income	8.6	%	4.6	%	4.1	%	2.6	%

⁽¹⁾

As previously disclosed in the Asset-Based Segment Overview of Results of Operations, ABF Freight recorded a one-time $37.9 million pre-tax charge in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Pension Fund.

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


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2018		2017		% Change		2018		2017		% Change
Workdays		63.0		62.5				190.5		190.0
Billed revenue (1) per hundredweight, including fuel surcharges	$	35.83	$	32.53	10.1	%	$	33.92	$	30.94	9.6	%
Pounds		1,614,220,578		1,576,455,988	2.4	%		4,812,499,089		4,847,356,595	(0.7)	%
Pounds per day		25,622,549		25,223,296	1.6	%		25,262,462		25,512,403	(1.0)	%
Shipments per day		20,835		21,048	(1.0)	%		19,912		21,068	(5.5)	%
Shipments per DSY (2) hour		0.446		0.435	2.5	%		0.444		0.443	0.2	%
Pounds per DSY (2) hour		548.13		521.84	5.0	%		562.76		536.03	5.0	%
Pounds per shipment		1,230		1,198	2.7	%		1,269		1,211	4.8	%
Pounds per mile (3)		18.77		19.02	(1.3)	%		19.56		19.61	(0.3)	%
Average length of haul (miles)		1,043		1,027	1.6	%		1,042		1,032	1.0	%

⁽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.

Table of Contents

Asset-Based Revenues

Asset-Based segment revenues for the three and nine months ended September 30, 2018 totaled $585.3 million and $1,626.6 million, respectively, compared to $517.4 million and $1,496.3 million, respectively, for the same periods of 2017. Billed revenue (as described in footnote (1) to the key operating statistics table) increased 11.9% and 8.6% on a per-day basis for the three and nine months ended September 30, 2018, respectively, compared to the same prior-year periods. For the three months ended September 30, 2018, the increase in billed revenue reflects a 10.1% increase in total billed revenue per hundredweight, including fuel surcharges, and a 1.6% increase in tonnage per day, compared to the same period of 2017. For the nine months ended September 30, 2018, the increase in billed revenue reflects a 9.6% increase in total billed revenue per hundredweight, including fuel surcharges, partially offset by a 1.0% decrease in tonnage per day, compared to the same period of 2017. The number of workdays was higher by one-half of a day in the three- and nine-month periods ended September 2018, versus the prior year quarter, which contributed to increased total revenues in both 2018 periods.

The increase in total billed revenue per hundredweight reflects 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- and nine-month periods ended September 30, 2018, compared to the same periods of 2017. 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. Prices on accounts subject to deferred pricing agreements and annually negotiated contracts which were renewed during the period increased approximately 5.3% and 4.8% for the three and nine months ended September 30, 2018, respectively, compared to the same periods of 2017. The increase in the total revenue per hundredweight measure for the three- and nine-month periods also reflects an increase in average length of haul and higher pricing on truckload-rated shipments due to managing business levels with service and due to the effect on prices of those shipments as a result of the constrained capacity in the truckload market during the current year. For third quarter 2018, the Asset-Based segment’s average nominal fuel surcharge rate increased approximately 370 basis points from the third quarter 2017 level and increased approximately 330 basis points for the nine-month period ended September 30, 2018, compared to the same period of 2017. Excluding changes in fuel surcharges, average pricing on the Asset-Based segment’s LTL business for the three and nine months ended September 30, 2018 had high-single-digit percentage increases when compared to the same prior-year periods. 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.

The increase in tonnage per day for third quarter 2018 of 1.6%, reflects a 2.7% increase in average weight per shipment, partially offset by a 1.0% decrease in shipments per day, compared to third quarter 2017. The increase in average weight per shipment for third quarter 2018, compared to third quarter 2017, was driven by heavier LTL shipments, partially offset by lower average daily truckload-rated tonnage levels as a result of pricing actions previously mentioned to manage business levels with service. For the nine months ended September 30, 2018, the 1.0% decline in tonnage per day, compared to the same period of 2017, primarily reflects the effect of yield improvement initiatives, including the space-based pricing program, that led to a 5.5% decline in total daily shipment counts but a 4.8% increase in average weight per shipment. An increase in weight per shipment is also influenced by the effects of positive economic factors and other service needs of our customers.

Asset-Based Revenues — October 2018

Asset-Based billed revenues for the month of October 2018 increased approximately 11% above October 2017 on a per-day basis, reflecting an increase in total billed revenue per hundredweight of approximately 9% and an increase in average daily total tonnage of approximately 2%. The higher revenue per hundredweight measure benefited from the effect of yield improvement initiatives and higher fuel surcharges. Tonnage levels for October 2018, compared to the same prior-year period, reflect LTL tonnage growth, partially offset by reductions in volume-quoted truckload-rated shipments. Total shipments per day increased approximately 3% in October 2018, compared to October 2017. Total weight per shipment decreased approximately 1% in October 2018 versus the same prior-year period, reflecting a reduced number of heavy-weighted truckload-rated shipments as a result of pricing actions to manage business levels in our network, partially offset by an increase in weight per shipment on our LTL-rated business. Total billed revenue per shipment increased approximately 7% in October 2018, versus the same prior-year period.

Table of Contents

Asset-Based Operating Income

The Asset-Based segment generated operating income of $50.2 million and $66.9 million, for the three and nine months ended September 30, 2018, respectively, compared to $23.7 million and $38.3 million, respectively, for the same periods of 2017. The nine-month period ended September 30, 2018 included the $37.9 million one-time charge recognized in second quarter 2018 for the multiemployer pension fund withdrawal liability previously discussed in the Asset-Based Segment Overview. The Asset-Based segment operating ratio decreased by 4.0 percentage and 1.5 percentage points for the three and nine months ended September 30, 2018, from the same prior-year periods. The one-time multiemployer pension charge negatively impacted the operating ratio by 2.3 percentage points for the nine months ended September 30, 2018. Excluding the one-time charge, the Asset-Based operating ratio decreased 3.8 percentage points for the nine months ended September 30, 2018, versus the comparable 2017 period. The improvements in the Asset-Based segment’s operating results for the three and nine months ended September 30, 2018, compared to the same periods of 2017, reflect continued strength in account pricing and the benefits of careful cost management in-line with business levels. 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 49.9% and 52.2% of Asset-Based segment revenues for the three- and nine-month periods ended September 30, 2018, respectively, compared to 55.5% and 57.0%, respectively, for the same periods of 2017. The year-over-year decreases in labor costs as a percentage of revenue were influenced by the effect of higher revenues, as a portion of operating costs are fixed in nature and decrease as a percent of revenue with increases in revenue levels. Although the costs decreased as a percentage of revenue for third quarter 2018, salaries, wages, and benefits increased $4.8 million, compared to third quarter 2017, primarily due to the expenses explained in the following paragraph and the increased costs of handling higher tonnage levels during the quarter. Salaries, wages, and benefits costs decreased $4.9 million for the nine months ended September 30, 2018, compared to the same prior-year period, primarily due to adjustments made to align our cost structure to business levels, as shipment levels were 5.5% lower on a per day basis year-to-date for 2018, partially offset by increases in the expenses explained below.

As previously discussed in the Asset-Based Segment Overview, contractual wage and benefit contribution rates increased versus the prior-year periods. Salaries, wages, and benefits for the three and nine months ended September 30, 2018, versus the comparable 2017 periods, also include additional costs associated with the 2018 ABF NMFA, including $1.5 million and $2.1 million, respectively, related to restoration of one week of vacation and $0.4 million and $0.8 million, respectively, related to the ratification bonus. The additional week of vacation under the new labor agreement is accrued as it is earned for anniversary dates that begin on or after April 1, 2018. The one-time, lump sum ratification bonus was paid during third quarter 2018 and is being amortized over the duration of the contract beginning April 1, 2018. Salaries, wages, and benefits costs for the three and nine months ended September 30, 2018, compared to the same periods of 2017, were also impacted by higher expenses for nonunion incentive plans, a portion of which are driven by shareholder returns relative to peers, and higher accruals for defined contribution plans, partially offset by lower nonunion healthcare costs, primarily due to a decrease in the average cost per claim and, for the nine-month period, a decrease in the number of health claims filed.

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. In third quarter 2018, higher tonnage levels handled throughout the ABF Freight network reversed a trend experienced in the first half of the year and contributed to improvement in several key productivity metrics. Shipments per DSY hour improved 2.5% and 0.2% for the three and nine months ended September 30, 2018, respectively, compared to the same prior-year periods, partially impacted by increased usage of purchased transportation agents to efficiently manage local delivery effort. The increases in pounds per shipment for the three and nine months ended September 30, 2018, which reflect the impact of yield initiatives on changes in tonnage and shipment levels previously discussed, contributed to the 5.0% improvement in pounds per DSY hour, compared to the same periods of 2017.

Table of Contents

Fuel, supplies, and expenses as a percentage of revenue decreased 0.2 percentage points and increased 0.1 percentage points for the three and nine months ended September 30, 2018, respectively. These changes as a percentage of revenue were impacted by higher revenues in the 2018 periods, as fuel, supplies, and expenses increased $6.7 million and $17.0 million for the three- and nine-month periods ended September 30, 2018, respectively, primarily due to year-over-year increases in average fuel price per gallon (excluding taxes) of approximately 30%. The increase in fuel, supplies, and expenses was partially offset by fewer miles driven during the 2018 periods versus the same periods of 2017.

Rents and purchased transportation as a percentage of revenue increased 1.4 and 0.7 percentage points for the three and nine months ended September 30, 2018, respectively, compared to the same periods of 2017, primarily due to both higher utilization and higher costs of purchased linehaul and local transportation agents to maintain customer service. Rail miles increased approximately 32% and 22% for the three- and nine-month periods ended September 30, 2018, respectively, compared to the same prior-year periods. The Asset-Based segment remains focused on improving utilization of owned assets, as well as aligning purchased transportation costs with lower shipment levels which were experienced during 2018.

Shared services as a percentage of revenue increased 0.8 and 0.7 percentage points for the three and nine months ended September 30, 2018, respectively, compared to the same prior-year periods, due to increases in employee benefit costs, including higher expenses for incentive plans, a portion of which are driven by shareholder returns relative to peers; higher advertising costs; and investments to improve the customer experience.

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 and cost 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.

As previously disclosed within the General section of MD&A, we have reclassified certain prior period operating segment expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses 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 and nine months ended September 30, 2018 and 2017.

Asset-Light Results

For the three and nine months ended September 30, 2018, the combined revenues of our Asset-Light operations totaled $255.9 million and $732.4 million, respectively, compared to $235.3 million and $640.9 million, respectively, for the same periods of 2017. The combined revenues of our Asset-Light operating segments generated approximately 30% and 31% of our total revenues before other revenues and intercompany eliminations for the three and nine months ended September 30, 2018, respectively, compared to 31% and 30% for the three and nine months ended September 30, 2017, respectively.

Table of Contents

ArcBest Segment

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


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
ArcBest Segment Operating Expenses (Operating Ratio)
Purchased transportation	80.0	%	79.6	%	81.0	%	79.6	%
Supplies and expenses	1.7		2.0		1.7		2.1
Depreciation and amortization	1.7		1.5		1.8		1.8
Shared services	11.4		11.5		11.7		11.9
Other	1.2		1.5		1.2		1.6
Restructuring costs	—		—		—		0.2
Gain on sale of subsidiaries (1)	(0.9)		(0.1)		(0.3)		—
	95.1	%	96.0	%	97.1	%	97.2	%

ArcBest Segment Operating Income	4.9	%	4.0	%	2.9	%	2.8	%

⁽¹⁾

Gains recognized in the 2018 and 2017 periods relate to the sale of the ArcBest segment’s military moving businesses in December 2017 and 2016, respectively.

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 was revised beginning in first quarter 2018 to reflect the segment’s combined operations, including the expedite, truckload, and truckload-dedicated operations for which statistics were previously separately reported, as well as other service offerings of the segment.


	Year Over Year % Change
	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018

Revenue / Shipment		8.4%		15.6%

Shipments / Day		(7.4%)		(6.4%)

The ArcBest segment revenues totaled $205.4 million and $587.4 million for the three and nine months ended September 30, 2018, respectively, compared to $195.7 million and $524.6 million, respectively, for the same periods of 2017. The 5.0% and 12.0% increase in revenues for the three and nine months ended September 30, 2018, respectively, compared to the same prior-year periods, primarily reflects increases in revenue per shipment associated with higher market prices resulting from continued tightness in available truckload capacity, partially offset by lower shipments per day. ArcBest segment net revenue, which is a non-GAAP measure of revenues less costs of purchased transportation (see Reconciliations of Asset-Light Non-GAAP Measures within this Asset-Light Results section), increased 3.2% and 4.2%, for the three and nine months ended September 30, 2018, respectively, compared to the same periods of 2017. Tight market capacity compressed the segment’s net revenue margin, which was 20.0% and 19.0% for the three and nine months ended September 30, 2018, respectively, versus 20.4% for the same prior-year periods, with the year-over-year declines reflecting the increased cost of purchased transportation outpacing improvements in customer rates. However, the rate of margin compression experienced by the ArcBest segment in third quarter 2018 was significantly less than in the first half of 2018. Purchased transportation costs as a percentage of revenue increased 0.4 and 1.4 percentage points for the three and nine months ended September 30, 2018, respectively, compared to the same periods of 2017, as capacity in the spot market was tighter than in the prior-year periods. The year-over-year net revenue comparison for the ArcBest segment was also impacted by $0.9 million and $2.2 million of net revenue included in the three- and nine-month periods ended

Table of Contents

September 30, 2017, respectively, from our military moving business for which a portion was sold in December 2016 and the remainder was sold in December 2017.

Operating income increased $2.2 million and $2.0 million for the three and nine months ended September 30, 2018, respectively, compared to the same periods of 2017, primarily reflecting net revenue improvement and the impact of the $1.9 million gain recognized in third quarter 2018, versus $0.2 million recognized during third quarter 2017, related to the previously discussed sale of ArcBest’s military moving businesses. The third quarter recognition of the gain on these sales was triggered when the required government approvals of the transactions were obtained in September 2018 and 2017. For the nine months ended September 30, 2018, versus the same period of 2017, operating income also benefited from a $0.7 million decrease in restructuring charges related to our corporate realignment under our enhanced marketing approach. The year-over-year operating income improvements were partially offset by a reduction in business levels from the sale of the military moving business and the associated net revenue reduction. Shared services expense increased in both 2018 periods, reflecting investments in technology and personnel associated with managed transportation solutions and maintaining customer service and, for the nine months ended September 30, 2018, higher purchase accounting expense related to an earn-out agreement for the transaction completed in third quarter 2016 to enhance the segment’s dedicated truckload service offerings.

FleetNet Segment

FleetNet’s revenues totaled $50.5 million and $145.0 million for the three and nine months ended September 30, 2018, respectively, compared to $39.6 million and $116.3 million, respectively, for the same periods of 2017. The 27.6% and 24.7% increase in revenues for the three and nine months ended September 30, 2018, respectively, compared to the same periods of 2017, was due primarily to increased service event volume.

FleetNet’s operating income improved to $1.1 million and $3.6 million for the three and nine months ended September 30, 2018, respectively, from $0.9 million and $2.7 million, respectively, in the same prior-year periods. The year-over-year operating income improvements reflect the revenue growth combined with improved labor efficiencies.

Asset-Light Revenues – October 2018

Revenues of our Asset-Light operations, on a combined basis (ArcBest and FleetNet), increased approximately 6% on a per-day basis in October 2018 above the same prior-year period, primarily due to an increase in ArcBest segment revenue per shipment, partially offset by a reduction in daily shipments. An increase in FleetNet’s daily service event volume also contributed to the year-over-year increase in revenues.

Reconciliations of Asset-Light Non-GAAP Measures

Net Revenue and Net Revenue Margin

Management uses net revenue, defined as revenues less purchased transportation costs, as a key performance measure of our ArcBest segment which primarily sources transportation services from third-party providers. Non-GAAP net revenue margin for the ArcBest segment is calculated as net revenue divided by revenues.

Table of Contents

ArcBest Segment Net Revenue and Net Revenue Margin


	Three Months Ended					Nine Months Ended
	September 30					September 30
	2018		2017		% Change	2018		2017		% Change
	(in thousands)
Revenue	$	205,449	$	195,749	5.0%	$	587,369	$	524,554	12.0%
Purchased transportation		164,322		155,894	5.4%		475,614		417,313	14.0%
Non-GAAP Net Revenue	$	41,127	$	39,855	3.2%	$	111,755	$	107,241	4.2%

Non-GAAP Net Revenue Margin		20.0%		20.4%			19.0%		20.4%

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

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.

Asset-Light Adjusted EBITDA


	Three Months Ended				Nine Months Ended
	September 30				September 30
	2018		2017		2018		2017
	(in thousands)
ArcBest
Operating Income (1)(2)	$	9,993	$	7,838	$	16,865	$	14,859
Depreciation and amortization (3)		3,558		3,015		10,563		9,511
Restructuring charges (4)		—		—		152		875
Adjusted EBITDA	$	13,551	$	10,853	$	27,580	$	25,245

FleetNet
Operating Income (1)(2)	$	1,088	$	922	$	3,638	$	2,690
Depreciation and amortization		291		272		834		823
Adjusted EBITDA	$	1,379	$	1,194	$	4,472	$	3,513

Total Asset-Light
Operating Income (1)(2)	$	11,081	$	8,760	$	20,503	$	17,549
Depreciation and amortization (3)		3,849		3,287		11,397		10,334
Restructuring charges (4)		—		—		152		875
Adjusted EBITDA	$	14,930	$	12,047	$	32,052	$	28,758

⁽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 of segment expenses 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 and $3.4 million for three and nine months ended September 30, 2018, respectively, compared to $1.1 million and $3.2 million for the same respective prior-year periods, and amortization of acquired software of $0.5 million and $1.6 million for the three and nine months ended September 30, 2018, respectively, compared to $0.5 million and $2.1 million for the same respective prior-year periods.

⁽⁴⁾

Restructuring costs relate to the realignment of our corporate structure.

