ARCBEST CORP /DE/ - Quarter Report: 2010 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarter Ended September 30, 2010

 

o         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

 

ARKANSAS BEST CORPORATION

(Exact name of registrant as specified in its charter)

 

 

3801 Old Greenwood Road

Fort Smith, Arkansas 72903

(479) 785-6000

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

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

 

Not Applicable

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

 

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

 

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

 

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

 

 

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

 

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

 

 

 

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ARKANSAS BEST CORPORATION

 

INDEX

 

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets – September 30, 2010 and December 31, 2009	3
	Consolidated Statements of Operations – For the Three and Nine Months Ended September 30, 2010 and 2009	5
	Consolidated Statement of Stockholders’ Equity – For the Nine Months Ended September 30, 2010	6
	Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2010 and 2009	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Removed and Reserved	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
SIGNATURES		40
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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PART I.

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ARKANSAS BEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

		September 30			December 31
		2010			2009
		(Unaudited)
		($ thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	99,506		$	39,332
Short-term investment securities		45,751			93,861
Restricted cash equivalents and short-term investments		50,755			50,857
Accounts receivable, less allowances (2010 – $3,378; 2009 – $3,470)		145,812			115,459
Other accounts receivable, less allowances (2010 – $1,283; 2009 – $1,149)		7,542			6,749
Prepaid expenses		8,678			10,390
Deferred income taxes		32,817			39,035
Prepaid and refundable income taxes		6,994			24,726
Other		4,532			4,333
TOTAL CURRENT ASSETS		402,387			384,742
PROPERTY, PLANT AND EQUIPMENT
Land and structures		239,616			240,185
Revenue equipment		529,488			514,481
Service, office and other equipment		159,929			157,885
Leasehold improvements		22,144			21,839
		951,177			934,390
Less allowances for depreciation and amortization		542,258			505,538
		408,919			428,852
OTHER ASSETS		53,733			55,952
		$	865,039		$	869,546

 

See notes to consolidated financial statements.

 

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ARKANSAS BEST CORPORATION

CONSOLIDATED BALANCE SHEETS – continued

 

		September 30			December 31
		2010			2009
		(Unaudited)
		($ thousands, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank overdraft and drafts payable		$	11,801		$	21,941
Accounts payable		72,652			59,386
Income taxes payable		409			826
Accrued expenses		149,193			150,799
Current portion of long-term debt		10,844			3,603
TOTAL CURRENT LIABILITIES		244,899			236,555
LONG-TERM DEBT, less current portion		33,802			13,373
PENSION AND POSTRETIREMENT LIABILITIES		68,807			67,445
OTHER LIABILITIES		19,987			20,254
DEFERRED INCOME TAXES		21,295			31,023
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2010: 26,879,458 shares; 2009: 26,749,265 shares		269			267
Additional paid-in capital		278,379			274,663
Retained earnings		296,023			327,948
Treasury stock, at cost, 1,677,932 shares		(57,770		)	(57,770		)
Accumulated other comprehensive loss		(40,652		)	(44,212		)
TOTAL STOCKHOLDERS’ EQUITY		476,249			500,896
		$	865,039		$	869,546

 

See notes to consolidated financial statements.

 

