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OPERATING SEGMENT DATA | 12 Months Ended
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Dec. 31, 2018
OPERATING SEGMENT DATA |
OPERATING SEGMENT DATA | 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 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. 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. As disclosed in the Company’s 2017 Annual Report on Form 10-K, reclassifications were made to the prior period operating segment expenses to conform to the presentation for the year ended December 31, 2017. 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. 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 years ended December 31, 2018, 2017, and 2016. Reclassifications have been made to the prior period operating segment expenses to conform to the current year 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 B and the detail of net periodic benefit costs is presented in Note I. 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 (“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.
| · |  | 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. 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.
| · |  | 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:
|  | 2018 |  | 2017 |  | 2016 |
|  | (in thousands) |
REVENUES |  |  |  |  |  |  |  |  |  |
Asset-Based |  | $ | 2,175,585 |  | $ | 1,993,314 |  | $ | 1,916,394 |
ArcBest(1) |  |  | 781,123 |  |  | 706,698 |  |  | 640,734 |
FleetNet |  |  | 195,126 |  |  | 156,341 |  |  | 162,629 |
Other and eliminations |  |  | (58,046) |  |  | (29,896) |  |  | (19,538) |
Total consolidated revenues |  | $ | 3,093,788 |  | $ | 2,826,457 |  | $ | 2,700,219 |
OPERATING EXPENSES(2) |  |  |  |  |  |  |  |  |  |
Asset-Based |  |  |  |  |  |  |  |  |  |
Salaries, wages, and benefits |  | $ | 1,128,030 |  | $ | 1,125,131 |  | $ | 1,102,895 |
Fuel, supplies, and expenses |  |  | 256,472 |  |  | 234,006 |  |  | 216,263 |
Operating taxes and licenses |  |  | 48,792 |  |  | 47,767 |  |  | 48,180 |
Insurance |  |  | 32,887 |  |  | 30,761 |  |  | 29,178 |
Communications and utilities |  |  | 16,983 |  |  | 17,373 |  |  | 16,181 |
Depreciation and amortization |  |  | 85,951 |  |  | 82,507 |  |  | 80,331 |
Rents and purchased transportation |  |  | 242,252 |  |  | 206,457 |  |  | 198,594 |
Shared services |  |  | 218,290 |  |  | 185,257 |  |  | 184,256 |
Multiemployer pension fund withdrawal liability charge(3) |  |  | 37,922 |  |  | — |  |  | — |
Gain on sale of property and equipment |  |  | (410) |  |  | (695) |  |  | (2,979) |
Other |  |  | 4,554 |  |  | 6,525 |  |  | 4,889 |
Restructuring costs(4) |  |  | — |  |  | 344 |  |  | 1,173 |
Total Asset-Based |  |  | 2,071,723 |  |  | 1,935,433 |  |  | 1,878,961 |
ArcBest(1) |  |  |  |  |  |  |  |  |  |
Purchased transportation |  |  | 631,501 |  |  | 563,497 |  |  | 502,159 |
Supplies and expenses |  |  | 13,329 |  |  | 15,087 |  |  | 13,145 |
Depreciation and amortization |  |  | 13,750 |  |  | 13,090 |  |  | 13,612 |
Shared services |  |  | 91,266 |  |  | 83,660 |  |  | 85,068 |
Other |  |  | 9,143 |  |  | 11,116 |  |  | 11,678 |
Restructuring costs(4) |  |  | 491 |  |  | 875 |  |  | 8,038 |
Gain on sale of subsidiaries(5) |  |  | (1,945) |  |  | (152) |  |  | — |
Total ArcBest |  |  | 757,535 |  |  | 687,173 |  |  | 633,700 |
FleetNet |  |  | 190,741 |  |  | 152,864 |  |  | 160,132 |
Other and eliminations |  |  | (35,309) |  |  | (10,361) |  |  | (6,639) |
Total consolidated operating expenses |  | $ | 2,984,690 |  | $ | 2,765,109 |  | $ | 2,666,154 |
OPERATING INCOME(2) |  |  |  |  |  |  |  |  |  |
Asset-Based |  | $ | 103,862 |  | $ | 57,881 |  | $ | 37,433 |
ArcBest(1) |  |  | 23,588 |  |  | 19,525 |  |  | 7,034 |
FleetNet |  |  | 4,385 |  |  | 3,477 |  |  | 2,497 |
Other and eliminations |  |  | (22,737) |  |  | (19,535) |  |  | (12,899) |
Total consolidated operating income |  | $ | 109,098 |  | $ | 61,348 |  | $ | 34,065 |
OTHER INCOME (COSTS) |  |  |  |  |  |  |  |  |  |
Interest and dividend income |  | $ | 3,914 |  | $ | 1,293 |  | $ | 1,523 |
Interest and other related financing costs |  |  | (9,468) |  |  | (6,342) |  |  | (5,150) |
Other, net(2)(6) |  |  | (19,158) |  |  | (4,723) |  |  | (2,151) |
Total other income (costs) |  |  | (24,712) |  |  | (9,772) |  |  | (5,778) |
INCOME BEFORE INCOME TAXES |  | $ | 84,386 |  | $ | 51,576 |  | $ | 28,287 |
| (1) |  | Includes the operations of LDS since the September 2, 2016 acquisition date for all years presented.
