OPERATING SEGMENT DATA

3 Months Ended

Mar. 31, 2021

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.

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 technology investments. 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. The Asset Based segment provides services to the ArcBest segment, including 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, available capacity in the market, and the impact of other adverse external events or conditions, including the COVID-19 pandemic, may influence quarterly freight tonnage levels.

● The ArcBest segment includes the results of operations of the Company’s service offerings in ground expedite, truckload, dedicated, intermodal, household goods moving, managed transportation, warehousing and distribution, and international freight transportation for air, ocean, and ground. The ArcBest segment provides services to the Asset-Based segment.

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, available capacity in the market, and the impact of other adverse external events or conditions, including the COVID-19 pandemic, 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 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 and the impact of other external events or conditions, including the COVID-19 pandemic.

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
	2021		2020
	(in thousands)
REVENUES
Asset-Based	$	556,292	$	515,713
ArcBest		252,336		164,775
FleetNet		59,163		52,439
Other and eliminations		(38,578)		(31,528)
Total consolidated revenues	$	829,213	$	701,399
OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	285,694	$	283,838
Fuel, supplies, and expenses		60,841		61,225
Operating taxes and licenses		12,248		12,794
Insurance		8,939		7,824
Communications and utilities		4,970		4,711
Depreciation and amortization		23,484		23,270
Rents and purchased transportation		75,588		55,770
Shared services		55,866		48,885
Gain on sale of property and equipment(1)		(8,695)		(2,164)
Innovative technology costs(2)		6,868		4,533
Other		434		1,787
Total Asset-Based		526,237		502,473
ArcBest
Purchased transportation		210,995		137,182
Supplies and expenses		2,568		2,280
Depreciation and amortization		2,386		2,470
Shared services		26,072		21,727
Other		2,050		2,525
Total ArcBest		244,071		166,184
FleetNet		58,140		51,399
Other and eliminations		(31,426)		(26,476)
Total consolidated operating expenses	$	797,022	$	693,580
OPERATING INCOME
Asset-Based	$	30,055	$	13,240
ArcBest		8,265		(1,409)
FleetNet		1,023		1,040
Other and eliminations		(7,152)		(5,052)
Total consolidated operating income	$	32,191	$	7,819
OTHER INCOME (COSTS)
Interest and dividend income	$	392	$	1,375
Interest and other related financing costs		(2,428)		(2,947)
Other, net(3)		1,192		(3,862)
Total other income (costs)		(844)		(5,434)
INCOME BEFORE INCOME TAXES	$	31,347	$	2,385

(1) The three months ended March 31, 2021 includes an $8.6 million gain on the sale of an unutilized service center property.

(2) Represents costs associated with the freight handling pilot test program at ABF Freight.

(3) Includes the components of net periodic benefit cost other than service cost related to the Company’s SBP and postretirement plans (see Note G) and proceeds and changes in cash surrender value of life insurance policies.

The following table reflects information about revenues from customers and intersegment revenues:

	Three Months Ended
	March 31
	2021		2020
	(in thousands)
Revenues from customers
Asset-Based	$	529,724	$	495,728
ArcBest		250,241		162,948
FleetNet		48,434		41,744
Other		814		979
Total consolidated revenues	$	829,213	$	701,399
Intersegment revenues
Asset-Based	$	26,568	$	19,985
ArcBest		2,095		1,827
FleetNet		10,729		10,695
Other and eliminations		(39,392)		(32,507)
Total intersegment revenues	$	—	$	—
Total segment revenues
Asset-Based	$	556,292	$	515,713
ArcBest		252,336		164,775
FleetNet		59,163		52,439
Other and eliminations		(38,578)		(31,528)
Total consolidated revenues	$	829,213	$	701,399

The following table presents operating expenses by category on a consolidated basis:

	Three Months Ended
	March 31
	2021		2020
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	359,395	$	344,946
Rents, purchased transportation, and other costs of services		309,338		217,028
Fuel, supplies, and expenses		73,149		71,773
Depreciation and amortization(1)		30,354		29,013
Other		24,786		30,820
	$	797,022	$	693,580

(1) Includes amortization of intangible assets.