OPERATING SEGMENT DATA

9 Months Ended

Sep. 30, 2017

OPERATING SEGMENT DATA

OPERATING SEGMENT DATA

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.

On November 3, 2016, the Company announced its plan to implement a new corporate structure which unified the Company’s sales, pricing, customer service, marketing, and capacity sourcing functions effective January 1, 2017.These unified functions, along with other company-wide functions, represent the Company’s shared services.

As disclosed in the Company’s 2016 Annual Report on Form 10-K, the operating segments previously reported as Premium Logistics (Panther), Transportation Management (ABF Logistics), and Household Goods Moving Services (ABF Moving) were combined into a single asset light logistics operation reported under the ArcBest segment for the quarter and year ended December 31, 2016. The Company has restated certain prior year operating segment data in this Quarterly Report on Form 10-Q to conform to the current year presentation. Segment revenues and expenses were adjusted to eliminate certain intercompany charges consistent with the manner in which they are reported under the new corporate structure. Certain intercompany charges among the previously reported Panther, ABF Logistics, and ABF Moving segments which were previously eliminated in the “Other and eliminations” line, are now eliminated within the ArcBest segment. There was no impact on the Company’s consolidated revenues, operating expenses, operating income, or earnings per share as a result of the restatements.

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

Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, 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.

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

The Company’s reportable operating segments are as follows:

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

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

· 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.

ArcBest segment operations are influenced by seasonal fluctuations that impact customers’ supply chains and the resulting demand for expedite services. 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. Expedite shipments of the ArcBest segment may decline during winter months because of post-holiday slowdowns but 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. The household goods 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. Shipment volumes of the ArcBest segment’s Truckload-Dedicated service offering, which was acquired in September 2016, are typically highest in the third and fourth calendar quarters of each year. Seasonal fluctuations have been less apparent in the results of the Truckload and Truckload-Dedicated services of the ArcBest segment than in the industry as a whole because of business growth, including acquisitions, in this service offering of the segment.

· 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 adverse 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.

The following tables reflect reportable operating segment information:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2017		2016(1)		2017		2016(1)
	(in thousands)
REVENUES
Asset-Based	$	517,417	$	509,001	$	1,496,310	$	1,434,315
ArcBest(2)		195,749		170,991		524,554		467,735
FleetNet		39,568		39,073		116,307		124,417
Other and eliminations		(8,454)		(5,142)		(21,435)		(14,462)
Total consolidated revenues	$	744,280	$	713,923	$	2,115,736	$	2,012,005
OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	286,918	$	284,240	$	853,474	$	829,312
Fuel, supplies, and expenses		57,395		55,017		174,326		160,532
Operating taxes and licenses		11,712		12,237		35,726		36,239
Insurance		8,348		8,464		23,068		22,492
Communications and utilities		4,575		4,114		13,260		11,847
Depreciation and amortization		20,543		19,950		61,777		59,614
Rents and purchased transportation		55,381		58,221		154,995		145,439
Shared services(3)		48,255		46,981		138,700		139,449
Gain on sale of property and equipment		(7)		(81)		(599)		(2,450)
Nonunion pension expense, including settlement(4)		1,676		545		3,474		1,929
Other		757		1,263		3,936		3,489
Restructuring costs(5)		95		—		268		—
Total Asset-Based		495,648		490,951		1,462,405		1,407,892
ArcBest(2)
Purchased transportation		155,894		132,860		417,313		366,346
Supplies and expenses		3,853		3,263		11,265		9,282
Depreciation and amortization		3,015		3,684		9,511		10,497
Shared services(3)		22,565		21,724		63,115		64,928
Other		2,817		3,191		8,155		8,232
Restructuring costs(5)		—		—		875		—
Total ArcBest		188,144		164,722		510,234		459,285
FleetNet		38,695		38,952		113,730		122,716
Other and eliminations(5)		(2,556)		(1,072)		(7,463)		(5,647)
Total consolidated operating expenses(4)	$	719,931	$	693,553	$	2,078,906	$	1,984,246

⁽¹⁾ Certain restatements have been made to the prior year’s operating segment data to conform to the current year presentation, reflecting the realignment of the Company’s corporate structure as previously discussed in this Note.

⁽²⁾ Includes the operations of LDS since the September 2, 2016 acquisition date.

⁽³⁾ Certain reclassifications have been made to the prior year’s operating segment data to conform to the current year presentation, reflecting the modified presentation of segment expenses allocated from shared services as previously discussed in this Note.

⁽⁴⁾ For the three months ended September 30, 2017 and 2016, pre-tax nonunion pension expense, including settlement, on a consolidated basis totaled $2.0 million and $0.7 million, respectively, of which $1.7 million and $0.5 million, respectively, was reported by the Asset-Based segment. For the nine months ended September 30, 2017 and 2016, pre-tax nonunion pension expense, including settlement, totaled $4.5 million and $2.6 million, respectively, of which $3.5 million and $1.9 million, respectively, was reported by the Asset-Based segment.

⁽⁵⁾ Restructuring costs relate to the realignment of the Company’s corporate structure (see Note K). “Other and eliminations” includes $0.6 million and $1.6 million of restructuring costs for the three and nine months ended September 30, 2017, respectively.

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2017		2016(1)		2017		2016(1)
	(in thousands)
OPERATING INCOME
Asset-Based	$	21,769	$	18,050	$	33,905	$	26,423
ArcBest(2)		7,605		6,269		14,320		8,450
FleetNet		873		121		2,577		1,701
Other and eliminations		(5,898)		(4,070)		(13,972)		(8,815)
Total consolidated operating income	$	24,349	$	20,370	$	36,830	$	27,759
OTHER INCOME (COSTS)
Interest and dividend income	$	346	$	390	$	905	$	1,178
Interest and other related financing costs		(1,706)		(1,296)		(4,410)		(3,774)
Other, net(3)		1,079		1,091		2,231		2,028
Total other income (costs)		(281)		185		(1,274)		(568)
INCOME BEFORE INCOME TAXES	$	24,068	$	20,555	$	35,556	$	27,191

⁽¹⁾ Certain restatements have been made to the prior year’s operating segment data to conform to the current year presentation, reflecting the realignment of the Company’s corporate structure as previously discussed in this Note.

⁽²⁾ Includes the operations of LDS since the September 2, 2016 acquisition date.

⁽³⁾ 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
	2017		2016(1)		2017		2016(1)
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	350,820	$	362,209	$	1,028,552	$	1,059,542
Rents, purchased transportation, and other costs of services		235,346		218,592		651,131		601,456
Fuel, supplies, and expenses		75,716		52,461		226,666		143,068
Depreciation and amortization(2)		25,497		25,793		76,821		76,692
Other		31,815		34,498		93,005		103,488
Restructuring(3)		737		—		2,731		—
	$	719,931	$	693,553	$	2,078,906	$	1,984,246

⁽¹⁾ Certain restatements and reclassifications have been made to the prior periods’ operating expense data to conform to the current year presentation, reflecting the realignment of the Company’s corporate structure and the modified presentation of segment expenses allocated from shared services, as previously discussed in this Note.

⁽²⁾ Includes amortization of intangible assets.

⁽³⁾ Restructuring costs relate to the realignment of the Company’s corporate structure.