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⁾

⁽³⁾

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