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ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three Months Ended						Nine Months Ended
		September 30						September 30
		2010			2009			2010			2009
		(Unaudited)
		($ thousands, except share and per share data)
OPERATING REVENUES		$	445,531		$	398,957		$	1,216,768		$	1,101,269
OPERATING EXPENSES AND COSTS		447,307			411,194			1,264,619			1,169,405
OPERATING LOSS		(1,776		)	(12,237		)	(47,851		)	(68,136		)
OTHER INCOME (EXPENSE)
Interest and dividend income		313			666			920			2,399
Interest expense and other related financing costs		(853		)	(357		)	(1,853		)	(1,041		)
Other, net		1,346			2,035			1,558			2,345
		806			2,344			625			3,703
LOSS BEFORE INCOME TAXES		(970		)	(9,893		)	(47,226		)	(64,433		)
FEDERAL AND STATE INCOME TAXES
Current benefit		(1,864		)	(3,302		)	(11,199		)	(25,515		)
Deferred provision (benefit)		1,479			(1,263		)	(6,722		)	(69		)
		(385		)	(4,565		)	(17,921		)	(25,584		)
NET LOSS		(585		)	(5,328		)	(29,305		)	(38,849		)
LESS:  NONCONTROLLING INTEREST IN NET INCOME OF SUBSIDIARY		164			245			280			324
NET LOSS ATTRIBUTABLE TO ARKANSAS BEST CORPORATION		$	(749	)	$	(5,573	)	$	(29,585	)	$	(39,173	)
LOSS PER SHARE
Basic		$	(0.03	)	$	(0.23	)	$	(1.18	)	$	(1.58	)
Diluted		(0.03		)	(0.23		)	(1.18		)	(1.58		)
AVERAGE COMMON SHARES OUTSTANDING
Basic		25,199,123			25,047,975			25,166,678			25,047,270
Diluted		25,199,123			25,047,975			25,166,678			25,047,270
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.03		$	0.15		$	0.09		$	0.45

 

See notes to consolidated financial statements.

 

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ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

 

																		Accumulated
							Additional											Other
		Common Stock					Paid-In			Retained			Treasury Stock					Comprehensive			Total
		Shares		Amount			Capital			Earnings			Shares		Amount			Loss			Equity
		(Unaudited)
		($ and shares, thousands)
Balances at December 31, 2009		26,749		$	267		$	274,663		$	327,948		1,678		$	(57,770	)	$	(44,212	)	$	500,896
Net loss (excluding noncontrolling interest in net income of subsidiary of $280)										(29,585		)									(29,585		)
Change in foreign currency translation, net of tax of $27																		43			43
Amortization of unrecognized net periodic benefit costs, net of tax of $2,335:
Net actuarial loss																		3,611			3,611
Prior service credit																		(3		)	(3		)
Net transition obligation																		62			62
Pension settlement expense, net of tax of $69																		109			109
Unrecognized net actuarial loss, net of tax of $164																		(261		)	(261		)
Change in fair value of available for sale security, net of tax of $1																		(1		)	(1		)
Total comprehensive loss																					(26,025		)
Issuance of common stock under share-based compensation plans		130		2			466														468
Tax effect of share-based compensation plans and other							(941		)												(941		)
Share-based compensation expense							4,191														4,191
Dividends declared on common stock										(2,340		)									(2,340		)
Balances at September 30, 2010		26,879		$	269		$	278,379		$	296,023		1,678		$	(57,770	)	$	(40,652	)	$	476,249

 

See notes to consolidated financial statements.

 

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ARKANSAS BEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Nine Months Ended
		September 30
		2010			2009
		(Unaudited)
		($ thousands)
OPERATING ACTIVITIES
Net loss		$	(29,305	)	$	(38,849	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		53,771			56,348
Other amortization		200			220
Pension settlement expense		178			158
Share-based compensation expense		4,191			4,777
Provision for losses on accounts receivable		453			2,432
Deferred income tax benefit		(6,722		)	(69		)
Gain on sales of assets		(142		)	(1,214		)
Excess tax benefits from share-based compensation		(83		)	—
Changes in operating assets and liabilities:
Receivables		(31,595		)	(13,587		)
Prepaid expenses		1,724			2,321
Other assets		659			316
Income taxes		18,145			542
Accounts payable, accrued expenses and other liabilities		10,399			10,469
NET CASH PROVIDED BY OPERATING ACTIVITIES		21,873			23,864
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net of capital leases		(4,322		)	(32,914		)
Proceeds from asset sales		3,393			3,714
Purchases of short-term investment securities		(51,065		)	(110,198		)
Proceeds from sales of short-term investment securities		99,175			96,689
Business acquisition, net of cash acquired		—			(4,873		)
Capitalization of internally developed software and other		(3,265		)	(3,962		)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		43,916			(51,544		)
FINANCING ACTIVITIES
Payments on long-term debt		(5,167		)	(1,401		)
Proceeds from issuance of long-term debt		11,416			—
Net change in bank overdraft		(10,140		)	(1,220		)
Change in restricted cash equivalents and short-term investments		103			—
Deferred financing costs		(35		)	(300		)
Payment of common stock dividends		(2,340		)	(11,632		)
Excess tax benefits from share-based compensation		83			—
Proceeds from the exercise of stock options and other		465			240
NET CASH USED IN FINANCING ACTIVITIES		(5,615		)	(14,313		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		60,174			(41,993		)
Cash and cash equivalents at beginning of period		39,332			100,880
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	99,506		$	58,887

 

See notes to consolidated financial statements.