Table of Contents

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 extreme weather conditions that affect commercial vehicle operations, and the segment’s results of operations will be influenced by seasonal variations in service event volume.

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.

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

Table of Contents

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.

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.

Table of Contents

Liquidity and Capital Resources

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

Cash Flow and Short-Term Investments

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


	September 30		December 31
	2018		2017
	(in thousands)
Cash and cash equivalents (1)	$	177,436	$	120,772
Short-term investments, primarily FDIC-insured certificates of deposit		75,879		56,401
Total (2)	$	253,315	$	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 September 30, 2018 and December 31, 2017 cash and cash equivalents totaling $85.2 million and $61.1 million, respectively, were not FDIC insured.

Cash, cash equivalents, and short-term investments increased $76.1 million from December 31, 2017 to September 30, 2018. During the nine-month period ended September 30, 2018, cash provided by operations of $173.6 million was used to repay $50.0 million of notes payable; fund $36.3 million of capital expenditures (and an additional $71.6 million of certain Asset-Based revenue equipment was financed with notes payable), net of proceeds from asset sales; and pay dividends of $6.2 million on common stock.

Cash provided by operating activities during the nine months ended September 30, 2018 increased $77.2 million compared to the same prior-year period, primarily due to improved operating results and changes in working capital. The comparison of cash provided by operating activities was also impacted by the $5.5 million contribution we made to our nonunion defined benefit pension plan in third quarter 2018 and the $15.3 million of cash payments toward the multiemployer pension withdrawal liability charge recognized in second quarter 2018 related to the transition agreement ABF Freight entered into with the New England Pension Fund (as further discussed within the Asset-Based Segment Overview section of Results of Operations).

Cash, cash equivalents, and short-term investments decreased $6.0 million from December 31, 2016 to September 30, 2017. During the nine-month period ended September 30, 2017, cash provided by operations of $98.3 million, $10.0 million of borrowings under the accounts receivable securitization program, and cash on hand was used to repay $52.3 million of notes payable; fund $40.8 million of capital expenditures (and an additional $61.6 million of certain Asset-Based revenue equipment purchases were financed with notes payable), net of proceeds from asset sales; pay dividends of $6.2 million on common stock; and purchase $6.0 million of treasury stock.

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;

Table of Contents

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 September 30, 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 3.10% based on the margin of the Credit Facility as of September 30, 2018. The fair value of the interest rate swap asset of $0.5 million and $0.1 million was recorded in other long-term assets in the consolidated balance sheet at September 30, 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 3.24% based on the margin of the Credit Facility as of September 30, 2018. The fair value of the interest rate swap asset of $1.2 million and $0.4 million was recorded in other long-term assets in the consolidated balance sheet at September 30, 2018 and December 31, 2017, respectively.

Accounts Receivable Securitization Program

Our accounts receivable securitization program was amended and extended in August 2018 to modify certain covenants and conditions and extend the maturity date of the program to October 1, 2021. The program 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 September 30, 2018, we have $45.0 million borrowed under the program.

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 September 30, 2018, we had available borrowing capacity of $62.4 million under the accounts receivable securitization program.

In October 2018, we repaid $5.0 million of the amount borrowed under the accounts receivable securitization program which reduced our long-term debt and increased our available borrowing capacity.

Letter of Credit Agreements and Surety Bond Programs

As of September 30, 2018, we had letters of credit outstanding of $18.2 million (including $17.6 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 September 30, 2018, surety bonds outstanding related to our self-insurance program totaled $49.4 million.

Notes Payable and Capital Leases

We have financed the purchase of certain revenue equipment, other equipment, and software through promissory note arrangements, including $57.2 million and $71.6 million for revenue equipment and software during the three and nine months ended September 30, 2018, respectively.

Table of Contents

We financed the purchase of an additional $16.7 million of revenue equipment through promissory note arrangements as of November 1, 2018. 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 September 30, 2018. These purchase obligations totaled $58.4 million as of September 30, 2018, with $54.8 million estimated to be paid within the next year, $3.5 million estimated to be paid in the following two-year period, and $0.1 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. We also have contractual obligations for operating leases, primarily related to our Asset-Based service centers, which totaled $84.2 million, net of noncancelable subleases, as of September 30, 2018, with $19.2 million estimated to be paid within the next year, $31.3 million estimated to be paid in the following two-year period, $15.5 million to be paid within five years, and $18.2 million to be paid thereafter.

Our contractual obligations related to our notes payable, which provide financing for revenue equipment and software purchases, totaled $188.0 million, including interest, as of September 30, 2018, an increase of $26.8 million from December 31, 2017. The scheduled maturities of our long-term debt obligations as of September 30, 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 nine months ended September 30, 2018.

For 2018, our total net capital expenditures, including amounts financed, are estimated to range from $145.0 million to $150.0 million, net of asset sales. These 2018 estimated net capital expenditures include revenue equipment purchases of $90.0 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. We have the flexibility to adjust certain planned 2018 capital expenditures as business levels dictate. Depreciation and amortization expense, excluding amortization of intangibles, is estimated to be approximately $105.0 million in 2018.

As previously disclosed within the Consolidated Results section of Results of Operations, an amendment was executed in November 2017 to terminate our nonunion defined benefit pension plan with an effective date of December 31, 2017. In September 2018, the plan received a favorable determination letter from the IRS regarding qualification of the plan termination. Following the election window in which participants may choose their form of benefit payment, the plan will distribute immediate lump sum benefit payments and then settle remaining plan liabilities for benefits with the purchase of nonparticipating annuity contracts from insurance companies. In anticipation of funding the nonunion pension plan for termination, we made a $5.5 million voluntary contribution to the plan in September 2018 which will be deductible for income tax purposes in our tax year ended February 28, 2018.

Based on currently available information provided by the plan’s actuary, we estimate noncash pension settlement charges could total approximately $15.0 million to $21.0 million and are expected to be recognized partially in fourth quarter 2018 and partially in first quarter 2019, and cash funding could total approximately $13.0 million in first quarter 2019, 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 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. Liquidation of plan assets and settlement of plan obligations is expected to be complete in February 2019.

Table of Contents

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).

As previously discussed within the Asset-Based Segment Overview section of Results of Operations, the New England Supplemental Agreements for the 2018-2023 contract period were ratified by the local unions in the region covered by the supplements on July 25, 2018. In accordance with the New England Supplemental Agreements, ABF Freight’s multiemployer pension plan obligation with the New England Pension Fund was restructured under a transition agreement effective on August 1, 2018. The transition agreement resulted in ABF Freight’s withdrawal as a participating employer in the New England Pension Fund and triggered settlement of the related withdrawal liability. ABF Freight simultaneously re-entered the New England Pension Fund as a new participating employer free from any pre-existing withdrawal liability and at a lower future contribution rate. The withdrawal liability was partially settled through the initial lump sum cash payment of $15.1 million made in third quarter 2018, and the remainder will be settled with monthly payments to the New England Pension Fund over a period of 23 years with an initial aggregate present value of $22.8 million. The first monthly payment was made in September 2018. In accordance with current tax law, these payments are deductible for income taxes when paid.

Other Liquidity Information

Cash, cash equivalents, and short-term investment totaled $253.3 million at September 30, 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.

On October 30, 2018, the Company’s Board of Directors declared a dividend of $0.08 per share to stockholders of record as of November 13, 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 nine months ended September 30, 2018, we purchased 5,882 shares of our common stock leaving $31.5 million available for repurchase under the current buyback program.

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 September 30, 2018. We have interest rate swap agreements in place which are discussed in the Financing Arrangements section of Liquidity and Capital Resources.

Table of Contents

Balance Sheet Changes

Accounts Receivable

Accounts receivable increased $44.1 million from December 31, 2017 to September 30, 2018, reflecting higher business levels in September 2018 compared to December 2017.

Other Long-Term Assets

The $10.4 million increase in other long-term assets from December 31, 2017 to September 30, 2018, includes $5.9 million related to the one-time, lump sum ratification bonus under the 2018 ABF NMFA which was paid during third quarter 2018 and is being amortized over the duration of the contract beginning April 1, 2018. The year-to-date change in other long-term assets was also impacted by increases in cash surrender value of life insurance policies and increases in the fair value of our interest rate swap agreements.

Accounts Payable

Accounts payable increased $25.4 million from December 31, 2017 to September 30, 2018, primarily due to increased business levels in September 2018 compared to December 2017.

Accrued Expenses

Accrued expenses increased $22.6 million from December 31, 2017 to September 30, 2018, primarily due to certain incentive accruals related to our improved operating performance and the current portion of long-term incentive plans, a portion of which are driven by shareholder returns relative to peers; higher accruals for contributions to defined contribution plans; and an increase in holiday and vacation accruals for union employees related, in part, to the restoration of a week of vacation under the 2018 ABF NMFA.

Pension and Postretirement Liabilities

Following receipt in September 2018 of the favorable termination letter from the IRS regarding the qualification of the termination of the nonunion defined benefit pension plan, the $11.9 million unfunded pension liability was reclassified from long-term to current on the consolidated balance sheet as of September 30, 2018.

Other Long-Term Liabilities

Other long-term liabilities increased $24.8 million from December 31, 2017 to September 30, 2018, primarily due to recognition of the long-term portion of the New England Pension Fund withdrawal liability, of which $22.2 million remains outstanding at September 30, 2018, and higher accruals for long-term incentive plans which are impacted by shareholder returns relative to peers.

Off-Balance Sheet Arrangements

At September 30, 2018, our off-balance sheet arrangements of $142.6 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.

Table of Contents

Income Taxes

Our effective tax rate was 24.5% and 18.4% for the three months and nine months ended September 30, 2018, respectively. Our effective tax rate was 38.6% and 34.9% for the three months and nine months ended September 30, 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 three and nine months ended September 30, 2018, a 32.74% blended rate was applied to the two months ended February 28, 2018, and a 21.0% federal statutory rate was applied to the months of March 2018 through September 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 nine months 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 $0.8 million and $3.5 million in the three and nine months ended September 30, 2018, respectively, which impacted the effective tax benefit rate as noted in the following table.

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


	Three Months Ended								Nine Months Ended
	September 30								September 30
	2018				2017				2018				2017
	(in thousands)

Income tax provision at the statutory federal rate (1)	$	11,338	21.0	%	$	8,423	35.0	%	$	13,380	21.0	%	$	12,444	35.0	%
Federal income tax effects of:
Impact of the Tax Reform Act on deferred tax		(825)	(1.5)	%		—	—	%		(3,466)	(5.4)	%		—	—	%
Impact of the Tax Reform Act on current tax		22	—	%		—	—	%		(47)	(0.1)	%		—	—	%
Alternative fuel credit (2)		—	—	%		—	—	%		(1,203)	(1.9)	%		—	—	%
Nondeductible expenses and other		1,055	2.0	%		394	1.6	%		2,153	3.3	%		1,124	3.2	%
Increase (decrease) in valuation allowances		205	0.4	%		(3)	—	%		(79)	(0.1)	%		(246)	(0.7)	%
Tax benefit from vested RSUs		(24)	—	%		16	0.1	%		(325)	(0.5)	%		(1,229)	(3.4)	%
Life insurance proceeds and changes in cash surrender value		(242)	(0.5)	%		(330)	(1.4)	%		(438)	(0.7)	%		(675)	(1.9)	%
Future state tax rate changes		—	—	%		39	0.2	%		(130)	(0.2)	%		39	0.1	%
Federal employment and R&D tax credits		(63)	(0.1)	%		(36)	(0.1)	%		(120)	(0.2)	%		(170)	(0.5)	%
Federal income tax provision (benefit)	$	128	0.3	%	$	80	0.4	%	$	(3,655)	(5.8)	%	$	(1,157)	(3.2)	%
State income tax provision		1,749	3.2	%		777	3.2	%		2,028	3.2	%		1,111	3.1	%
Total provision for income taxes	$	13,215	24.5	%	$	9,280	38.6	%	$	11,753	18.4	%	$	12,398	34.9	%

⁽¹⁾

For the three and nine months ended September 30, 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 and nine months ended September 30, 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⁾

The nine-month period ended September 30, 2018 was 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 was recognized in the first quarter of 2018.

Table of Contents

At September 30, 2018, we had $47.8 million of net deferred tax liabilities after valuation allowances. We evaluated the need for a valuation allowance for deferred tax assets at September 30, 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 $0.9 million and $0.8 million at September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018, deferred tax liabilities which will reverse in future years exceeded deferred tax assets.

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 nine months ended September 30, 2018 and September 30, 2017, financial reporting income exceeded income determined under income tax law.

During the nine months ended September 30, 2018, we made state and foreign tax payments of $3.6 million, and received refunds of $1.1 million of federal and state income taxes that were paid in prior years. Management does not expect the cash outlays for income taxes will materially exceed reported income tax expense for the foreseeable future.

Critical Accounting Policies

The accounting policies that are “critical,” or the most important, to understand our financial condition and results of operations and that require management to make the most difficult judgments are described in our 2017 Annual Report on Form 10-K. The following policies have been updated during the nine months ended September 30, 2018 for the adoption of accounting standard updates disclosed within this section of MD&A.

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 nine months ended September 30, 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

Table of Contents

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 $0.8 million and $0.6 million at September 30, 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 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.

ASC Topic 842, Leases , (“ASC Topic 842”) which is effective for us beginning January 1, 2019, requires lessees to recognize right-of-use assets and lease liabilities for operating leases with terms greater than 12 months. The standard also requires additional qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the Financial Accounting Standards Board issued an amendment to ASC Topic 842 which provides an optional transition method that will give companies the option to use the effective date as the date of initial application upon transition. We plan to elect this transition method and, as a result, we will not adjust our comparative period financial information or make the new required lease disclosures for periods before the effective date. We have established an implementation team which is in the process of implementing the new accounting standard, including accumulating necessary information, assessing the current lease portfolio, and implementing software to meet the new reporting requirements. We are also evaluating current processes and controls and identifying necessary changes to support the adoption of the new standard. We anticipate we will exclude short-term leases from accounting under ASC Topic 842 and plan to elect the package of practical expedients upon transition that will retain lease classification and other accounting conclusions made in the assessment of existing lease contracts. Management expects the new standard to have a material impact on our consolidated balance sheets related to the addition of the right-of-use asset and associated lease liabilities; however, the impact on our consolidated statements of operations is expected to be minimal, if any. As the impact of this standard is non-cash in nature, no impact is expected on our 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.

Table of Contents

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.

Table of Contents

FINANCIAL INFORMATION

ARCBEST CORPORATION

ITEM 3. QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

As disclosed in Part II, Item 7A of the our 2017 Annual Report on Form 10-K, we are subject to interest rate risk due to variable interest rates on the borrowings under our accounts receivable securitization program, which was amended and extended in August 2018 to provide cash proceeds of up to $125.0 million with an accordion feature allowing us to request additional borrowings up to $25.0 million, subject to certain conditions. Our accounts receivable securitization program is further described in Financing Arrangements of the Liquidity and Capital Resources section of Management’s Discussion and Analysis (“MD&A”) in Part I, Item 2 of this Quarterly Report on Form 10-Q.

In October 2018, we repaid $5.0 million of the amount borrowed under the accounts receivable securitization program which reduced our long-term debt and increased our available borrowing capacity.

The following table reflects the contractual maturity date and projected interest rates (based on a LIBOR curve, provided by a financial institution independent of the facility, plus our margin) for the borrowings outstanding under the accounts receivable securitization as of September 30, 2018:


																					September 30
	Contractual Maturity Date																				2018
	Year Ended December 31																				Carrying		Fair
	2018			2019			2020			2021			2022			Thereafter			Value		Value		Value
	(in thousands, except interest rates)																		(in thousands)
Accounts receivable securitization program	$	—		$	—		$	—		$	45,000		$	—		$	—		$	45,000	$	45,000	$	45,000
Projected interest rate		3.22	%		3.70	%		3.94	%		3.91	%		—	%		—	%

As of September 30, 2018, there have been no significant changes in the Company’s market risks reported as of December 31, 2017 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 September 30, 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.

Table of Contents

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 September 30, 2018 and December 31, 2017, the Company had $31.5 million and $31.7 million, respectively, remaining under the program for repurchases of its common stock. The Company did not make share repurchases during the three months ended September 30, 2018.

ITEM 3. DEFAULTS UPON SENIO R SECURITIES

None.

ITEM 4. MINE SAFET Y DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATIO N

None.

Table of Contents

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*		Collective Bargaining Agreement, implemented on July 29, 2018 and effective through June 30, 2023, among the International Brotherhood of Teamsters and ABF Freight System, Inc.

10.2		Second Amendment to Second Amended and Restated Receivables Loan Agreement, dated as of August 3, 2018, by and among ArcBest Funding LLC, as Borrower, ArcBest Corporation, as Servicer, PNC Bank, National Association and Regions Bank, as Lenders, and PNC Bank, National Association, as LC Issuer and Agent for the Lenders and their assigns and the LC Issuer and its assigns (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 6, 2018, File No. 000-19969, and incorporated herein by reference).

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

* Filed herewith.

** Furnished herewith.

Table of Contents

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: November 8, 2018	/s/ Judy R. McReynolds
	Judy R. McReynolds
	Chairman, President and Chief Executive Officer
	and Principal Executive Officer


Date: November 8, 2018	/s/ David R. Cobb
	David R. Cobb
	Vice President — Chief Financial Officer
	and Principal Financial Officer

EXHIBIT 10.1

ABF NATIONAL MASTER FREIGHT AGREEMENT

For the Period of

April 1, 2013 2018 through

March 31, 2018 June 30, 2023 covering:

Operations in, between and over all of the states, territories and possessions of the United States, and operations into and all of all contiguous territory.

ABF FREIGHT SYSTEM, INC. hereinafter referred to as the “Employer” or “Company” or “ABF” and the TEAMSTERS NATIONAL FREIGHT INDUSTRY NEGOTIATING COMMITTEE representing Local Unions affiliated with the INTERNATIONAL BROTHERHOOD OF TEAMSTERS, and Local Union No.——— which Local Union is an affiliate of the INTERNATIONAL BROTHERHOOD OF TEAMSTERS, agree to be bound by the terms and conditions of this Agreement.

