NOTE K – 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.

The Company’s reportable operating segments are impacted by seasonal fluctuations which affect tonnage, shipment or service event 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:

The Asset-Based segment includes the results of operations of ABF Freight System, Inc. and certain other subsidiaries. The segment 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 service offerings in ground expedite, truckload, truckload-dedicated, intermodal, household goods moving, managed transportation, warehousing and distribution, and international freight transportation for air, ocean, and ground.

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 and available capacity in the market, 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 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. Approximately 14% of FleetNet’s revenues are for services provided to the Asset-Based and ArcBest segments for the three months ended March 31, 2019, compared to approximately 4% for the same period of 2018.

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.

The following tables reflect reportable operating segment information:


	Three Months Ended
	March 31
	2019		2018
	(in thousands)
REVENUES
Asset-Based	$	506,079	$	482,115
ArcBest		173,204		181,933
FleetNet		53,259		47,759
Other and eliminations		(20,703)		(11,806)
Total consolidated revenues	$	711,839	$	700,001

OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	280,276	$	269,779
Fuel, supplies, and expenses		64,727		62,193
Operating taxes and licenses		12,398		11,756
Insurance		7,991		6,628
Communications and utilities		4,620		4,521
Depreciation and amortization		20,980		20,930
Rents and purchased transportation		49,912		46,133
Shared services		50,712		45,607
Gain on sale of property and equipment		(34)		(133)
Other		882		1,299
Total Asset-Based		492,464		468,713

ArcBest
Purchased transportation		140,105		148,372
Supplies and expenses		2,774		3,230
Depreciation and amortization		3,151		3,408
Shared services		23,031		21,868
Other		2,413		1,881
Restructuring costs(1)		—		9
Total ArcBest		171,474		178,768

FleetNet		51,771		46,238
Other and eliminations		(12,461)		(6,443)
Total consolidated operating expenses	$	703,248	$	687,276

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Restructuring costs relate to the realignment of the Company’s corporate structure as further described in Note N to the consolidated financial statements in Item 8 of the Company’s 2018 Annual Report on Form 10-K.


	Three Months Ended
	March 31
	2019		2018
	(in thousands)
OPERATING INCOME
Asset-Based	$	13,615	$	13,402
ArcBest		1,730		3,165
FleetNet		1,488		1,521
Other and eliminations		(8,242)		(5,363)
Total consolidated operating income	$	8,591	$	12,725

OTHER INCOME (COSTS)
Interest and dividend income	$	1,478	$	526
Interest and other related financing costs		(2,882)		(2,059)
Other, net(1)		(591)		(2,201)
Total other income (costs)		(1,995)		(3,734)
INCOME BEFORE INCOME TAXES	$	6,596	$	8,991

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Includes the components of net periodic benefit cost other than service cost related to the Company’s nonunion pension, SBP, and postretirement plans (see Note G) and 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
	March 31
	2019		2018
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	343,668	$	328,757
Rents, purchased transportation, and other costs of services		221,025		223,756
Fuel, supplies, and expenses		79,336		78,646
Depreciation and amortization(1)		26,537		26,486
Other		32,682		29,255
Restructuring costs(2)		—		376
	$	703,248	$	687,276

⁽¹⁾

Includes amortization of intangible assets.

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