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OPERATING SEGMENT DATA | 9 Months Ended
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Sep. 30, 2018
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, 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. Effective January 1, 2018, the Company retrospectively adopted an amendment to ASC Topic 715 which requires changes to the financial statement presentation of certain components of net periodic benefit cost related to pension and other postretirement benefits accounted for under ASC Topic 715. As a result of adopting this amendment, the service cost component of net periodic benefit cost continues to be included in operating expenses in the consolidated financial statements, but the other components of net periodic benefit cost, including pension settlement expense, are presented in other income (costs) for the three and nine months ended September 30, 2018 and 2017. Reclassifications have been made to the prior period operating segment expenses in this Quarterly Report on Form 10-Q to conform to the current year presentation of segment expenses and the presentation of components of net periodic benefit cost in other income (costs) in our consolidated financial statements in accordance with the amendment to ASC Topic 715. The adoption of this accounting policy is further discussed in Note A and the detail of net periodic benefit costs is presented in Note F. 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 (“ABF Freight”). 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. Under the Company’s enhanced marketing approach to offer customers a single source of end-to-end logistics, the service offerings of the ArcBest segment continue to become more integrated. As such, management’s operating decisions have become more focused on the segment’s combined operations, rather than on individual service offerings within the segment’s operations.
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, 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 household goods 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.
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 |  | Nine Months Ended |
|  | September 30 |  | September 30 |
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  | (in thousands) |
REVENUES |  |  |  |  |  |  |  |  |  |  |  |  |
Asset-Based |  | $ | 585,290 |  | $ | 517,417 |  | $ | 1,626,644 |  | $ | 1,496,310 |
ArcBest |  |  | 205,449 |  |  | 195,749 |  |  | 587,369 |  |  | 524,554 |
FleetNet |  |  | 50,494 |  |  | 39,568 |  |  | 145,045 |  |  | 116,307 |
Other and eliminations |  |  | (15,075) |  |  | (8,454) |  |  | (39,549) |  |  | (21,435) |
Total consolidated revenues |  | $ | 826,158 |  | $ | 744,280 |  | $ | 2,319,509 |  | $ | 2,115,736 |
OPERATING EXPENSES(1) |  |  |  |  |  |  |  |  |  |  |  |  |
Asset-Based |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries, wages, and benefits |  | $ | 292,082 |  | $ | 287,270 |  | $ | 848,611 |  | $ | 853,554 |
Fuel, supplies, and expenses |  |  | 64,133 |  |  | 57,395 |  |  | 191,366 |  |  | 174,326 |
Operating taxes and licenses |  |  | 12,261 |  |  | 11,712 |  |  | 35,927 |  |  | 35,726 |
Insurance |  |  | 9,448 |  |  | 8,348 |  |  | 24,055 |  |  | 23,068 |
Communications and utilities |  |  | 4,308 |  |  | 4,575 |  |  | 12,964 |  |  | 13,260 |
Depreciation and amortization |  |  | 22,200 |  |  | 20,543 |  |  | 64,492 |  |  | 61,777 |
Rents and purchased transportation |  |  | 70,946 |  |  | 55,381 |  |  | 180,332 |  |  | 154,996 |
Shared services |  |  | 58,354 |  |  | 47,608 |  |  | 160,786 |  |  | 137,712 |
Multiemployer pension fund withdrawal liability charge(2) |  |  | — |  |  | — |  |  | 37,922 |  |  | — |
Gain on sale of property and equipment |  |  | (123) |  |  | (7) |  |  | (522) |  |  | (599) |
Other |  |  | 1,531 |  |  | 757 |  |  | 3,778 |  |  | 3,935 |
Restructuring costs(3) |  |  | — |  |  | 95 |  |  | — |  |  | 268 |
Total Asset-Based |  |  | 535,140 |  |  | 493,677 |  |  | 1,559,711 |  |  | 1,458,023 |
ArcBest |  |  |  |  |  |  |  |  |  |  |  |  |
Purchased transportation |  |  | 164,322 |  |  | 155,894 |  |  | 475,614 |  |  | 417,313 |
Supplies and expenses |  |  | 3,522 |  |  | 3,853 |  |  | 10,290 |  |  | 11,265 |
Depreciation and amortization |  |  | 3,558 |  |  | 3,015 |  |  | 10,563 |  |  | 9,511 |
Shared services |  |  | 23,453 |  |  | 22,447 |  |  | 68,857 |  |  | 62,691 |
Other |  |  | 2,546 |  |  | 2,854 |  |  | 6,973 |  |  | 8,192 |
Restructuring costs(3) |  |  | — |  |  | — |  |  | 152 |  |  | 875 |
Gain on sale of subsidiaries(4) |  |  | (1,945) |  |  | (152) |  |  | (1,945) |  |  | (152) |
Total ArcBest |  |  | 195,456 |  |  | 187,911 |  |  | 570,504 |  |  | 509,695 |
FleetNet |  |  | 49,406 |  |  | 38,646 |  |  | 141,407 |  |  | 113,617 |
Other and eliminations |  |  | (9,899) |  |  | (2,696) |  |  | (24,049) |  |  | (8,208) |
Total consolidated operating expenses |  | $ | 770,103 |  | $ | 717,538 |  | $ | 2,247,573 |  | $ | 2,073,127 |
| (1) |  | As previously discussed in this Note, the Company retrospectively adopted an amendment to ASC Topic 715, effective January 1, 2018, which requires the components of net periodic benefit cost other than service cost to be presented within other income (costs) in the consolidated financial statements and, therefore, these costs are no longer classified within operating expenses within this table. Certain reclassifications have been made to the prior year’s operating segment data to conform to the current year presentation of segment expenses and the presentation of components of net periodic benefit cost in other income (costs).