| (2) |  | 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 (see Note B). Certain reclassifications have been made to the prior year’s operating segment data to conform to the current year presentation of components of net periodic benefit cost in other income (costs). Net periodic benefit costs are presented in Note I.
| (3) |  | ABF Freight recorded a one-time charge in 2018 for the multiemployer pension fund withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (see Note I).
| (4) |  | Restructuring costs relate to the realignment of the Company’s corporate structure (see Note N).
| (5) |  | Gains recognized in 2018 and 2017 relate to the sale of the ArcBest segment’s military moving businesses in December 2017 and 2016, respectively (see Note A).
| (6) |  | 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
|  | 2018 |  | 2017 |  | 2016
|  | (in thousands)
CAPITAL EXPENDITURES, GROSS |  |  |  |  |  |  |  |  |
Asset-Based(1) |  | $ | 116,505 |  | $ | 112,751 |  | $ | 110,170
ArcBest |  |  | 5,174 |  |  | 9,823 |  |  | 6,154
FleetNet |  |  | 1,365 |  |  | 1,089 |  |  | 403
Other and eliminations(2)(3) |  |  | 14,631 |  |  | 26,288 |  |  | 34,910
|  | $ | 137,675 |  | $ | 149,951 |  | $ | 151,637
|  | For the year ended December 31
|  | 2018 |  | 2017 |  | 2016
|  | (in thousands)
DEPRECIATION AND AMORTIZATION EXPENSE(2) |  |  |  |  |  |  |  |  |
Asset-Based |  | $ | 85,951 |  | $ | 82,507 |  | $ | 80,331
ArcBest(4) |  |  | 13,750 |  |  | 13,090 |  |  | 13,612
FleetNet(5) |  |  | 1,140 |  |  | 1,089 |  |  | 1,210
Other and eliminations(2) |  |  | 7,794 |  |  | 6,382 |  |  | 7,900
|  | $ | 108,635 |  | $ | 103,068 |  | $ | 103,053
| (1) |  | Includes assets acquired through notes payable and capital leases of $86.8 million in 2018, $84.2 million in 2017, and $83.4 million in 2016.
| (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 of $6.9 million in 2018.
| (4) |  | Includes amortization of intangibles of $4.3 million in 2018 and 2017, and $4.0 million in 2016.
| (5) |  | Includes amortization of intangibles which totaled $0.2 million in 2018, 2017, and 2016.
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 |
|  | 2018 |  | 2017 |  | 2016 |
|  | (in thousands) |
OPERATING EXPENSES |  |  |  |  |  |  |  |  |  |
Salaries, wages, and benefits |  | $ | 1,398,348 |  | $ | 1,361,224 |  | $ | 1,340,577 |
Rents, purchased transportation, and other costs of services |  |  | 989,006 |  |  | 869,584 |  |  | 823,683 |
Fuel, supplies, and expenses |  |  | 325,126 |  |  | 304,126 |  |  | 270,138 |
Depreciation and amortization(1) |  |  | 108,635 |  |  | 103,068 |  |  | 103,053 |
Other |  |  | 123,998 |  |  | 124,144 |  |  | 118,390 |
Multiemployer pension fund withdrawal liability charge(2) |  |  | 37,922 |  |  | — |  |  | — |
Restructuring costs(3) |  |  | 1,655 |  |  | 2,963 |  |  | 10,313 |
|  | $ | 2,984,690 |  | $ | 2,765,109 |  | $ | 2,666,154 |
| (1) |  | Includes amortization of intangible assets.
| (2) |  | ABF Freight recorded a one-time charge in 2018 for the multiemployer pension fund withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund (see Note I).
| (3) |  | Restructuring costs relate to the realignment of the Company’s corporate structure previously discussed in this Note.

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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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