ARTICLE 1. PARTIES TO THE AGREEMENT

Section 1. Employers Covered

NO CHANGE

Section 2. Unions Covered

NO CHANGE

Section 3. Transfer of Company Title or Interest

NO CHANGE

ARTICLE 2. SCOPE OF AGREEMENT

Section 1. Master Agreement

NO CHANGE

Section 2. Supplements to Master Agreement

NO CHANGE

Section 3. Non-covered Units

NO CHANGE

Card Check

NO CHANGE

Additions to Operations: Over-The-Road and Local Cartage Supplemental Agreements

NO CHANGE

Section 4. Single Bargaining Unit

NO CHANGE

Section 5. Riders

NO CHANGE

ARTICLE 3. RECOGNITION, UNION SHOP AND CHECKOFF

Section 1. Recognition

NO CHANGE

Union Shop

NO CHANGE

Hiring

NO CHANGE

State Law

NO CHANGE

Agency Shop

NO CHANGE

Savings Clause

NO CHANGE

Employer Recommendation

NO CHANGE

Future Law

NO CHANGE

No Violation of Law

NO CHANGE

Section 2. Probationary and Casual Employees

(a)

Probationary Employees

NO CHANGE

(b)

Casual Employees

NO CHANGE

(7) a. Casual Employment

NO CHANGE

(7) b. Regular Employment

NO CHANGE

Section 3. Checkoff

NO CHANGE

Section 4. Work Assignment

NO CHANGE

Section 5.

NO CHANGE

Section 6. Electronic Funds Transfer

NO CHANGE

Section 7. Utility Employee

The parties recognize the need for the Employers to compete effectively in a changing environment. To this end, there shall be established a new position on the local cartage seniority list called a Utility Employee. The intent of the parties’ creation of the Utility Employee position is to generate additional job opportunities and enhance employee earnings, by enhancing the Employer’s ability to compete and grow.

Subject to the approval of the National Utility Employee Review Committee, the Employer may establish Utility Employee positions at any facility at its discretion as-needed, and CDL-qualified road or local cartage employees may bid for Utility Employee positions in accordance with established terminal bidding procedures. All CDL-qualified drivers with the required endorsements shall have the opportunity to transfer to the local cartage operation, if necessary, and bid for open Utility Employee positions with full seniority rights. There shall be no retreat rights for employees who transfer to the local cartage operation to bid an open Utility Employee position. For example, if a road driver bids into the Utility Employee position, he relinquishes his road seniority for bidding purposes and cannot return to the road driver classification, unless through a change of operations, or bid back rights consistent with the applicable Supplement. The Employer shall be permitted to assign a qualified local cartage employee to a Utility Employee position on a temporary basis when necessary to pursue business opportunities that become available, as long as the temporary assignment is made in seniority order and if senior employees do not accept the temporary positions, less senior employees are forced from the bottom of the seniority list. Temporary vacancies in the Utility Employee position, for things such as sickness, vacations, leaves of absences, will be filled consistent with practices under the applicable Supplemental Agreement.

The Utility Employee shall work across all classifications as assigned and as necessary to meet business needs, and there shall be no restrictions on the type of freight or work handled. A Utility Employee’s duties during a tour of duty may, at his/her home terminal, include performing Utility-related dock work, P&D (local cartage) work, hostling/yard work (drop & hooks), and any driving work. At larger facilities where the Employer utilizes Utility Employees and there is more than Utility work performed, the Employer will designate a specific area on the dock where freight to be handled by Utility Employees will be staged. Non-utility freight will be staged at a designated area and the employees at the destination terminal will handle the non-utility freight.

A Utility Employee shall perform all local cartage functions at his home terminal. Notwithstanding anything in this Agreement or any Supplemental Agreement to the contrary, Utility Employees also may be required to work across Local Union jurisdictional lines. It is not the intent to use Utility Employees to perform local peddle runs or P&D work outside their Local Union’s jurisdiction. At away terminals, a Utility Employee may perform Utility-related dock work, hostling and drop and hooks on his/her own equipment. A Utility Employee shall fuel his/her own equipment at away terminals, if there are no fuelers available. All Utility Employees shall be returned to his home domicile at the end of his shift, absent bona fide extenuating circumstances, in which case they shall be paid on all hours.

The Employer shall pay each Utility Employee an hourly premium of $1.00 per hour over the highest rate the Employer pays to local cartage drivers under the Supplemental Agreement covering the Utility Employee’s home domicile. Employees in progression who bid into Utility Employee positions or individuals the Employer hires into Utility Employee positions shall complete the progression for local cartage drivers outlined in the applicable Supplemental Agreement. A Utility Employee in progression shall receive the hourly premium in addition to the Utility Employee’s progression rate.

A Utility Employee’s work week shall consist of any four (4) ten (10) hour or five (5) eight (8) hour consecutive days starting Sunday, Monday, or Tuesday, subject to a forty (40) hour guarantee during that period. With four (4) ten (10) hour days, the Utility Employee shall have three (3) consecutive days off and with five (5) eight (8) hour days the Utility Employee shall have two (2) consecutive days off. The Employer may establish multiple start times bid by Utility Employees and may slide such start times on a daily basis by either thirty (30) minutes before or thirty (30) minutes after the bid start times.

The parties recognize that most, if not all locations will have Utility Employees regardless of facility size, geographic and/or service area. Subject to the approval of the National Utility Employee Review Committee or the Committee Chairman or their designees, the Employer may establish and modify Utility Employee positions and bids without the approval of a change of operations or other Union approval. All bids shall be offered in seniority order, and, if senior employees do not bid open positions, less senior employees shall be forced from the bottom of the seniority list.

In the event the Employer’s proposed use of a Utility Employee position causes a transfer, change or modification of any driver’s present terminal, breaking point or domicile, the proposed change shall be submitted to a National Utility Employee Review Committee comprised of three representatives designated by the Vice President of TMI Employee Relations for ABF and three representatives designated by the Chairman of TNFINC. The Vice President of TMI Employee Relations for ABF or his designee and the Chairman of TNFINC or his designee shall be the TMI Company and the TNFINC Chairmen of the National Utility Review Committee. The

National Utility Employee Review Committee shall establish rules of procedure to govern the manner in which proposed Utility Employee operational changes are to be heard.

The National Utility Employee Review Committee shall have the authority to determine the seniority application of employees affected by the operational change and such determination shall be final and binding. No proposed operational change will be approved which violates this Agreement. In the event the National Utility Employee Review Committee is unable to resolve a matter, the case shall be submitted to the National Review Committee on an expedited basis. Neither the Union nor the Employer shall unreasonably delay the scheduling or completion of any requested meeting, or the submission of any dispute to the National Review Committee. In no event shall a Utility Employee operational change hearing be held more than fifteen (15) business days after the Employer meets with the affected Local Unions to discuss the written operational change proposal.

Any grievance concerning the application or interpretation of Article 3, Section 7 shall be first referred to the National Utility Employee Review Committee for resolution. If the National Utility Employee Review Committee is unable to reach a decision on an interpretation or grievance, the issue will be referred to the National Grievance Committee. The National Utility Employee Review Committee shall have jurisdiction over alleged violations of seniority rights in the bidding of the Utility Employee positions, issues regarding the utilization of the Utility Employee position consistent with this Section, and issues regarding the seniority rights of employees bidding into the Utility Employee position.

Subject to the approval of the National Utility Employee Review Committee, the Employer may establish the number of Utility Employee positions at any location.

The parties agree that nothing in this Article 3, Section 7 shall alter the Employer’s ability to engage in layoffs in accordance with the layoff provisions of the applicable Supplemental Agreement. In the event a Utility Employee is laid off, the Employer may re-bid that position in accordance with seniority provisions of the applicable Supplemental Agreement.

ARTICLE 4. STEWARDS

NO CHANGE

ARTICLE 5.

Section 1. Seniority Rights

NO CHANGE

Section 2. Mergers of Companies-General

NO CHANGE

Combining of Terminals or Operations as a Result of Merger of Companies

NO CHANGE

Active Seniority List

NO CHANGE

Layoff Seniority list

NO CHANGE

Temporary Authority

NO CHANGE

Purchase of Rights

NO CHANGE

Exclusive Cartage Operations

NO CHANGE

Committee Authority

NO CHANGE

Section 3. Intent of Parties

NO CHANGE

Section 4. Equipment Purchases

NO CHANGE

Highest Rates Prevail

NO CHANGE

Cutting Seniority Board

NO CHANGE

Posting Seniority List

NO CHANGE

Section 5. Work Opportunity

NO CHANGE

Section 6. Overtime

NO CHANGE

ARTICLE 6.

Section 1. Maintenance of Standards

NO CHANGE

Local Standards

NO CHANGE

Individual Employer Standards

NO CHANGE

General

NO CHANGE

Section 2. Extra Contract Agreements

NO CHANGE

Section 3. Workweek Reduction

NO CHANGE

Section 4. New Equipment

NO CHANGE

ARTICLE 7. LOCAL AND AREA GRIEVANCE

MACHINERY

Section 1.

(a) Provisions relating to local, state and area grievance machinery are set forth in the applicable Supplements to this Agreement.

Each Supplemental Agreement shall provide for a Regional Joint Area Review Committee. The Committee shall review and consider any case deadlocked by the Regional Joint Area Committee. The Regional Joint Area Review Committee shall consist of the Freight Coordinator from the applicable Region or a designee of the TNFINC Chairman and a designee of the Executive Director of TMI. The Committee shall have the authority to resolve any such deadlocked case either by review of the evidence presented to the Regional Joint Area Committee or by rehearing the case. The decisions of the Committee shall be final and binding. In the event the Committee is unable to resolve the deadlock, the case shall be referred to the National Grievance Committee.

Unless otherwise indicated in writing to TMI and TNFINC by a Supplemental Negotiating Committee prior to ratification of this Agreement, there shall be no arbitration of discharge and suspensions.

(a) The provisions provided herein shall replace and supersede prior language and Provisions in the individual supplements with regards to local, state and area grievance machinery.

Each IBT Region shall provide for a Joint Area Committee, comprised of the Supplements in that Geographic Region, that shall meet on a quarterly basis at a location agreed to by the Employer and Regional Freight Coordinator. In addition the Joint Area Committee may be required to meet at a Supplemental location for a special hearing of out of service cases, no later than thirty (30) days after the request is received by the administrator of the grievance process.

The Committee shall be made up of Local Union representatives from the Supplement involved and ABF Employee Relations Personnel or their designees. It is agreed that for a Committee to hear a case there shall be an equal number of Employer Committee members and Union Committee members sitting, not to exceed three (3) each and not less than two (2). Local Union representatives who are appearing as presenters or witnesses for the Local Union involved in a proceeding before a Committee, will be ineligible to act as a member of that Committee. The Company Panel for cases to be heard at any level shall consist of not less than two (2) ABF Employee Relations Personnel or their designees.

In the event a grievance matter is deadlocked at the Joint Area Committee level, it shall be referred to the appropriate ABF Regional Committee for handling or as provided for in the Joint Area Committee rules of procedure for discharges and suspension. If not resolved at that level it shall be referred to the ABF Review Committee or to the ABF National Grievance Committee.

All grievances arising under the provisions of the Master Agreement (Articles 1-39) shall be filed directly with the appropriate Regional Joint Area Committee. The Regional Joint Area Committee shall have the authority to render a final and binding decision or direct the grievance to the appropriate lower level committee for hearing if the grievance is not properly claimed under the provisions of the Master Agreement. The Regional Joint Area Committee must hear and decide such cases within ninety (90) days of the filing of the grievance. Grievances arising under Article 9 Protection of Rights, Article 29, Sections 1 or 2(a) and (b) - Substitute Service and Article 32, Subcontracting shall be expeditiously processed and may be heard at either regularly scheduled or specially called hearings. A grievance may be filed by any Region whose members are adversely affected by an alleged violation of Article 32, Section 4(b) occurring within its jurisdiction.

Each Supplemental Agreement shall provide for a Regional Joint Area Review Committee. The Committee shall review and consider any case deadlocked by the Regional Joint Area Committee. The Regional Joint Area Review Committee shall consist of the Freight Coordinator from the applicable Region or a designee of the TNFINC Chairman and a designee of the Vice President of Employee Relations for ABF Freight. The Committee shall have the authority to resolve any such deadlocked case either by review of the evidence presented to the Regional Joint Area Committee or by rehearing the case. The decisions of the Committee shall be final and binding. In the event the Committee is unable to resolve the deadlock, the case shall be referred to the National Grievance Committee.

It is mutually agreed that the procedures for processing complaints concerning matters of highway and equipment safety shall be incorporated in the applicable Supplemental Agreement, in accordance with the guidelines established by the ABF National Master Freight Safety, Health and Equipment Committee provided for in Article 16.

Special Regional Joint Area Committees shall also be created in compliance with the provisions of Article 35, Sections 3 and 4. The procedure set forth in the grievance machinery and in the national grievance procedure may be invoked only by the authorized Union representative or the Employer representative. Authorized representatives of the Union and/or Employer may file grievances alleging violation of this Agreement, under local grievance procedure, or as provided herein, unless provided to the contrary or otherwise mutually agreed in the Supplemental Agreement and/or respective committee rules of procedure. Time limitations regarding the filing of grievances, if not set forth in the respective Supplemental Agreements, must appear in the Rules of Procedure of the various grievance committees and shall apply equally to the Employer and employees.

The Rules of Procedure of the various committees established under the Agreement shall be subject to the review and approval of the ABF National Grievance Committee.

In order that each committee may operate quickly and efficiently, the parties agree that a person or service provider shall be selected and designated to serve as Secretary. Each Panel shall have its own Secretary. The Secretary shall perform only the duties assigned to him/her by the Panel. The Secretary shall docket cases, prepare the agenda and mail/email a copy prior to the scheduled meeting of the Panel to each member of the Panel, the Employer and Local Unions whose case appears on the agenda. The Secretary shall attend the meeting to prepare and keep the minutes and mail/email copies of the minutes to the members of the Panel and shall also mail/email copies of the decision of the Panel to all ABF representatives and Local Unions who are parties to this Agreement.

If a Local Union dockets a case at a joint area committee, the Company and the Union shall both be required to pay a seventy-five ($75.00) fifty ($50.00) dollar docketing or hearing fee. The expenses for operating a joint area committee shall be borne equally by all the covered Local Unions on a pro rata basis and Company operations which are covered by this Agreement. The parties reserve the right to modify the above fees or impose an assessment, by mutual consent.

(b) All grievances arising under the provisions of the Master Agreement (Articles 1-39) shall be filed directly with the appropriate Regional Joint Area Committee. The Regional Joint Area Committee shall have the authority to render a final and binding decision or direct the grievance to the appropriate lower level committee for hearing if the grievance is not properly claimed under the provisions of the Master Agreement. The Regional Joint Area Committee must hear and decide such cases within ninety (90) days of the filing of the grievance. Grievances arising under Article 9 - Protection of Rights, Article 29, Sections 1 or 2(a) and (b) - Substitute Service and Article 32, Subcontracting shall be expeditiously processed and may be heard at either regularly scheduled or specially called hearings. A grievance may be filed by any Region hose members are adversely affected by an alleged violation of Article 32, Section 4(b) occurring within its jurisdiction.

(c) It is mutually agreed that the procedures for processing complaints concerning matters of highway and equipment safety shall be incorporated in the applicable Supplemental Agreement, in accordance with the guidelines established by the ABF National Master Freight Safety, Health and Equipment Committee provided for in Article 16.

Special Joint Area Committees shall also be created in compliance with the provisions of Article 35, Sections 3 and

The procedure set forth in the local, state and area joint area and regional joint area grievance machinery and in the national grievance procedure may be invoked only by the authorized Union representative or the Employer representative. Authorized representatives of the Union and/or Employer may file grievances alleging violation of this Agreement, under local this grievance procedure, or as provided herein, unless provided to the contrary or otherwise mutually agreed in the Supplemental Agreement and/or respective committee rules of procedure. Time limitations regarding the filing of grievances, if not set forth in the respective Supplemental Agreements, must appear in the Rules of Procedure of the various grievance committees and shall apply equally to the Employer and employees.

The Rules of Procedure of the various committees established under the Agreement shall be subject to the review and approval of the National Grievance Committee.

Section 2. Grievant’s Bill of Rights

NO CHANGE

Section 3.

All Local, State and Area Grievance Committees established under Supplemental Agreements shall revise their Rules of Procedure to include the “Grievant’s Bill of Rights” set forth in Section 2 above and shall submit their revised Rules of Procedure to the National Grievance Committee for approval no more than ninety (90) days after the effective date of this Agreement. The National Grievance Committee may revise, delete or add to the Rules of Procedure for a Supplemental Grievance Committee in any manner necessary to ensure conformity with the purposes and objectives of the Grievant’s Bill of Rights. The decisions of the National Grievance Committee in this regard shall be final and binding.

Section 4.

Discharge cases shall be docketed and scheduled to be heard at the next regularly scheduled Joint Area State/Supplemental Committee meeting. In addition the Joint Area Committee may be required to meet at a Supplemental location for a special hearing of out of service cases, no later than thirty (30) days after the request is received by the administrator of the grievance process.

Section 5. Timely Payment of Grievances

NO CHANGE

Section 6.

NO CHANGE

ARTICLE 8. NATIONAL GRIEVANCE PROCEDURE

Section 1.

All grievances or questions of interpretations arising under this ABF National Master Freight Agreement or Supplemental Agreements thereto shall be processed as set forth below.

(a) All factual grievances or questions of interpretation arising under the provisions of the Supplemental Agreement (or factual grievances arising under the ABF National Master Freight Agreement), shall be processed in accordance with the grievance procedure of the applicable Supplemental Agreement.

If upon the completion of the grievance procedure of the Supplemental Agreement the matter is deadlocked, the case shall be immediately forwarded to both the Employer and Union secretaries of the National Grievance Committee, together with all pertinent files, evidence, records and committee transcripts.

