NOTE M – 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 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 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. As a result of implementing its new corporate structure and management’s focus on the corresponding segment results to make operating decisions, the Company’s 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 under the ArcBest segment beginning with the results reported for the three months and year ended December 31, 2016. As disclosed in the Company’s 2016 Annual Report on Form 10-K, the Company restated certain prior year operating segment data to conform to the restructured segment presentation. 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, 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 as follows:

The Asset-Based segment 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.

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 and commercial customers; warehousing management and distribution services; and managed transportation solutions.

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.

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 table reflects reportable operating segment information for the years ended December 31:


	2017		2016(1)		2015(1)
	(in thousands)
REVENUES
Asset-Based	$	1,993,314	$	1,916,394	$	1,916,579
ArcBest(2)		706,698		640,734		590,436
FleetNet		156,341		162,629		174,952
Other and eliminations		(29,896)		(19,538)		(15,062)
Total consolidated revenues	$	2,826,457	$	2,700,219	$	2,666,905
OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	1,125,186	$	1,103,883	$	1,063,016
Fuel, supplies, and expenses		234,006		216,263		244,772
Operating taxes and licenses		47,767		48,180		48,726
Insurance		30,761		29,178		28,591
Communications and utilities		17,373		16,181		14,158
Depreciation and amortization		82,507		80,331		71,320
Rents and purchased transportation		206,457		198,594		196,560
Shared services(1)		186,406		184,817		180,478
Gain on sale of property and equipment		(695)		(2,979)		(1,734)
Nonunion pension expense, including settlement(3)		4,799		2,313		1,832
Other		6,525		4,889		6,424
Restructuring costs(4)		344		1,173		—
Total Asset-Based		1,941,436		1,882,823		1,854,143
ArcBest(2)
Purchased transportation		563,497		502,159		460,172
Supplies and expenses		15,087		13,145		11,689
Depreciation and amortization		13,090		13,612		12,886
Shared services(1)		84,159		85,238		73,890
Other		11,189		11,678		11,007
Restructuring costs(4)		875		8,038		—
Total ArcBest		687,897		633,870		569,644

FleetNet		153,017		160,204		171,998
Other and eliminations		(9,403)		(5,648)		(4,376)
Total consolidated operating expenses(3)	$	2,772,947	$	2,671,249	$	2,591,409
OPERATING INCOME
Asset-Based	$	51,878	$	33,571	$	62,436
ArcBest(2)		18,801		6,864		20,792
FleetNet		3,324		2,425		2,954
Other and eliminations		(20,493)		(13,890)		(10,686)
Total consolidated operating income	$	53,510	$	28,970	$	75,496
OTHER INCOME (COSTS)
Interest and dividend income	$	1,293	$	1,523	$	1,284
Interest and other related financing costs		(6,342)		(5,150)		(4,400)
Other, net(5)		3,115		2,944		354
Total other income (costs)		(1,934)		(683)		(2,762)
INCOME BEFORE INCOME TAXES	$	51,576	$	28,287	$	72,734

⁽¹⁾

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.

⁽²⁾

The 2016 and 2017 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⁾

For the year ended December 31, 2017, 2016, and 2015, nonunion pension expense, including settlement, (pre-tax) totaled $6.1 million, $3.1 million, and $2.4 million, respectively, on a consolidated basis, of which $4.8 million, $2.3 million, and $1.8 million, respectively, was reported by the Asset-Based segment.

⁽⁴⁾

Restructuring costs relate to the realignment of the Company’s corporate structure previously discussed in this Note.

⁽⁵⁾

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

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


	For the year ended December 31
	2017		2016(1)		2015(1)
	(in thousands)
CAPITAL EXPENDITURES, GROSS
Asset-Based(3)	$	112,751	$	110,170	$	122,542
ArcBest		9,823		6,154		24,219
FleetNet		1,089		403		1,007
Other and eliminations(2)		26,288		34,910		11,249
	$	149,951	$	151,637	$	159,017


	For the year ended December 31
	2017		2016(1)		2015(1)
	(in thousands)
DEPRECIATION AND AMORTIZATION EXPENSE(2)
Asset-Based	$	82,507	$	80,331	$	71,320
ArcBest(4)		13,090		13,612		12,886
FleetNet(5)		1,089		1,210		1,119
Other and eliminations(2)		6,382		7,900		7,717
	$	103,068	$	103,053	$	93,042

⁽¹⁾

⁽²⁾

Other and eliminations includes certain assets held for the benefit of multiple segments, including 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 $84.2 million in 2017, $83.4 million in 2016, and $80.6 million in 2015.

⁽⁴⁾

Includes amortization of intangibles of $4.3 million, $4.0 million, and $3.7 million in 2017, 2016, and 2015, respectively.

⁽⁵⁾

Includes amortization of intangibles which totaled $0.2 million, $0.3 million, and $0.3 million in 2017, 2016, and 2015, respectively.

A table of assets by reportable operating segment has not been presented as segment assets are not included in reports regularly provided to management nor does management consider segment assets for assessing segment operating performance or allocating resources.

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


	For the year ended December 31
	2017		2016		2015
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	1,367,433	$	1,345,672	$	1,297,129
Rents, purchased transportation, and other costs of services		869,584		823,683		790,612
Fuel, supplies, and expenses		304,126		270,138		292,039
Depreciation and amortization(1)		103,068		103,053		93,042
Other		125,773		118,390		118,587
Restructuring(2)		2,963		10,313		—
	$	2,772,947	$	2,671,249	$	2,591,409

⁽¹⁾

Includes amortization of intangible assets.

⁽²⁾

Restructuring costs relate to the realignment of the Company’s corporate structure previously discussed in this Note.