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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | 3 Months Ended
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Mar. 31, 2023
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS ​ Financial Instruments ​ The following table presents the components of cash and cash equivalents and short-term investments: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | March 31 |  | December 31 |
​ | ​ | 2023 | ​ | 2022 |
​ | ​ | (in thousands) | ​
Cash and cash equivalents | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash deposits(1)(2) | ​ | $ | 129,640 | ​ | $ | 137,247 | ​
Variable rate demand notes(1)(3) | ​ |  | 121 | ​ |  | 9,285 | ​
Money market funds(4) | ​ |  | 73,558 | ​ |  | 11,732 | ​
Total cash and cash equivalents | ​ | $ | 203,319 | ​ | $ | 158,264 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Short-term investments | ​ | ​ | ​ | ​ | ​ | ​ | ​
Certificates of deposit(1) | ​ | $ | 113,307 | ​ | $ | 88,851 | ​
U.S. Treasury securities(5) | ​ | ​ | 49,180 | ​ | ​ | 78,811 | ​
Total short-term investments | ​ | $ | 162,487 | ​ | $ | 167,662 | ​
​
(1) | Recorded at cost plus accrued interest, which approximates fair value.
(2) | The December 31, 2022 balance reflects the reclassification of FleetNet cash deposits to discontinued operations.
(3) | Amounts may be redeemed on a daily basis with the original issuer.
(4) | 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).
(5) | Recorded at amortized cost plus accrued interest, which approximates fair value. U.S. Treasury securities included in short-term investments are held-to-maturity investments with maturity dates of less than one year.
​ The Company’s long-term financial instruments are presented in the table of financial assets and liabilities measured at fair value within this Note. ​ Concentrations of Credit Risk of Financial Instruments The Company is potentially subject to concentrations of credit risk related to its cash, cash equivalents, and short-term investments. The Company reduces credit risk by maintaining its cash deposits and short-term investments in accounts and certificates of deposit which are primarily FDIC-insured or in direct obligations of the U.S. government. At March 31, 2023 and December 31, 2022, cash deposits and short-term investments which were neither FDIC insured nor direct obligations of the U.S. government totaled $105.2 million and $87.6 million, respectively. The Company also holds money market funds which are invested in U.S. government securities and repurchase agreements collateralized solely by U.S. government securities. ​ Fair Value Disclosure of Financial Instruments Fair value disclosures are made in accordance with the following hierarchy of valuation techniques based on whether the inputs of market data and market assumptions used to measure fair value are observable or unobservable: ​
| ● | Level 1 — Quoted prices for identical assets and liabilities in active markets.
| ● | Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
| ● | Level 3 — Unobservable inputs (Company’s market assumptions) that are significant to the valuation model.
​ Fair value and carrying value disclosures of financial instruments are presented in the following table: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31 | ​ | December 31 | ​
​ |  | 2023 |  | 2022 |
​ | ​ | (in thousands) | ​
​ | ​ | ​ | Carrying |  | ​ | Fair |  | ​ | Carrying |  | ​ | Fair | ​
​ | ​ | ​ | Value |  | ​ | Value |  | ​ | Value |  | ​ | Value | ​
Credit Facility(1) | ​ | $ | 50,000 | ​ | $ | 50,000 | ​ | $ | 50,000 | ​ | $ | 50,000 | ​
Notes payable(2) | ​ |  | 200,452 | ​ |  | 194,705 | ​ |  | 214,623 | ​ |  | 207,778 | ​
New England Pension Fund withdrawal liability(3) | ​ | ​ | 19,929 | ​ | ​ | 19,253 | ​ | ​ | 20,100 | ​ | ​ | 18,911 | ​
​ | ​ | $ | 270,381 | ​ | $ | 263,958 | ​ | $ | 284,723 | ​ | $ | 276,689 | ​
​
(1) | The revolving credit facility (the “Credit Facility”) carries a variable interest rate based on Secured Overnight Financing Rate (“SOFR”), plus a margin, priced at market for debt instruments having similar terms and collateral requirements (Level 2 of the fair value hierarchy).
(2) | Fair value of the notes payable was determined using a present value income approach based on quoted interest rates from lending institutions with which the Company would enter into similar transactions (Level 2 of the fair value hierarchy).
(3) | ABF Freight’s multiemployer pension plan obligation with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”) was restructured under a transition agreement effective on August 1, 2018, which resulted in a related withdrawal liability. The fair value of the outstanding withdrawal liability is equal to the present value of the future withdrawal liability payments, discounted at an interest rate of 4.9% and 5.3% at March 31, 2023 and December 31, 2022, respectively, determined using the 20-year U.S. Treasury rate plus a spread (Level 2 of the fair value hierarchy). As of March 31, 2023, the outstanding withdrawal liability totaled $19.9 million, of which $0.7 million and $19.2 million were recorded in accrued expenses and other long-term liabilities, respectively.