Any request for interpretation of the ABF National Master Freight Agreement shall be submitted directly to the Regional Joint Area Committee for the making of a record on the matter, after which it shall be immediately referred to the National Grievance Committee. Such request shall be filed with both the Union and Employer secretaries of the National Grievance Committee with a complete statement of the matter.

(b) Any matter which has been referred pursuant to Section 1(a) above, or any question concerning the interpretation of the provisions contained in the ABF National Master Freight Agreement, shall be submitted to a permanent National Grievance Committee which shall be composed of an equal number of employer and union representatives. The National Grievance Committee shall meet on a regular basis, for the disposition of grievances referred to it, or may meet at more frequent intervals, upon call of the chairman of either the Employer or Union representatives on the National Grievance Committee. The National Grievance Committee shall adopt rules of procedure which may include the reference of disputed matters to subcommittees for investigation and report, with the final decision or approval, however, to be made by the National Grievance Committee. If the National Grievance Committee resolves the dispute by a majority vote of those present and voting, such decisions shall be final and binding upon all parties.

Cases deadlocked by the National Grievance Committee shall be referred as provided in Section 2(b) below. Procedures relating to such referrals shall be included in the Rules of Procedure of the National Grievance Committee.

The Employer may request the co-chairmen of the National Grievance Committee to appoint and convene a joint Employer and Union Committee which shall have the authority to approve uniform dispatch procedures and rules which shall apply to the individual company’s over-the-road operations.

No Employer signatory to this Agreement shall be permitted to have its own grievance procedure.

Section 2.

(a) The National Grievance Committee by majority vote may consider and review all questions of interpretation which may arise under the provisions contained in the ABF National Master Freight Agreement which are submitted by either the Chairman of TNFINC or the Executive Director Vice President of TMI Employee Relations for ABF . The National Grievance Committee by majority vote shall have the authority to reverse and set aside all resolutions of grievances by any lower level grievance committee or review committee involving or affecting the interpretation(s) of Articles 1-39 of the ABF National Master Freight Agreement, in which case the decision of the National Grievance Committee shall be final and binding. A failure by the National Grievance Committee to reach a majority decision on a question concerning interpretation or on a review of a decision by a lower level grievance committee or review committee shall not be considered a deadlock and will not be referred to the National Review Committee. In case of a failure to reach a majority decision in reviewing the decision of a lower level grievance committee or review committee, the decision of the lower level grievance committee or review committee shall stand as final and binding.

(b) All grievances deadlocked at the National Grievance Committee shall be processed as set forth below.

1. All such deadlocked grievances shall be automatically referred to the National Review Committee, which shall consist of the Chairman of TNFINC, or his/her designee and the Executive Director Vice President of TMI Employee Relations for ABF , or his/her designee. The National Review Committee shall have the authority to resolve any such deadlocked case by review of the record presented to the National Grievance Committee or by rehearing the case, or by referring the case to a subcommittee of either the Joint National Negotiating Committee or the appropriate Supplemental Negotiating Committee to negotiate a recommended resolution of the case. The subcommittee of the Negotiating Committee to which the case was referred must report its recommendation or deadlock to the National Review Committee for resolution. Unless the National Review Committee in writing mutually agrees otherwise, said Committee shall have a period of 15 days (excluding Saturdays, Sundays and holidays) from the date of the National Grievance Committee deadlock to resolve the case. The decision of the National Review Committee shall be final and binding.

2. In the event the National Review Committee is unable to resolve the deadlock, the President of the Employer involved and the Chairman of TNFINC shall have 30 additional days (excluding Saturdays, Sundays and holidays), from the final day of consideration by the National Review Committee to attempt to resolve the case. The TMI ABF and TNFINC representatives on the National Review Committee shall be responsible for notifying the Vice President of the Employer Employee Relations for ABF involved and the Chairman of TNFINC of the final day of consideration by the Committee of the deadlocked grievance. In considering factual disputes that are deadlocked or deadlocked questions of interpretation arising out of Supplemental Agreements, the decision of either the National Grievance Committee or the National Review Committee shall be based on the provisions of the applicable Supplemental Agreement.

3. No lawyers will be permitted to present cases at any step of the grievance procedure.

4. The decision of any grievance committee or panel shall be specifically limited to the matters submitted to it and the grievance committee or panel shall have no authority in any manner to amend, alter or change any provision of the Agreement.

5. If the Employer or Union challenges in court a decision issued by any dispute resolution panel provided for under this Agreement, the cost of the challenge, including the court costs and attorney’s fees, shall be paid by the losing party.

Section 3. Work Stoppages

NO CHANGE

Section 4.

(a) It is mutually agreed that the Local Union will, within two (2) weeks of the date of the signing of this Agreement, serve upon the Employer a written notice listing the Union’s authorized representatives who will deal with the Employer, make commitments for the Local Union generally and, in particular, those individuals having the sole authority to act for the Local Union in calling or instituting strikes or any stoppages of work which are not in violation of this Agreement. The Local Union may from time to time amend its listing of authorized representatives by certified mail (or confirmed e-mail) . The Local Union shall not authorize any work stoppages, slowdown, walkout, or cessation of work in violation of this Agreement. It is further agreed that in all cases of an unauthorized strike, slowdown, walkout, or any unauthorized cessation of work which is in violation of this Agreement the Union shall not be liable for damages resulting from such unauthorized acts of its members.

In the event of a work stoppage, slowdown, walkout or cessation of work, not permitted by the provisions of Article 8, Section 3(a), (b), or (c) alleged to be in violation of this Agreement, the Employer shall immediately send a wire or fax to the Freight Coordinator in the appropriate Regional Area and to the Chairman of TNFINC to determine if such strike, etc., is authorized.

No strike, slowdown, walkout or cessation of work alleged to be in violation of this Agreement shall be deemed to be authorized unless notification thereof by telegram has been received by the Employer and the Local Union from such Regional Area. If no response is received by the Employer within twenty-four (24) hours after request, excluding Saturdays, Sundays, and holidays, such strike, etc., shall be deemed to be unauthorized for the purpose of this Agreement.

In the event of such unauthorized work stoppage or picket line, etc., in violation of this Agreement, the Local Union shall immediately make every effort to persuade the employees to commence the full performance of their duties and shall immediately inform the employees that the work stoppage and/or picket line is unauthorized and in violation of this Agreement. The question of whether employees who refuse to work during such unauthorized work stoppages, in violation of this Agreement, or who fail to cross unauthorized picket lines at their Employer’s premises, shall be considered as participating in an unauthorized work stoppage in violation of this Agreement may be submitted to the grievance procedure, but not the amount of suspension herein referred to.

It is specifically understood and agreed that the Employer during the first twenty-four (24) - hour period of such unauthorized work stoppage in violation of this Agreement, shall have the sole and complete right of reasonable discipline, including suspension from employment, up to and including thirty (30) days, but short of discharge, and such employees shall not be entitled to or have any recourse to the grievance procedure. In addition, it is agreed between the parties that if any employee repeats any such unauthorized strike, etc., in violation of this Agreement, during the term of this Agreement, the Employer shall have the right to further discipline or discharge such employee without recourse for such repetition. After the first twenty-four (24) - hour period of an unauthorized stoppage in violation of this Agreement, and if such stoppage continues, the Employer shall have the sole and complete right to immediately further discipline or discharge any employee participating in any unauthorized strike, slowdown, walkout, or any other cessation of work in violation of this Agreement, and such employees shall not be entitled to or have any recourse to the grievance procedure. The suspension or discharge herein referred to shall be uniformly applied to all employees participating in such unauthorized activity. The Employer shall have the sole right to schedule the employee’s period of suspension.

The International Brotherhood of Teamsters, the Teamsters National Freight Industry Negotiating Committee, Joint Councils and Local Unions shall make immediate efforts to terminate any strike or stoppage of work as aforesaid which is not authorized by such organizations, without assuming liability therefore. For and in consideration of the agreement of the International Brotherhood of Teamsters, Teamsters National Freight Industry Negotiating Committee, Joint Councils and Local Unions affiliated with the International Brotherhood of Teamsters to make the aforesaid efforts to require Local Unions and their members to comply with the law or the provisions of this Agreement, including the provisions limiting strikes or work stoppages, as aforesaid, the Employer who is party hereto agrees that it will not hold the International Brotherhood of Teamsters, the Teamsters National Freight Industry Negotiating Committee, Joint Councils and Local Unions liable or sue them in any court or before any administrative tribunal for undertaking such efforts to terminate unauthorized strikes or stoppages of work as aforesaid or for undertaking such efforts to require Local Unions and their members to comply with the law or the provisions of this Agreement, or for taking no further steps to require them to do so. It is further agreed that the Employer will not hold the International Brotherhood of Teamsters, Teamsters National Freight Industry Negotiating Committee, Joint Councils or Local Unions liable or sue them in any court or before any administrative tribunal for such unauthorized work stoppages alleging condonation, ratification or assumption of liability for undertaking such efforts to terminate strikes or stoppages of work, or requiring Local Unions and their members to comply with the law or the provisions of this Agreement.

The provisions of this Article shall continue to apply during that period of time between the expiration of this Agreement and the conclusion of the negotiations or the effective date of the successor Agreement, whichever occurs later, except as provided in Article 39. It is understood and agreed that failure by the International Brotherhood of Teamsters, Teamsters National Freight Industry Negotiating Committee, and/or Joint Councils to authorize a strike by a Local Union shall not relieve such Local Union of liability for a strike authorized by it and which is in violation of this Agreement.

(b) The question of whether the International Union, Teamsters National Freight Industry Negotiating Committee, Joint Council or Local Union have met its obligation set forth in the immediately preceding paragraphs, or the question of whether the International Union, Teamsters National Freight Industry Negotiating Committee, and Joint Council or the Local Union, separately or jointly, participated in an unauthorized work stoppage, slowdown, walkout or cessation of work in violation of this Agreement by calling, encouraging, assisting or aiding such work stoppage, etc., in violation of this Agreement, or the question of whether an authorized strike provided by Article 8, Section 3(a), (b) or (c) is in violation of this Agreement, or whether the Employer engaged in a lockout in violation of this Agreement, shall be submitted to the grievance procedure at the national level, prior to the institution of any damage suit action. When requested, the co-chairmen of the National Grievance Committee shall immediately appoint a subcommittee to develop a record by collecting evidence and hearing testimony, if any, on the questions of whether the International Union, Teamsters National Freight Industry Negotiating Committee, Joint Council or Local Union have met its obligations as aforesaid, or of Union Participation or

Employer lockout in violation of this Agreement. The record shall be immediately forwarded to the National Grievance Committee for decision. If a decision is not rendered within thirty (30) days after the co-chairmen have convened the National Grievance Committee, the matter shall be considered deadlocked.

A majority decision of the National Grievance Committee on the questions presented as aforesaid shall be final and binding on all parties. If such majority decision is rendered in favor of one (1) or more of the Union entities, or the Employer, in the case of lockout, no damage suit proceedings on the issues set forth in this Article shall be instituted against such Union entity or such Employer. If, however, the National Grievance Committee is deadlocked on the issues referred to in this subsection 4(b), the issues must be referred to the National Review Committee for resolution prior to either party instituting damage suit proceedings. If the National Review Committee decides that a strike was unlawful, it shall not have the authority to assess damages. Except as provided in this subsection 4(b), agreement to utilize this procedure shall not thereafter in any way limit or constitute a waiver of the right of the Employer or Union to commence damage suit action. However, the use of evidence in this procedure shall not waive the right of the Employer or Union to use such evidence in any litigation relating to the strike or lockout, etc., in violation of this Agreement. There shall not be any strike, slowdown, walkout, cessation of work or lockout as a result of a deadlock of the National Grievance Committee on the questions referred to under this subsection 4(b) and any such activity shall be considered a violation of this Agreement.

(c) In the event that the Employer, party to this Agreement, commences legal proceedings against the Union after the Union’s compliance with the provisions of Article 8, Section 3(a), (b) or (c), the Employer Associations applicable Committee Secretary will cooperate in the presentation to the court of the applicable majority grievance committee decision.

(d) Nothing herein shall prevent the Employer or Union from securing remedies granted by law except as specifically set forth in subsection 4(b).

Section 5.

NO CHANGE

Section 6. Change of Operations

Change of Operations Committee

(a) Present terminals, breaking points or domiciles shall not be transferred, changed or modified without the approval of an appropriate Change of Operations Committee. Such Committee shall be appointed in each of the Regional Areas, equally composed of Employer and Union representatives. The Change of Operations Committee shall have the authority to determine the seniority of the employees affected and such determination shall be final and binding.

In the event a proposed change of operations includes the establishment of either a new or satellite terminal as a “combination” facility with a common city driver and dock seniority roster, when such change of operations results in the relocation or movement of city drivers and dock employees from an existing terminal recognizing separate (split) seniority rosters for city drivers and dock employees, the Change of Operations Committee shall have the authority to determine the conditions under which such a combination facility may be established, including but not limited to, the number of city drivers and dock employees who qualify, be allowed to follow the work to the new or satellite combination terminal, the implementation of training programs to qualify dock employees as city drivers and the seniority right of affected employees to either return to the “mother” terminal and/or claim additional driving positions at the satellite terminal within reasonable time periods following the establishment of such combination terminal, as determined by the Committee. Existing terminals that recognize separate city driver and dock seniority rosters (split terminals) shall not be converted to “combination” terminals unless and until such time as a majority of those affected employees agree to such conversion, in which case the Change of Operations Committee shall have the authority to determine the conditions under which such conversion shall be implemented.

Such Committee, however, shall observe the Employer’s right to designate domiciles and the operational requirements of the business. Where the Union raises the question as to whether or not certain proposed runs of excessive length can be made, the Employer must be prepared to submit objective evidence including DOT certification or logs and tapes that such runs have been tested and were made within the DOT hours of service regulations. Individual employees shall not be redomiciled more than once during the term of this Agreement as the result of an approved change of operations unless a merger, purchase, sale, acquisition or consolidation of employers is involved, or unless there is proven economic need as determined by the Change of Operations Committee based on factual evidence presented.

Where there is no objection from the involved Local Unions to a proposed change of operations (as evidenced in a letter or e-mail from the involved Local Unions) and the matter is approved by both the Union’s Regional Coordinator and Union’s National Freight Director, the Company may implement the change prior to a formal hearing. The Change of Operations

Committee would maintain jurisdiction for a period of twelve (12) months following the implementation to address any disputes concerning the implementation.

Pension and health & welfare contributions paid on behalf of a redomiciled employee shall be paid to the Funds to which the contributions were made prior to the employee’s change of domicile, and the decisions of the Change of Operations Committee shall so specify. This Section does not apply to employees who voluntarily transfer to new domiciles, unless such transfer is a result of a Change of Operations Committee decision. Any dispute concerning the appropriate fund for the Employer contribution on behalf of a redomiciled employee, pursuant to a Change of Operations Committee decision, shall be referred to the National Grievance Committee. The decision of the National Grievance Committee shall to the extent permitted by law, be final and binding on all affected parties, including the Trust Funds.

The Change of Operations Committee shall also have jurisdiction for a period of twelve (12) months following the opening of a new terminal to consider the redomicile of employees who are laid off as a direct result of such opening of a terminal. The Committee shall also have jurisdiction over the closing of a terminal in regard to seniority, as well as to determine the conditions under which freight may or may not be interlined into the area of a vacated operations when necessary to retain major customers, including mandating the use of union carriers where available. In no event will the Employer be granted the authority to vacate a facility and interline the freight on a non-union subsidiary of the parent company.

The above shall not apply within a twenty-five (25)-mile radius.

The Change of Operations Committee shall have the authority to require a definition of primary and shared lanes, where applicable.

The Change of Operations Committee shall not grant the Employer authority to relocate U.S. operations, work, or terminals to Mexico.

Change of Operations Committee Procedure

NO CHANGE

Moving Expenses

(c) The Employer shall pay reasonable expenses to demount and remount an employee’s mobile home, if used as his/her residence and in such instance shall pay normal expenses to move such mobile home, including the use of other modes of transportation where required by law. However, it is mutually understood that the cost of such move shall not exceed nine thousand dollars ($9,000.00) per move. Commencing April 1, 2004 and every April 1st thereafter under this agreement, this amount will be increased by the prior year’s average annual increase in the CPI-W, U.S. city average, Housing, Household Operations expenditure category titled “Moving, storage, freight expense”. A decrease in the percent change in the Index will not result in a decrease of the mobile home moving allowance once established. In the event the index is no longer published by BLS, the parties will agree to meet and find a substitute Index as an escalator.

Where an employee is required to transfer to another domicile in order to follow employment as a result of a change of operations, the Employer shall move the employee and assume the responsibility for proven loss or damage to household goods due to such move, including insurance against loss or damage. Should any employee possess household items of unusual or extraordinary value which will be included in the move, such items shall be declared and an appraised value determined prior to the move. The Employer shall provide packing materials for the employee’s household goods when requested or at the employee’s request pay all costs and expenses of moving such household goods, including packing.

An employee shall have a maximum of one (1) year to move in accordance with the provisions of an approved change of operations unless, prior to the expiration of such year, he/she requests, in writing, an extension for a reasonable period of time due to an unusual or special problem. The Employer shall provide lodging for the employee at the point of redomicile, not to exceed ninety (90) calendar days, and in addition, shall reimburse the employee forty sixty-one cents ( 40 61 ¢) per mile to transport one two ( 1 2 ) personal automobile s to the new location.

The Employer shall not be responsible for moving expenses if the employee changes his/her residence as a result of voluntary transfer.

None of the Employer obligations set forth in this Subsection (c) - Moving Expenses shall apply to transfers of domiciles within a fifty (50) - mile radius.

Change of Operations Seniority

NO CHANGE

Closing, Partial Closing of Terminals-Transfer of Work

NO CHANGE

Closing of Terminals-Elimination of Work

NO CHANGE

Layoff

NO CHANGE

Opening of Terminals

NO CHANGE

Definition of Terms

NO CHANGE

Qualifications and Training

NO CHANGE

Intent of Parties

NO CHANGE

S ection 7.