| (2) |  | ABF Freight recorded a one-time charge in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (see Note F).
| (3) |  | Restructuring costs relate to the realignment of the Company’s corporate structure (see Note K).
| (4) |  | Gains recognized in the 2018 and 2017 periods relate to the sale of the ArcBest segment’s military moving businesses in December 2017 and 2016, respectively.
|  | Three Months Ended |  | Nine Months Ended |
|  | September 30 |  | September 30 |
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  | (in thousands) |
OPERATING INCOME(1) |  |  |  |  |  |  |  |  |  |  |  |  |
Asset-Based |  | $ | 50,150 |  | $ | 23,740 |  | $ | 66,933 |  | $ | 38,287 |
ArcBest |  |  | 9,993 |  |  | 7,838 |  |  | 16,865 |  |  | 14,859 |
FleetNet |  |  | 1,088 |  |  | 922 |  |  | 3,638 |  |  | 2,690 |
Other and eliminations |  |  | (5,176) |  |  | (5,758) |  |  | (15,500) |  |  | (13,227) |
Total consolidated operating income |  | $ | 56,055 |  | $ | 26,742 |  | $ | 71,936 |  | $ | 42,609 |
OTHER INCOME (COSTS) |  |  |  |  |  |  |  |  |  |  |  |  |
Interest and dividend income |  | $ | 1,120 |  | $ | 346 |  | $ | 2,360 |  | $ | 905 |
Interest and other related financing costs |  |  | (2,470) |  |  | (1,706) |  |  | (6,542) |  |  | (4,410) |
Other, net(1)(2) |  |  | (714) |  |  | (1,314) |  |  | (4,038) |  |  | (3,548) |
Total other income (costs) |  |  | (2,064) |  |  | (2,674) |  |  | (8,220) |  |  | (7,053) |
INCOME BEFORE INCOME TAXES |  | $ | 53,991 |  | $ | 24,068 |  | $ | 63,716 |  | $ | 35,556 |
| (1) |  | As previously discussed in this Note, for the three and nine months ended September 30, 2018 and 2017, the components of net periodic benefit cost other than service cost are presented within other income (costs) rather than within operating income in accordance with an amendment to ASC Topic 715, which the Company adopted retrospectively effective January 1, 2018.
| (2) |  | 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 |
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  | (in thousands) |
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries, wages, and benefits |  | $ | 363,348 |  | $ | 349,294 |  | $ | 1,048,018 |  | $ | 1,023,803 |
Rents, purchased transportation, and other costs of services |  |  | 265,042 |  |  | 235,346 |  |  | 742,338 |  |  | 651,131 |
Fuel, supplies, and expenses |  |  | 82,188 |  |  | 75,716 |  |  | 245,718 |  |  | 226,666 |
Depreciation and amortization(1) |  |  | 28,026 |  |  | 25,497 |  |  | 81,699 |  |  | 76,821 |
Other |  |  | 31,449 |  |  | 30,948 |  |  | 91,112 |  |  | 91,975 |
Multiemployer pension fund withdrawal liability charge(2) |  |  | — |  |  | — |  |  | 37,922 |  |  | — |
Restructuring costs(3) |  |  | 50 |  |  | 737 |  |  | 766 |  |  | 2,731 |
|  | $ | 770,103 |  | $ | 717,538 |  | $ | 2,247,573 |  | $ | 2,073,127 |
| (1) |  | Includes amortization of intangible assets.
| (2) |  | ABF Freight recorded a one-time charge in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (see Note F).
| (3) |  | Restructuring costs relate to the realignment of the Company’s corporate structure (see Note K).

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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