​ Assets and Liabilities Measured at Fair Value on a Recurring Basis ​ The following table presents the assets and liabilities that are measured at fair value on a recurring basis: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, 2023 | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurements Using | ​
​ | ​ | ​ | ​ | ​ | Quoted Prices |  | Significant |  | Significant | ​
​ |  | ​ | ​ | ​ | In Active | ​ | Observable | ​ | Unobservable | ​
​ | ​ | ​ | ​ | ​ | Markets | ​ | Inputs | ​ | Inputs | ​
​ | ​ | Total |  | (Level 1) |  | (Level 2) |  | (Level 3) |
​ | ​ | (in thousands) | ​
Assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Money market funds(1) | ​ | $ | 73,558 | ​ | $ | 73,558 | ​ | $ | — | ​ | $ | — | ​
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) | ​ |  | 3,898 | ​ |  | 3,898 | ​ |  | — | ​ |  | — | ​
Interest rate swap(3) | ​ | ​ | 2,913 | ​ | ​ | — | ​ | ​ | 2,913 | ​ | ​ | — | ​
​ | ​ | $ | 80,369 | ​ | $ | 77,456 | ​ | $ | 2,913 | ​ | $ | — | ​
Liabilities: | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Contingent consideration(4) | ​ | ​ | 127,040 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 127,040 | ​
​ | ​ | $ | 127,040 | ​ | $ | — | ​ | $ | — | ​ | $ | 127,040 | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, 2022 | ​
​ | ​ | ​ | ​ | ​ | Fair Value Measurements Using | ​
​ | ​ | ​ | ​ | ​ | Quoted Prices |  | Significant |  | Significant | ​
​ |  | ​ | ​ | ​ | In Active | ​ | Observable | ​ | Unobservable | ​
​ | ​ | ​ | ​ | ​ | Markets | ​ | Inputs | ​ | Inputs | ​
​ | ​ | Total |  | (Level 1) |  | (Level 2) |  | (Level 3) |
​ | ​ | (in thousands) | ​
Assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Money market funds(1) | ​ | $ | 11,732 | ​ | $ | 11,732 | ​ | $ | — | ​ | $ | — | ​
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) | ​ |  | 3,982 | ​ |  | 3,982 | ​ |  | — | ​ |  | — | ​
Interest rate swap(3) | ​ | ​ | 3,526 | ​ | ​ | — | ​ | ​ | 3,526 | ​ | ​ | — | ​
​ | ​ | $ | 19,240 | ​ | $ | 15,714 | ​ | $ | 3,526 | ​ | $ | — | ​
Liabilities: | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Contingent consideration(4) | ​ | ​ | 112,000 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 112,000 | ​
​ | ​ | $ | 112,000 | ​ | $ | — | ​ | $ | — | ​ | $ | 112,000 | ​
​
(1) | Included in cash and cash equivalents.
(2) | Nonqualified deferred compensation plan investments consist of U.S. and international equity mutual funds, government and corporate bond mutual funds, and money market funds which are held in a trust with a third-party brokerage firm. Included in other long-term assets, with a corresponding liability reported within other long-term liabilities.
(3) | Included in other long-term assets. The fair value of the interest rate swap was determined by discounting future cash flows and receipts based on expected interest rates observed in market interest rate curves adjusted for estimated credit valuation considerations reflecting nonperformance risk of the Company and the counterparty, which are generally considered to be in Level 3 of the fair value hierarchy. However, the Company assessed Level 3 inputs as insignificant to the valuation at March 31, 2023 and December 31, 2022, and considers the interest rate swap valuation in Level 2 of the fair value hierarchy.
(4) | As part of the Agreement and Plan of Merger (the “Merger Agreement”) of MoLo, executed in November 2021, certain additional cash consideration is required to be paid by the Company based on the achievement of certain incremental targets of adjusted earnings before interest, taxes, depreciation and amortization for each of the years ended December 31, 2023, 2024, and 2025. At 100% of the target, the cumulative additional consideration for years 2023 through 2025 would be $215.0 million, with the possible undiscounted cash consideration due ranging from a total of $95.0 million at 80% of target to $455.0 million at 300% of target, as outlined in the Merger Agreement. The estimated fair value of contingent earnout consideration is determined by assessing Level 3 inputs. The Level 3 assessments utilize a Monte Carlo simulation with inputs including scenarios of estimated revenues and earnings before interest, taxes, depreciation and amortization to be achieved for the applicable performance periods, volatility factors applied to the simulations, and the discount rate applied, which was 13.7% and 14.0% as of March 31, 2023 and December 31, 2022, respectively. Changes in the significant unobservable inputs might result in a significantly higher or lower fair value at the reporting date. As of March 31, 2023, the contingent earnout consideration totaled $127.0 million, of which $43.4 million was recorded in current liabilities based on when expected payouts become due, and the remaining portion was recorded in long-term liabilities. The increase in fair value upon the remeasurement at March 31, 2023 reflects increases in
| assumptions for business growth, combined with a lower discount rate versus the previous measurement period. Adjustments to the contingent earnout consideration liability are included in operating income.
​ 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, 2022 | ​ | $ | 112,000 | ​
Change in fair value included in operating income | ​ | ​ | 15,040 | ​
Balances at March 31, 2023 | ​ | $ | 127,040 | ​
​

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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