NO CHANGE

Section 8. Sleeper Cab Operations

NO CHANGE

Work Rules

NO CHANGE

Team Classifications

NO CHANGE

Dispatch Method

NO CHANGE

Laypoint and Layover

NO CHANGE

Abuse of Free Time

NO CHANGE

F. Mark-Off Procedure For Non-Scheduled Sleeper Cab Drivers

NO CHANGE

Bedding and Linen

NO CHANGE

Sleeper Cab Equipment

NO CHANGE

Sleeper Cab Occupants

NO CHANGE

Method of Dispatch At Foreign Domiciles

NO CHANGE

Foreign Power Courtesy Dispatch

NO CHANGE

National Sleeper Cab Grievance Committee

NO CHANGE

ARTICLE 9. PROTECTION OF RIGHTS

Section 1. Picket Lines: Sympathetic Action

NO CHANGE

Section 2. Struck Goods

NO CHANGE

Section 3.

NO CHANGE

Section 4.

NO CHANGE

ARTICLE 10. LOSS OR DAMAGE

Section 1.

NO CHANGE

Section 2.

NO CHANGE

ARTICLE 11. BONDS AND INSURANCE

Section 1.

NO CHANGE

Section 2. Corporate Owned Life Insurance

NO CHANGE

ARTICLE 12. UNIFORMS

Before the Employer purchases uniforms, it must present a sample of the material for the uniforms to the Union for approval. If the sample material type is not used in the finished uniforms, the Union employees are under no obligation to wear the uniforms. The Union’s approval shall not be unreasonably withheld. The Employer agrees that if any employee is required to wear any kind of uniform as a condition of his/her continued employment, such uniform shall be furnished and maintained by the Employer, free of charge, at the standard required by the Employer. Said uniforms shall be made in the United States by union vendors, if possible, and will have the Teamster emblem appropriately applied and, as uniforms are replaced after date of ratification, an American flag on the left shoulder.

The Employer shall replace all clothing, glasses, hearing aids and/or dentures not covered by company insurance or worker’s compensation which are destroyed or damaged in a wreck or fire with company equipment.

The Employer has the right to establish and maintain reasonable standards for wearing apparel and personal grooming.

The following provisions shall govern the wearing of shorts, unless the Employer and Local Union has a prior existing practice:

During the period May 1, through September 30, employees shall be allowed to wear appropriate Employer approved polo shirts and shorts, subject to the guidelines set forth herein. Appropriate shorts shall be defined as walking or Bermuda style shorts with at least two (2) pockets and belt loops and which cannot be shorter than two (2) inches above the knee, properly hemmed at the bottom and of a conservative basic solid color, (black, blue, brown or green). Socks and appropriate foot wear must be worn at all times.

Short shorts, cut offs, unhemmed, athletic, gym, biking, spandex and calf length shorts shall not be allowed.

ARTICLE 13. PASSENGERS

NO CHANGE

ARTICLE 14. COMPENSATION CLAIMS

Section 1. Compensation Claims

NO CHANGE

Section 2. Modified Work

(a) The Employer may establish a modified work program designed to provide temporary opportunity to those employees who are unable to perform their normal work assignments due to a disabling on-the-job injury. Recognizing that a transitional return-to work program offering both physical and mental therapeutic benefits will accelerate the rehabilitative process of an injured employee, modified work programs are intended to enhance worker’s compensation benefits and are not to be utilized as a method to take advantage of an employee who has sustained an industrial injury, nor are they intended to be a permanent replacement for regular employment.

An active employee, who is injured on the job, qualifies for workers’ compensation benefits and is subsequently laid off, will continue to receive compensation payments and benefits for the period provided by his/her supplement.

(b) Implementation of a modified work program shall be at the Employer’s option and shall be in strict compliance with applicable federal and state worker’s compensation statutes. Acceptance of modified work shall be on a voluntary basis at the option of the injured employee. However, refusal to accept modified work by an employee, otherwise entitled to worker’s compensation benefits, may result in a loss or reduction of such benefits as specifically provided by the provisions of applicable federal or state worker’s compensation statutes. Employees who accept modified work shall continue to be eligible to receive “temporary partial” worker’s compensation benefits as well as all other entitlements as provided by applicable federal or state worker’s compensation statutes.

Employees who need additional medical and/or physical therapy may go for such treatments during scheduled hours for modified work whenever practical and reasonable.

Employees who have been prescribed medications by a doctor where such medications prevent them from driving to and from work or where the treating physician certifies that the injury itself prevents the employee from driving to and from work, shall not be scheduled for modified duty.

(c) At facilities where the Employer has a modified work program in place, temporary modified assignments shall be offered in seniority order to those regular full time employees who are temporarily disabled due to a compensable worker’s compensation injury and who have received a detailed medical release from the attending physician clearly setting forth the limitations under which the employee may perform such modified assignments. Once a modified work assignment is made and another person is injured, the second person must wait until a modified work opening occurs, regardless of seniority. All modified work assignments must be made in strict compliance with the physical restrictions as outlined by the attending physician. All modified work program candidates must be released for eight (8) hours per day, five (5) days per week. The Employer, at its option, may make a modified work offer of less than eight (8) hours per day where such work is expected to accelerate the rehabilitative process and the attending physician recommends that the employee works back to regular status or up to eight (8) hours per day by progressively increasing daily hours. A copy of any release for modified work must be given to the employee before the modified work assignment begins.

It is understood and agreed that those employees who, consistent with professional medical evaluations and opinion, may not be expected to receive an unrestricted medical release, or whose injury has been medically determined to be permanent and stationary, shall not be eligible to participate in a modified work program.

In the event of a dispute related to conflicting medical opinion, such dispute shall be resolved pursuant to established worker’s compensation law and/or the method of resolving such matters as outlined in the applicable Supplemental Agreement. In the absence of a provision in the Supplemental Agreement, the following shall apply:

When there is a dispute between two (2) physicians concerning the release of an employee for modified work, such two (2) physicians shall immediately select a third (3rd) neutral physician within seven (7) days, who shall possess the same qualifications as the most qualified of the two selecting physicians, whose opinion shall be final and binding on the Employer, the Union and the employee. In the event the availability of a qualified physician is in question, the Local Union and the Company shall resolve such matter by selecting the third (3rd) physician whose opinion shall be final and binding. The expense of the third (3rd) physician shall be equally divided between the Employer and the Union. Disputes concerning the selection of the neutral physician or back wages shall be subject to the grievance procedure.

For locations where the Employer intends to implement a modified work program or has a modified work program in place, the Local Union shall be provided with a copy of the current form(s) being used for employee evaluation for release and general job descriptions. This information shall be general in nature, not employee specific.

When a modified work assignment is made, the employee shall be provided with the hours and days he/she is scheduled to work as well as the nature of the work to be performed in writing. A copy of this notice shall also be submitted to the Local Union.

An employee who is placed in a modified work position may be subject to medical evaluation(s) by a physician selected by the Employer to determine if the modified work being performed is accelerating the rehabilitative process as anticipated by Section 2 above. In the event such medical evaluation(s) determine that the rehabilitative process is not being accelerated, the employee shall have the right to seek a second opinion from a physician of his choosing. Any disputes regarding conflicting medical claims shall be resolved in accordance with the provisions outlined above. The employee may be removed from the modified work program based upon final medical findings under this procedure. Employees so removed shall not have their worker’s compensation benefits affected because of such removal. In the event the employee’s temporary disability worker’s compensation benefit is subject to reduction by virtue of an applicable Federal or State statute, the Employer shall pay the difference between the amount of the reduced temporary worker’s compensation benefit to which the employee would be entitled.

(d) Modified work shall be restricted to the type of work that is not expected to result in a re-injury and which can be performed within the medical limitations set forth by the attending physician. In the event the employee, in his/her judgment, is physically unable to perform the modified work assigned, he/she shall be either reassigned modified work within his/her physical capabilities or returned to full “temporary total” worker’s compensation benefits. In the event a third (3rd) party insurance carrier refuses to reinstate such employee to full temporary total disability benefits, the Employer shall be required to pay the difference between the amount of the benefit paid by such third (3rd) party insurer and full total temporary disability benefits. Determination of physical capabilities shall be based on the attending physician’s medical evaluation. Under no conditions will the injured employee be required to perform work at that location subject to the terms and conditions of the ABF National Master Freight Agreement or its Area Supplemental Agreements. Prior to acceptance of modified work, the affected employee shall be furnished a written job description of the type of work to be performed.

(e) The modified workday and workweek shall be established by the Employer within the limitations set forth by the attending physician. However, the workday shall not exceed eight (8) hours, inclusive of coffee breaks where applicable and exclusive of a one-half (1/2) hour meal period and the workweek shall not exceed forty (40) hours, Monday through Friday, or Tuesday through Saturday, unless the nature of the modified work assignment requires a scheduled workweek to include Sunday. Whenever possible, the Employer will schedule modified work during daylight hours, Monday through Friday, or during the same general working hours and on the same workweek that the employee enjoyed before he/she became injured. In the case of an employee whose workdays and/or hours routinely varied, the Employer will schedule the employee based on the availability of the modified assignment being offered. Any alleged abuse of the assignment of workdays and work hours shall be subject to the grievance procedure.

(f) Modified work time shall be considered as time worked when necessary to satisfy vacation and sick leave eligibility requirements as set forth in the ABF National Master Freight Agreement and/or its applicable Area Supplemental Agreements. In addition to earned vacation pay as set forth in the applicable Area Supplemental Agreements, employees accepting modified work shall receive prorated vacation pay for modified work performed based on the weekly average modified work pay. The only time modified work is used in prorating vacation is when the employee did not qualify under the applicable Supplemental Agreement.

Holiday pay shall first be paid in accordance with the provisions of the applicable Supplemental Agreement as it relates to on-the-job injuries. Once such contractual provisions have been satisfied, holidays will be paid at the modified work rate which is the modified work wage plus the temporary partial disability benefit.

Sick leave and funeral leave taken while an employee is performing modified work will be paid at the modified work rate, which is the modified work wage plus the temporary partial disability benefit. Unused sick leave will be paid at the applicable contract rate where the employee performed modified work and qualified for the sick leave during the contract year.

(g) The Employer shall continue to remit contributions to the appropriate health & welfare and pension trusts during the entire time period employees are performing modified work. The payment of health & welfare and pension contributions while the employee is on modified work is not included in the health & welfare and pension contributions required by the Supplement when an employee is off work on worker’s compensation. Continuation of such contributions beyond the period of time specified in the Supplemental Agreement for on-the-job injury shall be required. Provisions of this Section shall not be utilized as a reason to disqualify or remove an employee from the modified work program.

(h) Employees accepting modified work shall receive temporary partial benefits as determined by each respective state worker’s compensation law, plus a modified work wage when added to such temporary partial benefit, shall equal not less than eighty-five percent (85%) of forty (40) hours’ pay he/she would otherwise be entitled to under the provisions of the applicable Area Supplemental Agreement for the first six (6) months from the date the modified work assignment commences. After this initial six (6) month period, the percentage shall increase to ninety percent (90%) for the duration of each individual modified work assignment. The Employer shall not refuse to assign modified work to employees based solely on such employees reaching the ninety percent (90%) wage level. Such refusal shall be considered an abuse of the program and shall be subject to the grievance procedure. Modified work assignments beginning or ending within a workweek shall be paid on a prorated basis; one (1) day equals one-fifth (1/5th).

(i) Employees accepting modified work shall not be subject to disciplinary action provisions of the Supplemental Agreements unless such violation involves an offense for which no prior warning notice is required under the applicable Supplemental Agreement (Cardinal Sins). Additionally, the provisions of Article 35, Section 3(a), shall apply.

(j) Alleged abuses of the modified work program by the Employer and any factual grievance or request for interpretation concerning this Article shall be submitted directly to the Regional Joint Area Committee. Proven abuses may result in a determination by the National Grievance Committee that would withdraw the benefits of this Article from that Employer, in whole or in part, in which case affected employees shall immediately revert to full worker’s compensation benefits.

Section 3. Workers Compensation Pay Dispute

NO CHANGE

Section 4. Americans with Disabilities Act

NO CHANGE

ARTICLE 15. MILITARY CLAUSE

NO CHANGE

ARTICLE 16. EQUIPMENT, SAFETY AND HEALTH

Preamble

NO CHANGE

Section 1. Safe Equipment

NO CHANGE

Section 2. Dangerous Conditions

NO CHANGE

Section 3. Accident Reports

NO CHANGE

Section 4. Equipment Reports

NO CHANGE

Section 5. Qualifications on Equipment

If the Employer or government agency requests a regular employee to qualify on equipment requiring a classified or special license, or in the event an employee is required to qualify (recognizing seniority) on such equipment in order to obtain a better job opportunity with his/her Employer, the Employer shall allow such regular employee the use of the equipment so required in order to take the examination on the employee’s own time.

Costs of such license required by a government agency will be paid for by the employee.

Once obtained an employee must maintain his/her commercial driver’s license with required endorsements unless disqualified by regulatory mandate or documented medical disability.

An employee unable to successfully pass the DOT Commercial Driver’s License (CDL) examination will be allowed to take a leave of absence for a period not to exceed two (2) year s without loss of seniority. , provided the employee makes a bona fide effort to pass the test each time the opportunity presents itself. The employee will be given work opportunities ahead of casuals to perform non-CDL required job functions. Such employee shall be allowed to claim any open non-CDL bid his/her seniority will allow. This bidding provision shall not apply to combination facilities with the exception of locations that have an established practice or agreement providing for disqualified employees to bid on non-CDL positions.

Section 6. Equipment Requirements

(a) All tractors must be equipped as necessary to allow the driver to safely enter and exit the cab, and hook and unhook the air hoses. All equipment used as city peddle trucks, and equipment regularly assigned to peddle runs, must have steps or other similar device to enable drivers to get in and out of the body. All twin trailers used in LTL pick-up and delivery operation with roll up doors purchased after April 1, 1985 shall be equipped with a hand hold and a DOT bumper which may serve as a step.

All equipment purchased, ordered, and/or introduced to the Pickup and Delivery operations after April 1, 2003 will be equipped with air-conditioning and will be maintained in proper operating condition during the period of May 31st through September 30th throughout the year. The Company will not exceed two weeks in making necessary air conditioning repairs during this period. It shall not be a violation of this section to operate any unit while waiting for repairs.

(b) The Employer shall install heaters and defrosters on all trucks and tractors.

(d) All road equipment regularly assigned to the fleet shall be equipped with an air-ride seat on the driver’s side. Such equipment shall be maintained in reasonable operating condition. All new air ride seats shall oscillate and have an adjustable lumbar support, height, backrest and seat tilt.

(e) Tractors added to the road fleet and assigned to road operations on a regular basis, whether newly manufactured or not newly manufactured, shall be air conditioned.

(f) When the Employer weighs a trailer, the over-the-road driver shall be furnished the resulting weight information along with his/her driver’s orders.

(g) All company trailers shall be marked for height.

(h) No driver shall be required to drive a tractor designed with the cab under the trailer.

(i) All road and city equipment shall have a speedometer operating with reasonable accuracy. Starting after ratification of this agreement all equipment for the road fleet shall be adjusted and/or specified with the manufacturer’s maximum road speed of sixty-five (65) miles per hour, notwithstanding any other agreement or understanding.

(j) The following minimum measurements for fuel tank placement shall apply to tractors added to the fleet after March 1, 1981, with the understanding that there shall be no retrofit of equipment currently in use: (1) front of fuel tank to rear of front tire-not less than 4 inches; (2) rear of fuel tank to front of duals-not less than 4 inches; (3) bottom of fuel tank to ground-provide clearance not less than 7.5 inches, measured on a flat surface; and (4) all fuel tank measurements as stated herein include brackets, return lines, etc. in determining clearance.

Any alleged violation of the above requirements shall not be cause for refusal of the equipment, but shall be subject to the grievance procedure as a safety and health issue.

(k) The following shall apply to shock absorbers on tractor front axles with the purchase of newly manufactured tractors which are placed in service after March 1, 1981, and with the understanding that there shall be no retrofit of equipment currently in use: Where the manufacturer recommends and provides shock absorbers as standard equipment with the tractor front suspension assembly, properly maintained shocks on such new equipment shall be considered as a necessary and integral part of that assembly.

Where the manufacturer does not recommend and provide shock absorbers as standard equipment with the tractor front suspension assembly, shocks shall not be considered as a necessary or integral part of that suspension system.

Any alleged violation of the above, including maintenance of existing equipment, shall not be cause for refusal of equipment but shall be subject to the grievance procedure as a safety and health issue.

(l) (1) The following shall apply for the minimum interior dimensions of the sleeper berths on newly manufactured overthe-road tractors purchased and placed in service after January 1, 1987.

a. Length – 80 inches; b. Width – 34 inches; and, c. Height – 24 inches.

It is understood that a “manufacturing tolerance of error” of one inch (1”) is permissible, provided the original specifications were in conformity with the above recommended dimensions. It is understood that there shall be no retrofit of equipment currently in service.

(2) Interior cab dimensions. Effective January 1, 1988, the Employer, in placing orders for newly manufactured over-theroad tractors, shall request of the manufacturer in writing that there will be compliance with as many of the following October, 1985 SAE recommended practices as possible: J941E, J1052, J1521, J1522, J1517, J1516, and J1100. The carrier, upon request, will furnish proof to the National Safety and Health Committee that a request was made to the manufacturer for compliance with the aforementioned SAE recommended practices.

(m) The Employer and the Union recognize the need for safe and efficient twin-trailer operations. Accordingly, the parties agree to the following:

(1) The Employer shall make available to all drivers involved in the twin-trailer operations training in the proper procedures for the safe hooking and unhooking of dollies and jiff-lox. Upon request, the Company will furnish to the Union a copy of their training program.

(2) Dollies and jiff-lox shall be counter-balanced or equipped with a crank-down wheel to support the weight of the dolly tongue or jiff-lox. A handle will also be provided on the tongue of the dolly or jiff-lox and shall be maintained.

(3) A tractor equipped with a pintle hook will be made available to drivers required to drop and hook twin trailers or triples at closed terminals.

The Employer shall make a bona fide attempt to make a telephone available for the driver at closed terminals during the trailer switch.