 

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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

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

 

Arkansas Best Corporation (the “Company”) is a holding company engaged through its subsidiaries primarily in motor carrier freight transportation. The Company’s principal operations are conducted through ABF Freight System, Inc. and other subsidiaries of the Company that are engaged in motor carrier freight transportation (collectively “ABF”).

 

As of September 2010, 76% of ABF’s employees were covered under a five-year collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”). The agreement with the IBT, which became effective April 1, 2008, provides for compounded annual contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living adjustments.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable rules and regulations of the Securities and Exchange Commission (the “Commission”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements and, therefore, should be read in conjunction with the audited financial statements and accompanying notes included in the Company’s 2009 Annual Report on Form 10-K and other current filings with the Commission. In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary for a fair presentation have been included. ABF is impacted by seasonal fluctuations which affect tonnage and shipment levels and consequently revenues and operating results. 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 tonnage levels. Operating results for the interim periods presented may not necessarily be indicative of the results for the fiscal year.

 

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 reported amounts of assets and liabilities, the disclosed amounts of contingent liabilities and the reported amounts of revenues and expenses. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.

 

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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – continued

 

NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Financial Instruments

 

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments.

 

Cash and Cash Equivalents: Cash and cash equivalents totaling $99.5 million at September 30, 2010 consisted of $60.0 million of cash deposits recorded at cost plus accrued interest, which approximates fair value, and $39.5 million of money market funds for which quoted prices are used to determine fair value. At December 31, 2009, cash and cash equivalents of $39.3 million consisted primarily of money market funds.

 

Short-Term Investments: Short-term investments totaling $45.8 million and $93.9 million at September 30, 2010 and December 31, 2009, respectively, consisted of certificates of deposit which are recorded at cost plus accrued interest, which approximates fair value.

 

Restricted Cash Equivalents and Short-Term Investments: At September 30, 2010 and December 31, 2009, restricted funds of $30.2 million and $48.0 million, respectively, were invested in cash and certificates of deposit and recorded at cost plus accrued interest, which approximates fair value. The remaining balances of $20.6 million at September 30, 2010 and $2.9 million at December 31, 2009 consisted of money market funds which are recorded at fair value as determined by quoted prices. The amounts of cash equivalents and short-term investments restricted for use are subject to change based on the requirements of the Company’s collateralized facilities (see Note D).

 

Long-Term Investments: Long-term investments which are reported at fair value within other long-term assets at September 30, 2010 and December 31, 2009 consisted of mutual fund investments held in trust related to the Company’s Voluntary Savings Plan (“VSP”) and an insured, investment-grade available for sale auction rate debt security. Quoted market prices are used to determine fair values of the mutual fund investments of the VSP, a nonqualified deferred compensation plan. The auction rate debt security, for which the underlying debt instrument matures in 2025, is valued using the income approach with inputs derived from observable market data.

 

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 placing its cash, cash equivalents and short-term investments with major financial institutions that have high credit ratings and by investing unrestricted short-term investments primarily in FDIC-insured certificates of deposit with varying original maturities of ninety-one days to one year. However, certain cash deposits and certificates of deposit, primarily those pledged as collateral for outstanding letters of credit (see Note D), may exceed federally insured limits. At September 30, 2010 and December 31, 2009, cash and certificates of deposit of $36.0 million and $50.4 million, respectively, exceeded FDIC-insured limits.

 

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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – continued

 

Financial Assets Measured at Fair Value

 

Fair value is generally determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements generally involve developing assumptions based on observable market data. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These inputs form a three-level valuation hierarchy as follows:

 

·                  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 that are significant to the valuation model.

