NOTE M – OPERATING SEGMENT DATA

On November 3, 2016, the Company announced its plan to implement a new corporate structure to better serve its customers. The new corporate structure unified the Company’s sales, pricing, customer service, marketing, and capacity sourcing functions effective January 1, 2017, and allows the Company to operate as one logistics provider under the ArcBest brand.

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 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.

As a result of implementing its new corporate structure and management’s focus on the corresponding segment results to make operating decisions, the Company combined the Premium Logistics (Panther), Transportation Management (ABF Logistics), and Household Goods Moving Services (ABF Moving) reportable operating segments 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 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. See Note O for further discussion of restructuring activities.

The Company’s reportable operating segments are as follows:

Asset-Based (formerly the Freight Transportation segment), 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.

ArcBest, which represents the combined operations of the former Premium Logistics (Panther), Transportation Management (ABF Logistics), and Household Goods Moving Services (ABF Moving) segments. The ArcBest segment includes the results of operations of the Company’s businesses which provide: expedite freight transportation services; premium logistics services; third-party truckload and truckload-dedicated brokerage; international freight transportation with air, ocean, and ground service offerings; household goods moving services to commercial and government customers; warehousing management and distribution services; and managed transportation solutions.

FleetNet (formerly the Emergency & Preventative Maintenance segment) 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.

The Company’s other business activities that are not reportable operating segments include ArcBest Corporation and certain other subsidiaries. Certain costs incurred by the parent holding company 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 table reflects reportable operating segment information for the years ended December 31:


	2016		2015(1)		2014(1)
	(in thousands)
REVENUES
Asset-Based	$	1,916,394	$	1,916,579	$	1,928,531
ArcBest(2)		640,734		590,436		535,915
FleetNet		162,629		174,952		158,581
Other and eliminations		(19,538)		(15,062)		(10,334)
Total consolidated revenues	$	2,700,219	$	2,666,905	$	2,612,693
OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	1,212,411	$	1,172,489	$	1,118,830
Fuel, supplies, and expenses		282,627		307,345		360,760
Operating taxes and licenses		48,436		48,992		46,955
Insurance		29,335		28,847		24,938
Communications and utilities		18,079		16,129		15,398
Depreciation and amortization		83,570		74,765		68,752
Rents and purchased transportation		199,156		197,073		229,443
Gain on sale of property and equipment		(2,979)		(1,735)		(1,471)
Pension settlement expense(3)		2,274		2,404		5,309
Other		8,741		7,834		9,524
Restructuring costs(4)		1,173		—		—
Total Asset-Based		1,882,823		1,854,143		1,878,438
ArcBest(2)
Purchased transportation		501,853		460,238		406,989
Salaries, wages, and benefits		70,857		62,438		55,159
Supplies and expenses		19,279		15,500		20,195
Depreciation and amortization		14,151		13,375		13,329
Other		19,692		18,093		17,589
Restructuring costs(4)		8,038		—		—
Total ArcBest		633,870		569,644		513,261

FleetNet		160,204		171,998		155,459
Other and eliminations		(5,648)		(4,376)		(3,704)
Total consolidated operating expenses(3)	$	2,671,249	$	2,591,409	$	2,543,454
OPERATING INCOME
Asset-Based	$	33,571	$	62,436	$	50,093
ArcBest(2)		6,864		20,792		22,654
FleetNet		2,425		2,954		3,122
Other and eliminations		(13,890)		(10,686)		(6,630)
Total consolidated operating income	$	28,970	$	75,496	$	69,239
OTHER INCOME (COSTS)
Interest and dividend income	$	1,523	$	1,284	$	851
Interest and other related financing costs		(5,150)		(4,400)		(3,190)
Other, net(5)		2,944		354		3,712
Total other income (costs)		(683)		(2,762)		1,373
INCOME BEFORE INCOME TAXES	$	28,287	$	72,734	$	70,612

⁽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⁾

The 2016 periods include the operations of LDS since the September 2, 2016 acquisition date and the operations of Bear, which was acquired in December 2015.

⁽³⁾

Pension settlement expense totaled $3.2 million (pre‑tax) on a consolidated basis for each of the years ended December 31, 2016 and 2015, of which $2.3 million and $2.4 million, respectively, was reported by the Asset-Based segment. Pension settlement expense totaled $6.6 million (pre‑tax) for the year ended December 31, 2014, of which $5.3 million was reported by the Asset-Based segment.

⁽⁴⁾

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

⁽⁵⁾

Includes proceeds and changes in cash surrender value of life insurance policies.

The following table provides asset, capital expenditure, and depreciation and amortization information by reportable operating segment:


			December 31
	2016		2015(1)		2014(1)
	(in thousands)
ASSETS
Asset-Based	$	791,117	$	694,059	$	621,734
ArcBest		330,345		315,859		275,426
FleetNet		21,627		21,958		23,532
Other and eliminations(2)		166,903		231,033		206,930
	$	1,309,992	$	1,262,909	$	1,127,622


	For the year ended December 31
	2016		2015(1)		2014(1)
	(in thousands)
CAPITAL EXPENDITURES, GROSS
Asset-Based(3)	$	110,170	$	122,542	$	78,766
ArcBest		6,154		24,219		6,996
FleetNet		403		1,007		550
Other and eliminations		34,910		11,249		4,496
	$	151,637	$	159,017	$	90,808


	For the year ended December 31
	2016		2015(1)		2014(1)
	(in thousands)
DEPRECIATION AND AMORTIZATION EXPENSE(2)
Asset-Based	$	83,570	$	74,765	$	68,752
ArcBest(4)		14,151		13,375		13,329
FleetNet(5)		1,209		1,119		961
Other and eliminations		4,123		3,783		3,180
	$	103,053	$	93,042	$	86,222

⁽¹⁾

⁽²⁾

Other and eliminations includes certain assets held by the parent holding company for strategic reasons, including unrestricted and restricted cash, cash equivalents, and short‑term investments, as well as certain assets held for the benefit of multiple segments, including land and structures of the Company’s corporate headquarters and information systems equipment. Depreciation and amortization associated with these assets is allocated to the reporting segments. Depreciation and amortization expense includes amortization of internally developed capitalized software which has not been included in gross capital expenditures presented in the table.

⁽³⁾

Includes assets acquired through notes payable and capital leases of $83.4 million in 2016, $80.6 million in 2015, and $55.3 million in 2014.

⁽⁴⁾

Includes amortization of intangibles of $4.0 million, $3.7 million, and $4.2 million in 2016, 2015, and 2014, respectively.

⁽⁵⁾

Includes amortization of intangibles which totaled $0.3 million, $0.3 million, and $0.2 million in 2016, 2015, and 2014, respectively.

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


	For the year ended December 31
	2016		2015(1)		2014(1)
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	1,345,672	$	1,297,129	$	1,231,130
Rents, purchased transportation, and other costs of services		823,683		790,612		754,495
Fuel, supplies, and expenses		270,138		292,039		353,489
Depreciation and amortization(2)		103,053		93,042		86,222
Other		118,390		118,587		118,118
Restructuring		10,313		—		—
	$	2,671,249	$	2,591,409	$	2,543,454

⁽¹⁾

Certain restatements have been made to the prior year’s operating expense 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 amortization of intangible assets.