(4) Whenever possible, the Company will hook up the heaviest trailer in front in twin-trailer operations. In those instances where it is not possible because of an intermediate drop of less than one hundred and fifty (150) miles or scaling of the drive axle, the driver after driving the unit at any point on the trip, determines, at his/her sole discretion, the unit does not handle properly, may have the Company switch the unit or authorize the driver to switch the unit and be paid for such time.

(n)

(1) There will be a moratorium on the purchase of diesel powered forklifts and sweepers.

(2) It shall be standard work practice that every diesel-powered sweeper shall be shut off whenever the operator leaves the seat. Under no circumstances shall diesel-powered sweepers be allowed to idle when not attended.

(3) Diesel-powered sweepers shall be tuned and maintained in accordance with schedules recommended by their manufacturers. The Employer shall provide copies of such recommendations to the Union upon request.

(4) Improperly maintained diesel-powered sweepers may produce visible emissions after start-up. Therefore, any such diesel powered sweeper that is found to be smoking shall be taken out of service as soon as possible until repairs are made and that condition corrected.

(5) The Employer agrees to cooperate with those government and/or mutually agreed private agencies in such surveys or studies designed to analyze the use and operation of diesel-powered sweepers and diesel-powered sweeper emissions.

(o)

As of July 1, 1988, as new equipment is ordered or existing equipment requires brake lining replacement, all brake linings shall be of non-asbestos material where available and certifiable.

(p)

Slack adjuster equipment (snubbers) used in multiple trailer operations, whether on the trailers or on the converters, shall be maintained in proper working order. However, it shall not be a violation of this provision for the unit to be pulled to the next point of repair if the snubber is inoperative.

(q)

Converter dollies may be pulled on public roads by bobtail tractors if all of the following conditions are met:

(1) Tractors used in this type of operation shall have a pintle hook installed which has the proper weight capacity and is designed for highway use;

(2) Neither supply nor control air lines are to be connected to the converter dolly when being pulled by a bobtail tractor, and the tractor protection valve shall be set in the normal bobtail position;

(3) After October 1, 1991, tractors used to pull converter dollies bobtail must be equipped with a type of bobtail proportioning valve (BPV) in the tractor braking system, unless equipped with ABS;

(4) It is further agreed such configuration must comply with state and federal law.

(r)

All newly manufactured road tractors regularly assigned to the fleet after July 1, 1991, shall be equipped with heated mirrors. All road tractors ordered after April 1, 2003 shall be equipped with a power mirror on the curbside. However, it shall not be a violation of this provision for the tractor to be dispatched to the next Company point of repair if the heated and/or power mirror is inoperative.

(1) All new diesel tractors and new yard equipment shall be equipped with vertical exhaust stacks.

(2) All road and city tractors shall be equipped with large spot mirrors (6” minimum) on both sides of the tractor by January 1, 1995.

(3) All road tractors and switching equipment shall be equipped with an operable light of sufficient wattage on the back of the cab.

(4) All new road and city equipment shall have operable sun visors.

(5) Seats on forklifts and sweepers shall be maintained in good repair . Forklifts purchased after the date of ratification of this Agreement and shall include seat suspension (spring type suspension underneath the seat), incline adjustments (a minimum of 5 different incline/decline positions), sufficient cushion , and a mechanism to slide the seat backwards and forward.

(6) On all road and city tractors, the cab door locks shall remain operable and be properly maintained. Both parties agree that the Employer will have reasonable time to repair the locks.

(7) The Employer shall repair inoperable door locks on linehaul tractors that are reported on a driver vehicle inspection report. The Employer shall perform such repairs at the first Employer maintenance location.

(s)

All newly manufactured city tractors regularly assigned to the city pickup and delivery operation after July 1, 1991, shall be equipped with power steering and an air-ride seat on the driver’s side.

(1) All new road and yard equipment shall have power steering.

(2) All new forklifts and sweepers shall be equipped with power steering.

(t)

All hand trucks and pallet jacks shall be maintained in good repair.

(u)

All portable and mechanical dock plates shall be maintained in good working condition.

(v)

The parties will maintain a safe and healthy working environment in sleeper operations. The parties agree to establish a committee composed of four (4) members each to review the comfort and/or safety aspects of sleeper berths pertaining to ride. Such committee shall meet by mutual agreement of the Co-chairmen as to time and place. The committee shall confer with appropriate representatives of equipment manufacturers and/or other experts on this subject as may be available. The intent of the committee is to identify any problems with the comfort and/or safety aspects of sleeper berths pertaining to ride that may exist, and through its deliberations with the manufacturers and/or other experts, develop ways and means to correct such situations. The committee shall report its findings and make recommendations to the National Grievance Committee.

(1)

All new sleeper tractors purchased or leased after February 8, 1998, shall, at a minimum, be equipped with the manufacturer’s original equipment standard dual heat/air conditioning systems. This is not intended to preclude the Company from purchasing newer technology on future purchases, should such become available prior to the expiration of this Agreement.

(2)

Bunk restraint strap/net buckles on sleeper equipment shall be mounted on the entrance side of the sleeper berth by April 1, 1995.

(3)

New sleeper equipment purchased on or after April 1, 1995, shall be equipped with a power window on the passenger’s side of the cab that is operable from the driver’s side of the cab.

(4)

All sleeper cabs added to the Employer’s fleet after April 1, 2008 will be walk-in sleeper berths with at least the following dimensions:

The measurement of 15-3/4 inches from the front of the mattress to the closed sleeper curtain, at any point across the cab, shall apply for the minimum interior walk-in dimension on newly manufactured over-the-road sleeper tractors ordered after April 1, 2008. It is understood that the contractual width of a sleeper mattress is 34 inches when determining the 15-3/4 inches from the front of the mattress to the sleeper curtain.

All walk-in sleeper units introduced into operation after April 1, 2008 will have a minimum sleeper berth height of 65 inches from the floor to interior ceiling of the sleeper berth. It is also understood that the entrance opening into the sleeper berth area will be a minimum of 64 inches.

This will not apply to triple runs as the length now prohibits. However, if and when it becomes legal to run walk-in sleepers on triple lanes, all new equipment ordered after that effective date will be equipped with walk-in sleeper berths.

(5) All sleeper tractors introduced into Employer linehaul operations after April 1, 2008 will be equipped with an engine and/or exhaust brake. The parties understand that a unit with an inoperable engine brake system will not be considered out of service. Repairs will be performed at the team’s home terminal at the end of that team’s tour.

(6) All sleeper tractors will be set so that the unit will continue to idle, except if (a) federal, state, or local laws or regulations require the Employer to limit or eliminate tractor idle time or (b) the unit is equipped with an auxiliary power pack that provides heat and air conditioning to the sleeper berth area.

(w)

Employee will not be required to climb on unguarded trailer roofs for snow removal.

(x)

At least one vent on the sleeper to open front or back.

(y)

The Employer shall repair inoperable air conditioning systems on Employer city tractors within fourteen (14) days of written notification from an employee or the Local Union that the air conditioning system on a particular city tractor is inoperable.

(z)

All linehaul tractors introduced into Employer linehaul operations after April 1, 2008 will be equipped with a cab filter system that is designed and available from the tractor’s manufacturer.

(aa)

The Employer understands tractor interiors should be maintained in a clean condition so units are safe to operate. Concerns about the cleanliness of tractor interiors must first be raised and reviewed at the local level. In the event the parties are unable to resolve the issue locally, the parties shall refer the issue to the Employer’s V.P. or Equipment Services for resolution.

(bb) New trailer jockeys or hostling tractors put into service after the effective date of this agreement will be equipped with power mirrors on the right hand side. Any trailer jockeys or hostling tractors newly assigned to the specified states or locations below in List (1) after March 31, 2018 will be equipped with air conditioning and will be maintained in proper operating condition

throughout the year. The Company will not exceed two weeks in making necessary air conditioning repairs. It shall not be a violation of this section to operate any unit while waiting for repairs.

(1) States or locations: Alabama, Arkansas, Arizona, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, New Mexico, Nevada, Oklahoma, South Carolina, Tennessee, Texas, Long Beach, CA, Pico Rivera, CA, and San Bernardino, CA.

The Company and the Union shall meet periodically to discuss the feasibility of additional locations.

(cc) New forklifts for use in the U-Pack operations purchased after the effective ratification date of this agreement will be all-terrain forklifts and have flashing strobe light and all flatbeds are to be equipped with four (4) orange cones.

Section 7. National Safety, Health & Equipment Committee

NO CHANGE

Section 8. Hazardous Materials Program

NO CHANGE

Section 9. Union Liability

NO CHANGE

Section 10. Government Required Safety & Health Reports

NO CHANGE

Section 11. Facilities

NO CHANGE

ARTICLE 17. PAY PERIOD

NO CHANGE

Timely Pay For Drivers

NO CHANGE

Pay Period

NO CHANGE

ARTICLE 18. OTHER SERVICES

NO CHANGE

ARTICLE 19. POSTING

Section 1. Posting of Agreement

NO CHANGE

Section 2. Union Bulletin Boards

NO CHANGE

ARTICLE 20. UNION AND EMPLOYER COOPERATION

Section 1. Fair Day’s Work for Fair Day’s Pay

NO CHANGE

Section 2. Joint Industry Development Committee

NO CHANGE

Section 3. Benefits Joint Committee

NO CHANGE

Section 4. New Business/Job Creation Opportunities

NO CHANGE

ARTICLE 21. UNION ACTIVITIES

NO CHANGE

ARTICLE 22. OWNER-OPERATORS

NO CHANGE

ARTICLE 23. SEPARATION OF EMPLOYMENT

NO CHANGE

ARTICLE 24. INSPECTION PRIVILEGES AND EMPLOYER AND EMPLOYEE IDENTIFICATION

NO CHANGE

ARTICLE 25. SEPARABILITY AND SAVINGS CLAUSE

NO CHANGE

ARTICLE 26. TIME SHEETS, TIME CLOCKS, VIDEO CAMERAS, AND COMPUTER TRACKING DEVICES

Section 1. Time Sheets and Time Clocks

NO CHANGE

Section 2. Use of Video Cameras for Discipline and Discharge

NO CHANGE

Section 3. Audio, Video and Computer Tracking Devices

The Employer may use video, still photos derived from video, electronic tracking devices and/or audio evidence to discipline an employee without corroboration by observers if the employee engages in conduct such as dishonesty, falsification of logs, records, claims for compensation and other documents, theft of time or property, vandalism, or physical violence for which an employee could be discharged without a warning letter. If the information on the video, still photos, electronic tracking devices and/or audio recording is to be utilized for any purpose in support of a disciplinary or discharge action, the Employer must provide the Local Union, prior to the hearing, an opportunity to review the evidence used by the Employer.

ARTICLE 27. EMERGENCY REOPENING

NO CHANGE

ARTICLE 28. SYMPATHETIC ACTION

NO CHANGE

ARTICLE 29. SUBSTITUTE SERVICE

Section 1. Piggyback Operations

NO CHANGE

Section 2. Maintenance of Records

NO CHANGE

Section 3. Intermodal Service

NO CHANGE

(b) Use of Intermodal Service

NO CHANGE

1. Rail operations that are subject to the provisions of Section 1(b) above shall not result in the layoff or involuntary transfer of any driver at any affected road driver domicile.

2. During the term of this Agreement, the Employer shall be permitted no more than two (2) Intermodal Changes whereby the Employer may reduce and/or eliminate existing road operation(s) through the use of intermodal service. It is specifically agreed that a total of no more than ten (10) percent of the Employer’s total active road driver seniority list as of April 1, 2003, shall be affected by the Intermodal Changes during the term of this Agreement.

Any road driver who is adversely affected by an approved Intermodal Operation and would thereby be subject to layoff, or who is on layoff at an affected domicile at the time an Intermodal Operation is approved, shall be offered work opportunity at other road driver domiciles within the Employer’s system. The Employer shall include in its proposed Intermodal Operations specific facts that adequately support the Employer’s claims that there will be sufficient freight to support the work opportunities the Employer proposes at each gaining domicile. In the event there is more than one (1) domicile involved, the drivers adversely affected shall be dovetailed on a master seniority list and an opportunity to relocate shall be offered on a seniority basis, subject to the provisions of Article 8, Section 6. The “hold” procedures set forth in Article 8, Section 6 of the ABF NMFA shall be applicable. Where the source of the proposed work opportunity is presently being performed by bargaining unit employees over the road, the Employer shall be required to make reasonable efforts to fill the offered positions as set forth in Article 8, Section 6(d)(6).

Drivers who relocate under this provision shall be dovetailed on the applicable seniority list at the domicile they bid into. Health & welfare and pension contributions shall be remitted in accordance with the provisions of Article 8, Section 6(a) and moving and lodging shall be paid in accordance with Article 8, Section 6(c) of the ABF NMFA.

It is understood and agreed that the intent of this provision is to provide the maximum job security possible to those drivers affected by the use of intermodal service. Therefore, the number of drivers on the affected seniority lists at rail origin points at the time an intermodal change becomes effective shall not be reduced during the term of this Agreement other than as may be provided in subsequent changes of operations. Drivers on the affected seniority lists at gaining domiciles at the time an intermodal change becomes effective, shall not be permanently laid off during the term of this Agreement.

The senior driver voluntarily laid off at an intermodal losing domicile will be restored to the active board each time foreign drivers or casuals (where applicable) make ten (10) trips (tours of duty) within any thirty (30) calendar day period on a primary run of such domicile, not affected by a Change of Operations.

For the purposes of this Section, short-term layoffs (1) that coincide with normal seasonal freight flow reductions that are experienced on a regional basis and that include a reduction in rail freight that corresponds to the reduction in truck traffic, or (2) that are incidental day-to-day layoffs due to reasons such as adverse weather conditions and holiday scheduling, shall not be considered as a permanent layoff. Layoffs created by a documented loss of a customer shall not exceed thirty (30) days. Any layoff for reasons other than as described above shall be considered as a permanent layoff. The Employer shall have the burden of proving that a layoff is not permanent.

In order to ensure that the work opportunities of the drivers at the gaining domiciles are not adversely affected by the redomiciling of drivers, the bottom twenty-five percent (25%) of the drivers at a gaining domicile shall not have their earnings reduced below an average weekly earnings of seven hundred eight hundred and fifty dollars ( $700 ) ($850) . This seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee shall not start until the fourth (4th) week following the implementation of the approved Intermodal Change of Operation.

It is not the intent of this provision to establish a seven hundred dollar ($700 ) eight hundred and fifty dollar ($850) per week as an artificial base wage but rather a minimum guarantee. This provision shall not preclude the short-term layoffs as defined above. The Employer shall have the burden of proving that drivers at the gaining domiciles have not had their work opportunities adversely affected by the redomiciling of drivers.

The seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee shall be determined based on the average four (4) weeks earnings of each active protected driver on the bottom twenty-five percent (25%) of the seniority roster. When the earnings of any active protected driver in the bottom twenty-five percent (25%) of the seniority roster totals less than two thousand, eight hundred dollars ($2,800) three thousand, four hundred ($3,400) during each four (4) week period, the driver shall be compensated for the difference between actual earnings and two thousand, eight hundred dollars ($2,800) three thousand, four hundred ($3,400).

The four (4) week average shall be calculated each week on a “rolling” basis. A “rolling” four (4) week period is defined as a base week and the previous three consecutive weeks. Where the Employer makes a payment to an employee to fulfill the guarantee, the amount paid shall be added to the employee’s earnings for the base week of the applicable four (4) week period and shall be included in the calculations for subsequent four (4) week “rolling” periods to determine whether any further guarantee payments to the employee are due.

Time not worked shall be credited to drivers for purposes of computing earnings in the following instances:

a. Where a driver is offered a work opportunity that the driver has a contractual obligation to accept, and the driver elects not to accept such work, the driver shall have an amount equal to the amount of the wages such work would have generated credited to such driver for purposes of determining the seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee.

No driver shall be penalized by having contractual earned time off credited for purposes of determining the seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee. However, where a driver takes earned time off in excess of forty-eight (48) hours during any work week, that work week shall be excluded from the rolling four (4) week period used to determine the seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee.

b. Where a driver uses a contractual provision to refuse or defer work so as to knowingly avoid legitimate work opportunity and therefore abuse the seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee, the driver shall have an amount equal to the amount of the wages such work would have generated credited to such driver for purposes of determining the seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee.

Nothing in this subsection applies to or shall be construed to limit claims by any driver on the seniority roster at a gaining domicile alleging that the driver’s work opportunity was adversely affected following the implementation of the Intermodal Change of Operations because of the Employer’s failure to provide adequate work opportunities for existing and redomiciled drivers. However, after the point that the Employer has provided adequate work opportunities for protected drivers (existing and redomiciled), the wage protection for active drivers in the bottom twenty-five percent (25%) of the seniority roster shall be limited to the seven hundred dollar ($700) eight hundred and fifty dollar ($850) guarantee.

As soon as a factual determination has been made that a driver in the bottom twenty-five percent (25%) of the seniority roster is entitled to the seven hundred dollar ($700) eight hundred and fifty dollar ($850) average wage guarantee, the driver’s claim shall be paid. All other types of claims that the driver’s work opportunities have been adversely affected shall be held in abeyance until determined through the intermodal grievance procedure.

Section 4. National Intermodal Committee

NO CHANGE

Section 5.

NO CHANGE

Section 6.

1. Notwithstanding anything in this Agreement to the contrary, the Employer shall be permitted to utilize companies for over-the-road purchased transportation substitute service. The parties shall designate at least one (1) Preferred Company for over-the-road purchased transportation substitute service under this Section. Until December 31, 2009, the maximum amount of over-the-road purchased

transportation shall be limited to 4% of the Employer’s total miles as reported on line 301 of Schedule 300 of the BTS Annual Report during any calendar year. During Calendar Year 2010, the maximum amount of over-the-road purchased transportation shall be increased from 4% to 6.5% of the Employer’s total miles as reported on line 301 of Schedule 300 of the BTS Annual Report during any calendar year. During Calendar Year 2011, the maximum amount of over-the-road purchased transportation shall be increased from 6.5% to 7% of the Employer’s total miles as reported on line 301 of Schedule 300 of the BTS Annual Report during any calendar year. During Calendar Year 2012, the maximum amount of overthe-road purchased transportation shall be increased from 7% to 9% of the Employer’s total miles as reported on line 301 of Schedule 300 of the BTS Annual Report during any calendar year. In the event the parties fail to designate at least one (1) Preferred Company for over-the-road purchased transportation substitute service, the maximum amount of rail miles provided for in Section 3(b)(4) of the Article shall be returned to 26% for the remainder of this Agreement. It is agreed that any Preferred Company utilized under this Section shall be permitted to drop and pick-up trailers at the Employer’s terminal locations, but shall be required to do so in areas of the terminal specifically designated for such exchange.