 

The following table presents, for each of the fair value hierarchy levels, the Company’s assets measured at fair value on a recurring basis:

 

					September 30, 2010
					Fair Value Measurements Using
		Total			Level 1			Level 2			Level 3
					($ thousands)
Money market funds(1)		$	60,058		$	60,058		$	—		$	—
Auction rate debt security(2)		778			—			778			—
Equity, bond and money market mutual funds held in trust related to the VSP(3)		5,678			5,678			—			—
		$	66,514		$	65,736		$	778		$	—

 

					December 31, 2009
					Fair Value Measurements Using
		Total			Level 1			Level 2			Level 3
					($ thousands)
Money market funds(1)		$	34,437		$	34,437		$	—		$	—
Auction rate debt security(2)		780			—			780			—
Equity, bond and money market mutual funds held in trust related to the VSP(3)		6,303			6,303			—			—
		$	41,520		$	40,740		$	780		$	—

 

(1)         Included in cash equivalents and restricted cash equivalents.

(2)         Available for sale security included in other long-term assets. An unrealized gain of $0.1 million, net of taxes, related to the security was included in accumulated other comprehensive loss as of September 30, 2010 and December 31, 2009.

(3)         Consists 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 and included in other long-term assets. A corresponding liability is included in other long-term liabilities.

 

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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – continued

 

NOTE C – INCOME TAXES

 

The effective tax benefit rates for the nine months ended September 30, 2010 and 2009 were 37.9% and 39.7%, respectively. The difference between the Company’s effective tax rate and the federal statutory rate primarily results from the effect of state income taxes, nondeductible expenses, changes in the cash surrender value of life insurance and, for the nine months ended September 30, 2009, the alternative fuel tax credit. The alternative fuel tax credit, which expired December 31, 2009, increased the effective tax benefit rate by 0.9% for the nine months ended September 30, 2009. During the nine months ended September 30, 2010, the Company received refunds of $32.0 million of federal and state taxes paid in prior years primarily for loss carrybacks allowed by the U.S. Internal Revenue Code and paid federal and state income taxes of $2.7 million.

 

NOTE D – LONG-TERM DEBT AND FINANCING ARRANGEMENTS

 

Capital Lease Obligations

 

Long-term debt consisted of capital lease obligations related to revenue equipment (tractors and trailers used primarily in ABF’s operations), real estate and certain office equipment as follows:

 

		September 30			December 31
		2010			2009
		($ thousands)
Capital lease obligations		$	44,646		$	16,976
Less current portion		10,844			3,603
Long-term debt, less current portion		$	33,802		$	13,373

 

In January 2010, ABF entered into capital lease agreements with 36-month terms to finance $11.4 million of revenue equipment that was acquired in 2009. During the nine months ended September 30, 2010, ABF entered into additional capital lease agreements with 36-month and 60-month terms to finance $21.4 million of revenue equipment acquired in 2010. The capital lease agreements specify the terms of the arrangements, including the monthly base rent and interest rates, and contain rental adjustment clauses for which the maximum amounts have been included in the future minimum payments under the capital leases in the table below.

 

The following is a summary of the future minimum payments under capital leases:

 

		September 30
		2010
		($ thousands)
Due in one year or less		$	12,669
Due after one year through three years		31,335
Due after three years through five years		3,930
Due after five years		960
Total minimum lease payments		48,894
Less amounts representing interest		4,248
Present value of net minimum leases included in long-term debt		$	44,646

 

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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – continued

 

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

 

		September 30			December 31
		2010			2009
		($ thousands)
Land and structures (terminals)		$	1,794		$	1,780
Revenue equipment		47,780			14,958
Service, office and other equipment		622			622
		50,196			17,360
Less accumulated amortization(1)		6,536			538
		$	43,660		$	16,822

 

(1)         Amortization of assets under capital leases is included in depreciation expense.