2. For purposes of the Employer’s existing rail origin points as described in Article 29, Section 3, the use of a Preferred Company under this Section over established relay and/or through operations shall include protection for all bid drivers during each dispatch day and all extra board drivers during each dispatch week at the originating domiciles. For purposes of determining the weekly protection for extra board drivers, the affected driver’s average weekly earnings during the previous four (4) week period in which the driver had normal earnings shall be considered the weekly protection when violations occur. In the event that the Employer uses a Preferred Company as substitute service, the Article 29, Section 3 job protections for current road drivers shall apply.

3. All disputes arising under this Article 29 Section 6 shall be referred for resolution to the National Review Committee.

MEMORANDUM OF UNDERSTANDING

PURCHASED TRANSPORTATION

The undersigned parties have reached agreement regarding Purchased Transportation Service (PTS) and outline the following understandings with reference to the operation/employee protection of this MOU. This MOU is intended to permit a limited use of PTS for over-the-road transportation only. Nothing in this MOU is intended to permit the use of PTS for any other operation (i.e. P & D, Local Cartage, current intermodal, drayage, or shuttle operations etc.). Article 29 of the ABF NMFA remains in effect except as specifically provided for in this Memorandum of Understanding.

Any disputes regarding PTS will be referred to the National PTS Committee consisting of an equal number of representatives from the Union and the Company for resolution. Any failures to resolve the dispute will be referred to the National Grievance Committee.

All active road drivers as of the date of ratification of the ABF NMFA commencing in 2013 2018 will be protected by red circle name from layoff directly caused by the use of purchased transportation per the attached seniority lists as of the date of ratification. For the remainder of the agreement, red circle protection will be extended by name on a one (1) for two (2) basis for road drivers hired after the date of ratification to replace red circle drivers that retire, quit, or are terminated . This protection does not apply to a road driver who has been offered but declined a transfer pursuant to any Change of Operations.

Red circle protection will apply to drivers at locations with single line seniority if they transfer to the road board from the local cartage board, as long as their seniority date is prior to the date of ratification of this agreement.

For locations with separate seniority lists that have transferability from local cartage to the road board provided for in an existing supplemental agreement, red circle protection will apply based on their bidding seniority date and the supplemental seniority application. Red circle protection will not apply if the applicable seniority date per the supplemental provisions is after the date of ratification of the current agreement.

Notwithstanding anything in the ABF NMFA to the contrary, the Employer shall be permitted to utilize companies for over-the-road purchased transportation substitute service. The maximum amount of over-the-road purchased transportation shall be limited to 4% 5% (for the length of this agreement) in Calendar Year 2013 (increased to 6% starting with Calendar Year 2014 ), of the Employer’s total miles as reported on line 301 of Schedule 300 of the DOT/FMCSA Annual Report during any calendar year. In conjunction with using over-the-road purchase transportation providers, the Company’s total combined intermodal rail miles and purchased transportation miles shall not exceed 24% of the Company’s total miles during any calendar year.

It is agreed that any purchased transportation provider utilized under this MOU shall be permitted to only make pick-ups at an ABF customer, and drop and pickup trailers at the Employer’s terminal locations, but shall be required to do so in areas of the

terminal specifically designated for such exchange. Freight picked up at a customer location by purchased transportation shall be delivered to the nearest ABF facility(s) that can effectuate the efficient integration of the product into the ABF system.

If a red-circled driver is available (which includes the two (2)-hour period of time prior to end of his/her rest period) at point of origin when the trailer leaves the terminal or customer yard via purchased transportation, such driver’s runaround compensation shall start from the time the trailer leaves the yard. Available red-circled drivers at relay points shall be protected against runarounds if a violation occurred at the point of origin. If the Employer does not have an over-the-road domicile at the point of origin, the Employer shall protect the red-circled employees against runaround of the available drivers at the first relay point over which the freight would normally move had it not been placed on purchased transportation. Available redcircled drivers at relay points shall be protected against runaround if a violation occurred at the first relay point. Runaround protection will be equal to the number of PTS drivers used; i.e. for each PTS used one aggrieved driver will be protected regardless of the dispatch system used at the affected terminal.

In the event a Union carrier becomes available to the Company and said carrier is cost competitive and equally qualified, the Company will give such carrier first and preferred opportunity to bid on purchased transportation business. The Employer shall provide to TNFINC an up-to-date list of purchased transportation providers utilized within thirty (30) days of the end of each calendar quarter. In the event a PTS provider repeatedly violates the conditions established under this MOU, the Union shall have the ability to remove the carrier from future PTS utilization.

The Employer shall report in writing on a monthly basis to each Local Union affected, the number of trailers tendered to any purchased transportation provider. The Employer also shall report the carrier’s name (including DOT number), origin, destination, trailer/load number, trailer weight and the time the trailer/load leaves the Employer’s yard. In addition, the Employer shall, on a quarterly basis, unless otherwise required, send to the office of the National Freight Director a report containing all of the above indicated information in addition to the total number of miles the Employer utilized with purchased transportation, inclusive of the type of PTS utilized, including whether the purpose was for avoiding empty miles, overflow or one-time business opportunities such as product launches.

All new business opportunities (such as product launches) and purchased transportation to avoid empties shall count toward the maximum amount of purchased transportation. In the event of product launches, the Company will notify TNFINC within twenty-four (24) hours of being awarded the business and will provide an overview of the PTS service being utilized in the business opportunity. In the event it is necessary to temporarily exceed the limits outlined in this agreement to further accommodate a business opportunity, such request shall be made directly to TNFINC.

10)

To preserve and/or grow existing road boards, each time the Company uses purchased transportation providers to run over the top of linehaul domicile terminal locations and/or relay domiciles, said dispatches shall be counted as supplemental or replacement runs, as applicable, for purposes of calculating the requirement to add new employees to the road board. The formula for recalling or adding employees to the affected road board shall be thirty (30) supplemental runs in a sixty (60) day period. The only two exceptions to this condition are (a) one-time business opportunities (such as product launches), and (b) runs to avoid empties.

11)

On a monthly basis and until as otherwise agreed to, the Company will identify by name and number all dispatch and/or manifest lanes that have been identified as and designated as “empty lanes” eligible for PTS to include the number and percentage of empty miles currently on the two-way traffic lane. Such business and operational information as required by this MOU shall be provided to the National Freight Division on a confidential basis and will only be reviewed by TNFINC to ensure compliance with the provisions of this MOU.

12) All purchased transportation carriers shall signin/sign-out when arriving or departing from service centers.

ARTICLE 30. JURISDICTIONAL DISPUTES

NO CHANGE

ARTICLE 31. SINGLE EMPLOYER, MULTI-UNION UNIT

NO CHANGE

ARTICLE 32. SUBCONTRACTING

Section 1. Work Preservation

NO CHANGE

Section 2. Diversion of Work - Parent or Subsidiary Companies

NO CHANGE

Section 3. Subcontracting

NO CHANGE

Section 4. Expansion of Operations

(a) Adjoining Over-The-Road and Local Cartage

NO CHANGE

(b) New Pick-Up and Delivery Adjoining Current

Operations

NO CHANGE

(d)

NO CHANGE

Section 5. New Business Opportunities

For the purpose of preserving work and job opportunities, the National Grievance Committee may define the circumstances and adopt procedures by which the Employer and a Local Union, parties to this Agreement, may in compliance therewith enter into a Special Circumstance Agreement which does not meet the standards provided herein.

In order to preserve work and increase job opportunities, the Company may utilize third parties for final mile deliveries of special freight. These deliveries are limited to “room of choice”, “white glove” assembly, and installation services inside addresses that are above and beyond the normal scope of service provided by ABF. The third-party carriers in this regard shall not perform any dock work or loading/unloading at any ABF terminal or station (“service center”). Bargaining unit employees shall continue to perform all “curbside” or “to the threshold” deliveries of such freight when that is the destination. The purpose of this paragraph is to allow the Company to obtain and hold new business accounts that result in a net gain of work opportunities for the unit. This paragraph shall not result in the layoff of bargaining unit employees. On a monthly basis, the Company shall provide the local union with a list of shippers that fall under this paragraph. Also, all delivery bills for these “inside” deliveries shall specify that it is inside “white glove service” work.

Section 6.

MEMORANDUM OF UNDERSTANDING ON ARTICLE 32 – SUBCONTRACTING

NO CHANGE

Section 7. National Subcontracting Review Committee

NO CHANGE

ARTICLE 33. WAGES, CASUAL RATES, PREMIUMS AND COST-OF-LIVING (COLA)

1. General Wage Adjustments: All Regular Employees

***SEE: NATIONAL SUMMARY OF ECONOMICS***

2. Casual Rates

***SEE: NATIONAL SUMMARY OF ECONOMICS***

(b) Dock Only Casuals

***SEE: NATIONAL SUMMARY OF ECONOMICS***

3. Utility Employee and Sleeper Team Premiums

(a) Effective April 1, 2008 2018 and in the event Employer subject to this Agreement utilizes the Utility Employee classification, each Utility Employee shall receive an hourly premium of $1.00 per hour over the highest rate the Employer pays to local cartage drivers under the Supplemental Agreement covering the Utility Employee’s home domicile. A Utility Employee in progression shall receive the hourly premium in addition to the Utility Employee’s progression rate.

(b) Effective April 1, 2003 2018 , the Sleeper Team Premium will be a minimum of 2 cents per mile over and above the applicable single man rates in each Supplemental Agreement.

4. Cost of Living Adjustment Clause

All regular employees shall be covered by the provisions of a cost-of-living allowance as set forth in this Article.

The amount of the cost-of-living allowance shall be determined as provided below on the basis of the Consumer Price Index for Urban Wage Earners and Clerical Workers, CPI-W (Revised Series Using 1982-84 Expenditure Patterns). All Items published by the Bureau of Labor Statistics, U.S. Department of Labor and referred to herein as the Index.

Effective July 1, 2014 2019 , and every July 1 thereafter during the life of the Agreement, a cost-of-living allowance will be calculated on the basis of the difference between the Index for January, 2013 2018 , (published February, 2013 2018 ) and the index for January, 2014 2019 (published February, 2014 2019 ) with a similar calculation for every year thereafter, as follows: For every 0.2 point increase in the Index over and above the base (prior year’s) Index plus 3.5%, there will be a 1 cent increase in the hourly wage rates payable on July 1, 2014 2019 , and every July 1 thereafter. These increases shall only be payable if they equal a minimum of five cents ($.05) in a year. In no case shall the cost-of living-allowance be more than five (5) cents in any given year.

All cost-of-living allowances paid under this Agreement will become and remain a fixed part of the base wage rate for all job classifications. A decline in the Index shall not result in the reduction of classification base wage rates.

Mileage paid employees will receive cost-of-living allowances on the basis of .25 mills per mile for each 1 cent increase in hourly wages.

In the event the appropriate Index figure is not issued before the effective date of the cost-of-living adjustment, the cost-of-living adjustment that is required will be made at the beginning of the first (1st) pay period after the receipt of the Index.

In the event that the Index shall be revised or discontinued and in the event the Bureau of L l abor Statistics, U.S. Department of Labor, does not issue information which would enable the Employer and the Union to know what the Index would have been had it not been revised or discontinued, then the Employer and the Union will meet, negotiate, and agree upon an appropriate substitute for the Index. Upon the failure of the parties to agree within sixty (60) days, thereafter, the issue of an appropriate substitute shall be submitted to an arbitrator for determination. The arbitrator’s decision shall be final and binding.

5. Education and Training

The Employer will pay each regular employee that completes CDL training and certification after April 1, 2013 2018 the sum of three hundred dollars ($300.00).

ARTICLE 34. GARNISHMENTS

ARTICLE 34 INTENTIONALLY LEFT BLANK

In the event of notice to the Employer of a garnishment or impending garnishment, the Employer may take disciplinary action if the employee fails to satisfy such garnishment within a seventy-two (72) - hour period (limited to working days) after notice to the employee. However, the Employer may not discharge any employee by reason of the fact that his earnings have been subject to garnishment for any one (1) indebtedness. If the Employer is notified of three (3) garnishments irrespective of whether satisfied by the employee within the seventy-two (72) - hour period, the employee may be subject to discipline, including discharge in extreme cases. However, if the Employer has an established practice of discipline or discharge with a fewer number of garnishments or impending garnishments, if the employee fails to adjust the matter within the seventy-two (72) - hour period, such past practice shall be applicable in those cases.

ARTICLE 35.

Section 1. Employeeʼs Bail

NO CHANGE

Section 2. Suspension or Revocation of License

NO CHANGE

Section 3. Drug Testing PREAMBLE

NO CHANGE

ABF NMFA UNIFORM TESTING PROCEDURE

Probable Suspicion Testing

NO CHANGE

B. DOT Random Testing

NO CHANGE

C. Non-Suspicion-Based Post-Accident Testing

NO CHANGE

D. Chain of Custody Procedures

NO CHANGE

E. Urine Collection Kits and Forms

NO CHANGE

F. Laboratory Requirements

NO CHANGE

4. Laboratory Accreditation

NO CHANGE

G. Laboratory Testing Methodology

NO CHANGE

H. Leave of Absence Prior to Testing

NO CHANGE

I. Disciplinary Action Based on Positive Adulterated, or Substituted Test Results

NO CHANGE

J. Return to Employment After a Positive Urine Drug Test

NO CHANGE

K. Special Grievance Procedure

NO CHANGE

L. Paid-for Time

NO CHANGE

Section 4. Alcohol Testing

NO CHANGE

A. Employees Who Must be Tested

NO CHANGE

B. Alcohol Testing Procedure

NO CHANGE

C. Notification

NO CHANGE

D. Pre-Qualification Testing for Non-DOT Personnel

Section has been deleted

E. Random Testing

NO CHANGE

F. Non-Suspicion-Based Post-Accident Testing

NO CHANGE

G. Substance Abuse Professional (SAP)

NO CHANGE

H. Probable Suspicion Testing

NO CHANGE

I. Preparation for Testing

NO CHANGE

J. Specimen Testing Procedures

NO CHANGE

K. Leave of Absence Prior to Testing

NO CHANGE

L. Disciplinary Action Based on Positive Test Results

NO CHANGE

M. Return to Duty After a Positive (Greater than .04 to the State Limit) Alcohol Test

NO CHANGE

N. Paid-for-time -Testing

NO CHANGE

O. Record Retention

NO CHANGE

P. Special Grievance Procedure

NO CHANGE

ARTICLE 36. NEW ENTRY (NEW HIRE) RATES

***SEE: NATIONAL SUMMARY OF ECONOMICS***

ARTICLE 37. NON-DISCRIMINATION

NO CHANGE

ARTICLE 38.

Section 1. Sick Leave

Effective April 1, 1980 2018 and thereafter, all Supplemental Agreements shall provide for a minimum of five (5) days or forty (40) hours of sick leave per contract year. The Employer agrees to comply with all Federal, State or Local laws with regards to paid sick leave including exemptions for bargaining agreements.

Sick leave not used by March 31 December 31 of any contract year will be paid no later than the third Friday of January on March 31st at the applicable hourly rate in existence on that date. Each day of sick leave will be paid for on the basis of a minimum of eight (8) hours straight-time pay or whatever the normal daily work schedule is (e.g. 10 hours if the employee is on a 10 hour schedule up to a maximum of forty (40) hours at the applicable hourly rate.

Effective April 1, 2008, Sick sick leave will be paid to eligible employees beginning on the first (1st) working day of absence.

Effective January 1, 2009, the The accrual and cash out dates for sick leave will move from April 1 to January 1.

The additional sick leave days referred to above shall also be included in those Supplements containing sick leave provisions prior to April 1, 1976. The National Negotiating Committees may develop rules and regulations to apply to sick leave provisions negotiated in the 1976 Agreement and amended in this Agreement uniformly to the Supplements. The Committee shall not establish rules and regulations for sick leave programs in existence on March 31, 1976.

Section 2. Jury Duty

NO CHANGE

Section 3. Family and Medical Leave Act

All employees who worked for the Employer for a minimum of twelve (12) months and worked at least 1250 hours during the past twelve (12) months are eligible for unpaid leave as set forth in the Family and Medical Leave Act of 1993.

Eligible employees are entitled to up to a total of 12 weeks of unpaid leave during any twelve (12) month period for the following reasons:

1. Birth or adoption of a child or the placement of a child for foster care;

2. To care for a spouse, child or parent of the employee due to a serious health condition;

3. A serious health condition of the employee.

The employee’s seniority rights shall continue as if the employee had not taken leave under this Section, and the Employer will maintain health insurance coverage during the period of the leave.

The Employer may require the employee to substitute accrued paid vacation or other paid leave for part of the twelve (12) week leave period.

The employee is required to provide the Employer with at least thirty (30) days advance notice before FMLA leave begins if the need for leave is foreseeable. If the leave is not foreseeable, the employee is required to give notice as soon as practicable. The Employer has the right to require medical certification of a need for leave under this Act. In addition, the Employer has the right to require a second (2nd) opinion at the Employer’s expense. If the second opinion conflicts with the initial certification, a third opinion from a health care provider selected by the first and second opinion health care providers, at the Employer’s expense may be sought, which shall be final and binding. Failure to provide certification shall cause any leave taken to be treated as an unexcused absence.

As a condition of returning to work, an employee who has taken leave due to his/her own serious health condition must be medically qualified to perform the functions of his/her job. In cases where employees fail to return to work, the provisions of the applicable Supplemental Agreement will apply.

It is specifically understood that an employee will not be required to repay any of the contributions for his/her health insurance during FMLA leave. No employee will be disciplined for requesting or taking FMLA leave under the contract absent fraud, misrepresentation, or dishonesty.

Disputes arising under this provision shall be subject to the grievance procedure.

The provisions of this Section are in response to the federal FMLA and shall not supersede any state or local law which provides for greater employee rights.

The Employer may not force an employee to use prescheduled vacation time as FMLA leave, provided the vacation involved was prescheduled in accordance with the applicable supplemental agreement. The Employer may not force an employee to take the last unscheduled week of vacation as FMLA leave.

The Employer may not force an employee who has taken separate hours of unpaid leave for medical reasons to substitute those hours as accrued leave under the FMLA.

The Employer may not force an employee to substitute accrued leave for FMLA leave if the employee is receiving supplemental loss-of-time disability benefits from a benefit plan under the Agreement.

ARTICLE 39. DURATION

Section 1.

This Agreement shall be in full force and effect from April 1, 2013 2018 to and including March 31, 2018 June 30, 2023 , and shall continue from year to year thereafter unless written notice of desire to cancel or terminate this Agreement is served by either party upon the other at least sixty (60) days prior to date of expiration.

When notice of cancellation or termination is given under this Section, the Employer and the Union shall continue to observe all terms of this Agreement until impasse is reached in negotiations, or until either the Employer or the Union exercise their rights under Section 3 of this Article.

Section 2.

Where no such cancellation or termination notice is served and the parties desire to continue said Agreement but also desire to negotiate changes or revisions in this Agreement, either party may serve upon the other a notice at least sixty (60) days prior to March 31, 2018 June 30, 2023 or March 31st June 30 th of any subsequent contract year, advising that such party desires to revise or change terms or conditions of such Agreement.

Section 3.

The Teamsters National Freight Industry Negotiating Committee, as representative of the Local Unions or the signatory Employer or the authorizing Employer Associations, shall each have the right to unilaterally determine when to engage in economic recourse (strike or lockout) on or after April 1, 2018 July 1, 2023 , unless agreed to the contrary.

Section 4.

Revisions agreed upon or ordered shall be effective as of April 1, 2018 June 30, 2023 or April 1st of any subsequent contract year.

Section 5.

NO CHANGE

Section 6.

NO CHANGE

IN WITNESS WHEREOF the parties hereto have set their hands and seals this day of ___ , 2013 2018 to be effective April 1, 2013 2018 , except as to those areas where it has been otherwise agreed between the parties.

NEGOTIATING COMMITTEES FOR THE LOCAL UNIONS:

TEAMSTERS NATIONAL FREIGHT INDUSTRY NEGOTIATING COMMITTEE

[TNFINC Committee names to be inserted]

FOR THE EMPLOYER:

[ABF Committee names to be inserted]

ADDENDUM A

Work Day/work week

The number of start times in effect today will remain , except as agreed to between the Local Union and the Company . In addition to the existing number of start times. The Company will be allowed to add three (3) additional start times in a twenty-four (24) hour period. There shall be no more than 12 total start times unless such times currently exist in any given location.

(Examples: If a location currently has five (5) start times, they would be allowed to have eight (8) start times. If a location has six (6) start times they could go to nine (9). If a location has ten (10) start times they could go to twelve (12). These start times include all local cartage, dock, hostler

classifications.)

ADDENDUM B

Break Time

All Breaks shall remain the same. All locations that currently have two (2) fifteen (15) minute breaks will be reduced to two (2) ten (10) minute breaks, unless otherwise required by law. Exceptions are straight 8’s and 4-10 hour shifts, for which breaks will remain the same.

There will be an additional ten (10) minute break after the tenth (10 th ) hour and once every two (2) hours thereafter.

ADDENDUM C

Work Across Classifications

NO CHANGE

NATIONAL ECONOMIC SETTLEMENT

ABF NMFA

TENTATIVE AGREEMENT

Reached March 28, 2018

Summary of General Monetary

National and all Supplemental Agreements

For the period covering April 1, 2018 through June 30, 2023

Note: The general hourly, mileage and other benefit modifications are as follows and shall be applied in accordance with the appropriate Area Supplement.

Ratification Payment: Active full-time employees as of the date of ratification will receive a $1,000.00 lump sum payment, less applicable taxes. Inactive full-time employees, including those on approved leave of absence, workers’ compensation and disability leave, shall receive the $1,000.00 lump sum payment upon recall or return to active full-time status between date of ratification and December 31, 2018. Casual employees, as of the date of ratification, who have worked at least 300 hours between September 1, 2017 and March 31, 2018 will receive a $500.00 lump sum payment. Payment of the lump sum will be made by separate check and within thirty days of date of ratification.

General Wage Adjustments:

1. General Wage Adjustments: All Regular Employees.

All regular employees subject to this Agreement will receive the following general wage increases:

a. Effective July 1, 2018:

$0.30 increase per hour on all hourly rates

0.750 cents per mile on all mileage rates

b. Effective July 1, 2019:

$0.35 increase per hour on all hourly rates

0.875 cents per mile on all mileage rates

c. Effective July 1, 2020:

$0.40 increase per hour on all hourly rates

1.000 cents per mile on all mileage rates

d. Effective July 1, 2021:

$0.45 increase per hour on all hourly rates

1.125 cents per mile on all mileage rates

e. Effective July 1, 2022:

$0.50 increase per hour on all hourly rates

1.250 cents per mile on all mileage rates

f. No employee shall suffer a reduction in a wage rate as a result of this agreement.

Other Wage Adjustments:

g. Casual Rates:

City and Combination Casuals Hourly rates for city and combination casuals (CDL required) shall increase by 85% of the general wage increase for regular employees on the dates shown in Section 1 of this Article.

Effective July 1, 2018, the hourly rate for dock only casuals will increase to $16.25.
Effective July 1, 2019, the hourly rate for dock only casuals will increase to $16.50.
Effective July 1, 2020, the hourly rate for dock only casuals will increase to $16.75.
Effective July 1, 2021, the hourly rate for dock only casuals will increase to $17.00.

Effective July 1, 2022, the hourly rate for dock only casuals will increase to $17.25.

Vacation:

Employees will begin earning vacation under the new vacation eligibility schedule effective with their vacation anniversary date that begins on or after April 1, 2018. The new vacation eligibility schedule shall be the vacation eligibility schedule in the applicable 2008 to 2013 supplemental agreements.

Vacation for vacation anniversary dates effective April 1, 2013 to March 31, 2018 was or is being earned under the prior eligibility schedule and will be subject to the terms of that bargaining agreement and will not be affected. No employee shall be subject to the loss of more than 1 week of vacation per vacation anniversary year earned from April 1, 2013 to March 31, 2018.

Profit-Sharing Bonus (MOU to ABF NMFA, E. (1-3)

If the Employer achieves a published, annual operating ratio of 96.0 or below for any full calendar year during this agreement (2019 through 2022), each employee will receive a bonus based on their individual W-2 earnings (excluding any profit sharing bonuses) for the year in which the qualifying operating ratio was achieved according to the following schedule:

ABF Published Annual Operating Ratio	Bonus Amount
95.1 to 96.0	1%
93.1 to 95.0	2%
93.0 and below	3%

The profit-sharing bonus will be distributed to the employees by separate check within 60 days of the end of the calendar year. An employee must be on the ABF seniority list for the entire calendar year in question to be eligible for such a bonus. Any employee who resigns, retires or otherwise incurs a termination of employment, whether voluntary or involuntary, during the year in question shall not be eligible for a year-end bonus.

There shall be no inter-company charges initiated by the employer or changes in accounting assumptions or practices (GAAP), except as required to conform to governmental regulation, for the purpose of defeating the calculation of the Monthly, daily and/or hourly contributions shall be annual operating ratio.

Health & Welfare and Pension Plans:

All current language shall be replaced with the following:

a. The Company shall continue to contribute to the same Health and Welfare and Pension Funds it was contributing to as of March 1, 2018 and abide by each Fund’s rules and regulations. The Company shall execute all documents and participation agreements required by each Fund to maintain participation. The Company shall continue to contribute at the rates required as of March 31, 2018 as determined by the applicable Fund.

b. Health and Welfare Contribution Increases: Effective August 1, 2018 and each August 1 thereafter during the life of the agreement, the Company shall increase its contribution by the amount determined by the Funds, as being necessary to maintain benefits and/or comply with legally mandated benefit levels, not to exceed an increase of up to $0.50 per hour (or weekly/monthly equivalent) per year. Once a Fund issues a determination that an increase is reasonably necessary to maintain benefits in a given year, the increase shall become due and owing upon written notice from the Fund to the Company, provided the combined Health and Welfare increase does not exceed $0.50 per hour. The Article 20 approval process is no longer required. If the Company refuses to honor a request for an increase from the applicable Fund, the matter shall proceed directly to the National Grievance Committee for consideration. If the National Grievance Committee deadlocks, the request of the Fund shall prevail and be honored by the Company. Failure to comply within seventy-two (72) hours shall constitute an immediate delinquency.

For the following funds, however, the following fixed guaranteed contribution rate increases shall apply:

Central States Health - Teamcare

Western Teamsters Welfare Trust (WTWT)

Central Pennsylvania Health Plan

Local 710 Health Plan

Local 705 Health Plan

Local 179 Health Plan

Local 673 Health Plan

August 1, 2018-increase $0.39 per hour

August 1, 2019-increase $0.40 per hour

August 1, 2020-increase $0.42 per hour

August 1, 2021-increase $0.50 per hour

August 1, 2022-increase $0.50 per hour

Monthly, daily and/or hourly contributions shall be converted from the hourly contributions in accordance with past practice.

The trigger in all Supplements for qualifying for a week’s health and welfare contribution will remain three days, except for supplements that have a longer requirement. Those Supplements on an hourly contribution will continue their respective practices. The trigger for the obligation to make health & welfare contributions in Supplements that provide for a monthly-based contribution shall remain the same.

c. Pension Funds/Rates: All Pension contribution rates shall be frozen at those rates required by the applicable Pension Fund as of March 31, 2018 for the duration of this agreement. Neither the Company nor any Pension Fund is permitted to require contributions or payments of any assessments, co-pays, fees or surcharges from any employee or Union entity signatory hereto as a result of the frozen rate.

The “one-punch” rule for pension contributions in the Chicago area pension funds shall apply where such rule applied prior to the 2013-18 ABF NMFA.

Reopener: If new pension legislation is enacted during the term of this agreement, Article 27’s reopener provisions shall apply.

If any Pension Fund rejects this agreement because of the company’s level of contributions or otherwise refuses to accept the frozen contribution rate and terminates the Company’s participation in the Fund, the Company shall make contributions to the Teamsters National 401(k) Savings Plan in the amount of six dollars ($6.00) per hour on behalf of the employees in the area covered by the Pension Fund. Such amount shall be immediately 100% vested for the benefit of the employee. If a withdrawal event occurs for any other reason, Article 27’s reopener provisions shall apply (including the right to take economic action).

The Company will not seek to withdraw from any Pension Fund to which it contributed under the 2013-18 ABF NMFA.

Duration: April 1, 2018 through June 30, 2023 (63 months)

MOU to ABF NMFA

ABF Freight System Wage and Vacation Reduction – Job

Security Guidelines

Effective First Payroll Period Following Ratification

through March 31, 2018

(unless otherwise stated)

Part One: Employee Reduction

1. Wage Reduction. All bargaining unit and non-bargaining unit employees (including management) will share the burden of economic sacrifice contained in this MOU since job security is the number one asset all ABF employees hope to participate in equally. Towards that end, the bargaining unit employees will be paid in accordance with the wage adjustments set forth in the ABF NMFA, which adjustments are on the following basis:

All employees shall have their hourly wage and mileage rates be reduced by 7.0%.

Effective July 1, 2014: Increase all hourly wage and mileage rates by 2.0%

Effective July 1, 2015: Increase all hourly wage and mileage rates by 2.0%

Effective July 1, 2016: Increase all hourly wage and mileage rates by 2.0%

Effective July 1, 2017: Increase all hourly wage and mileage rates by 2.5%

Such wage reductions and/or reduced earnings shall include overtime, incentive pay, etc, in addition to vacation, sick pay, holiday pay, funeral leave, jury duty, and other paid for time not worked. Non-bargaining unit employees shall share the burden as set forth in (a) below.

(a) The Employer must reduce the total compensation (defined as wages plus health and welfare and pension or retirement benefits) of all non - ABF NMFA bargaining unit employees (including management) by the same percentage reduction (an "Equal Reduction") in total compensation as is being applied to bargaining unit employees. Consideration will be made for all parties’ respective sacrifices instituted during the twenty four months prior to this Plan’s effective date. The Employer and TNFINC shall cooperate in achieving the equal sacrifice among Canadian employees of ABF, and recognize such efforts must be in compliance with applicable Canadian federal and provincial law.

(b) This MOU shall not prevent the Employer from paying variable, performance based compensation as the Employer has paid in past practice. This shall also not prevent the Employer from providing targeted increases to individual employees if necessary, in the Employer’s judgment, to operate the business so long as the overall total compensation increases are within the effective overall total compensation percentage increases to be received by the bargaining unit employees. If it becomes necessary to exceed this overall percentage increase limit to retain employees for the efficient continued operation of the business, the Employer would request approval from TNFINC.

4. New Hires

All employees hired after ratification shall be paid in accordance with the newly established contractual new hire percentages and the newly established contractual rates.

Part Two: Employee Protections

(A).Access to Employer Financial Records.

The Employer shall submit an annual financial statement to the Local Unions which shall include an income statement, balance sheet and statement of cash flow for the prior year. The Union reserves the right on an annual basis to examine records of the Employer in order to monitor Employer compliance or utilize an independent auditor of its choice to do the same. As a condition of being provided such statements, books and audit, the Union (and any accountant or auditor engaged on its behalf) must agree to maintain the confidentiality of any Employer financial statements and reports for the protection of the Employer, and to execute a reasonable confidentiality agreement if the Employer requests in such form as the Employer may reasonably require.

(B) Work Preservation.

(a) For the duration of this Agreement, the Employer agrees not to establish or purchase any union or non-union trucking company without the prior approval of TNFINC.

(b) The Employer agrees that during every year of the ABF NMFA it will fund the purchase, replacement and maintenance of ABF rolling stock (tractors, trailers and other ABF power equipment) in an amount not less than the net wage reduction provided by the ABF NMFA.

(c)The Employer agrees that it will not transfer any bargaining unit work to another trucking company or truckingrelated service company, regardless of whether that company is affiliated with either ABF or its parent company, unless expressly authorized by the ABF-NMFA.

(d) The Employer makes a good faith commitment, absent any new regulatory or unforeseen extraordinary events, that it will not close ABF for the duration of this agreement.

The purpose of this wage reduction is to make a financial accommodation for the benefit of the Employer, within the meaning of section 365(e)(2) of the Bankruptcy Code. Accordingly, if the Employer files a Chapter 7 or 11 bankruptcy petition or is placed in an involuntary bankruptcy proceeding, the wage reduction may be terminated and wages reverted to full contract agreement on a prospective basis, if TNFINC so elects in writing. If TNFINC does not exercise its option hereunder, the Employer agrees not to file any motion under Sections 1113 or 1114 of the Bankruptcy Code without the union’s approval.

(D) Current Ownership.

In the event a Change of Control of ABF occurs (without the prior written consent of the Union), this wage reduction may be terminated and wages reverted to full contract wage rates in effect immediately prior to ratification on a prospective basis if the Union so elects in writing and all other provisions of this Plan shall be null and void on a prospective basis.

For the purposes of this wage reduction, a "Change of Control," shall be deemed to have taken place when a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, assumes ownership of more than 50% of the total voting power of the stock of ABC or where the current directors of ABC (or directors that they nominate or their nominees nominate) no longer continue to hold more than 50% of the voting power of the board of directors).

(E) Profit-Sharing Bonus

2. If the Employer achieves a published, annual operating ratio of 96.0 or below for any full calendar year during this agreement (2014 2019 through 2017 2022 ), each employee will receive a bonus based on their individual W-2 earnings (excluding any profit sharing bonuses) for the year in which the qualifying operating ratio was achieved according to the following schedule:

ABF Published Annual Operating Ratio	Bonus Amount
95.1 to 96.0	1%
93.1 to 95.0	2%
93.0 and below	3%

2.The profit-sharing bonus will be distributed to the employees by separate check within 60 days of the end of the calendar year. An employee must be on the ABF seniority list for the entire calendar year in question to be eligible for such a bonus. Any employee who resigns, retires or otherwise incurs a termination of employment, whether voluntary or involuntary, during the year in question shall not be eligible for a year-end bonus.

3.There shall be no inter-company charges initiated by the employer or changes in accounting assumptions or practices (GAAP), except as required to conform to governmental regulation, for the purpose of defeating the calculation of the annual operating ratio.

(F) Pension Legislation

In the event that future federal legislation allows ABF to reduce its pension contribution rates which would not cause a reduction in benefits, the Company reserves the right to reopen the ABF NMFA as it relates to the pension contribution rates. If the parties do not

agree on a mutually satisfactory resolution to negotiations over such issue within sixty (60) days of the start of such negotiations, either party shall be permitted all legal or economic recourse in support of its proposals on this matter notwithstanding any provisions of this Agreement to the contrary.

(G) Dispute Resolution

As part of the Collective Bargaining Agreement, disputes pertaining to this MOU are subject to the grievance procedure contained in the ABF National Master Freight Agreement. However, any grievance filed hereunder, by either party, shall be referred directly to the appropriate Regional Joint Area Committee for initial hearing and disposition.

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: November 8, 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: November 8, 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 September 30, 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: November 8, 2018	/s/ Judy R. McReynolds
	Judy R. McReynolds
	Chairman, President and Chief Executive Officer
	and Principal Executive Officer


	ARCBEST CORPORATION
	(Registrant)

Date: November 8, 2018	/s/ David R. Cobb
	David R. Cobb
	Vice President — Chief Financial Officer
	and Principal Financial Officer