 

Financing Arrangements

 

The Company has an asset-backed securitization program with SunTrust Bank which provides for cash proceeds of an amount up to $75.0 million. Under this two-year agreement dated December 30, 2009, ABF continuously sells 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 interest in the trade accounts receivables. The Company pays annual fees equal to 0.75% of the unused portion of the accounts receivable facility. This agreement contains representations and warranties, affirmative and negative covenants and events of default that are customary for financings of this type, including maintaining consolidated tangible net worth, as defined, of $375.0 million. As of September 30, 2010, the Company was in compliance with the covenants. There have been no borrowings under this facility during 2010, and the borrowing capacity was at the facility limit of $75.0 million as of September 30, 2010.

 

The Company has agreements with four financial institutions to provide collateralized facilities for the issuance of letters of credit (“LC Agreements”). The Company issues 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 Company has up to $90.0 million of availability for the issuance of letters of credit under the LC Agreements of which $75.0 million is committed subject to the Company’s compliance with the requirements of issuance. The LC Agreements require cash or short-term investments to be pledged as collateral for outstanding letters of credit. As of September 30, 2010, the Company had $44.7 million of letters of credit outstanding of which $44.2 million were collateralized by restricted cash equivalents and short-term investments under the LC Agreements.

 

The Company also has a program in place with an insurance carrier for the issuance of surety bonds in support of the self-insured program mentioned in the previous paragraph. As of September 30, 2010, surety bonds outstanding related to the self-insured program totaled $12.6 million collateralized by $6.6 million of restricted short-term investments in certificates of deposit.

 

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ARKANSAS BEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – continued

 

NOTE E – PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

 

Nonunion Defined Benefit Pension, Supplemental Benefit Pension and Postretirement Health 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 Pension Plan						Health Benefit Plan
		2010			2009			2010			2009			2010			2009
		($ thousands)
Service cost		$	2,235		$	2,271		$	—		$	135		$	35		$	42
Interest cost		2,735			3,091			101			229			218			278
Expected return on plan assets		(3,043		)	(2,359		)	—			—			—			—
Transition obligation recognition		—			—			—			—			34			34
Amortization of prior service (credit) cost		(2		)	(225		)	—			349			—			—
Pension settlement expense		—			—			—			—			—			—
Recognized net actuarial loss and other		1,898			2,360			75			152			4			142
Net periodic benefit cost		$	3,823		$	5,138		$	176		$	865		$	291		$	496

 

		Nine Months Ended September 30
		Nonunion Defined						Supplemental						Postretirement
		Benefit Pension Plan						Benefit Pension Plan						Health Benefit Plan
		2010			2009			2010			2009			2010			2009
		($ thousands)
Service cost		$	6,707		$	6,812		$	—		$	435		$	105		$	127
Interest cost		8,203			9,271			309			766			653			833
Expected return on plan assets		(9,129		)	(7,076		)	—			—			—			—
Transition obligation recognition		—			—			—			—			101			101
Amortization of prior service (credit) cost		(5		)	(673		)	—			1,047			—			—
Pension settlement expense		—			—			178			158			—			—
Recognized net actuarial loss and other		5,692			7,080			204			422			13			426
Net periodic benefit cost		$	11,468		$	15,414		$	691		$	2,828		$	872		$	1,487

 

The Company’s full-year 2010 nonunion defined benefit pension plan expense is estimated to be $15.3 million compared to $20.6 million for the year ended December 31, 2009. Considering the volatility in the overall equity markets during 2010, the expected return on plan assets may not be achieved in the near term. Furthermore, declines in market interest rates during 2010 may result in a lower discount rate used to calculate the projected benefit obligation of the nonunion defined benefit pension plan at year-end, which could result in an increase in the pension liability. As of the plan’s December 31, 2010 measurement date, the impact on the pension liability as a result of the difference between the expected and actual return on plan assets along with changes in the applicable discount rate will be recognized as an actuarial gain or loss at year-end in other comprehensive income, net of taxes.

 

The Company was not required to make a cash contribution to its nonunion defined benefit pension plan; however, the Company made a voluntary tax-deductible contribution of $5.0 million to the plan in the third quarter of 2010. The Company’s nonunion defined benefit pension plan covers substantially all noncontractual employees hired before January 1, 2006. All eligible noncontractual employees hired subsequent to December 31, 2005 participate in a defined contribution plan.

 

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