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OPERATING SEGMENT DATA

6 Months Ended

Jun. 30, 2021

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.

The Company’s reportable operating segments are impacted by seasonal fluctuations which affect tonnage, shipment or service event 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 COVID-19 pandemic had a significant negative impact on demand for the Company’s services during the three months ended June 30, 2020, resulting in lower tonnage, shipment, and service event levels and, consequently, lower segment revenues for the second quarter of 2020. As a result, the Company’s operating segment information for the three months ended June 30, 2020 does not reflect typical seasonal trends in business levels as described below for the Company’s reportable operating segments.

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 segment operations include national, inter-regional, and regional transportation of general commodities through standard, expedited, and guaranteed LTL services. The Asset-Based segment provides services to the ArcBest segment, including 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, available capacity in the market, and the impact of other adverse external events or conditions, including the COVID-19 pandemic, may influence quarterly freight tonnage levels.

●

The ArcBest segment includes the results of operations of the Company’s service offerings in ground expedite, truckload, dedicated, intermodal, household goods moving, managed transportation, warehousing and distribution, and international freight transportation for air, ocean, and ground. The ArcBest segment provides services to the Asset-Based segment.

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, available capacity in the market, and the impact of other adverse external events or conditions, including the COVID-19 pandemic, 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 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 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 and the impact of other external events or conditions, including the COVID-19 pandemic.

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.

Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, 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 technology investments. 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.

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				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020

	(in thousands)
REVENUES
Asset-Based	$	652,832	$	460,070	$	1,209,124	$	975,783
ArcBest		270,748		151,467		523,084		316,242
FleetNet		59,547		46,440		118,710		98,879
Other and eliminations		(34,154)		(30,607)		(72,732)		(62,135)
Total consolidated revenues	$	948,973	$	627,370	$	1,778,186	$	1,328,769

OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	302,370	$	248,995	$	588,064	$	532,833
Fuel, supplies, and expenses		64,689		45,675		125,530		106,900
Operating taxes and licenses		12,303		11,629		24,551		24,423
Insurance		9,454		8,247		18,393		16,071
Communications and utilities		4,663		4,342		9,633		9,053
Depreciation and amortization		23,308		23,327		46,792		46,597
Rents and purchased transportation		95,082		46,152		170,670		101,922
Shared services		69,372		45,605		125,238		94,490
Gain on sale of property and equipment⁽¹⁾		71		(1,175)		(8,624)		(3,339)
Innovative technology costs⁽²⁾		7,532		4,789		14,400		9,322
Other		77		1,448		511		3,235
Total Asset-Based		588,921		439,034		1,115,158		941,507

ArcBest
Purchased transportation		226,603		125,090		437,598		262,272
Supplies and expenses		2,476		1,989		5,044		4,269
Depreciation and amortization		2,366		2,449		4,752		4,919
Shared services		29,078		18,840		55,150		40,567
Gain on sale of subsidiaries⁽³⁾		(6,923)		—		(6,923)		—
Other		2,021		1,796		4,071		4,321
Total ArcBest		255,621		150,164		499,692		316,348

FleetNet		58,409		45,658		116,549		97,057
Other and eliminations		(28,277)		(27,911)		(59,703)		(54,387)
Total consolidated operating expenses	$	874,674	$	606,945	$	1,671,696	$	1,300,525

OPERATING INCOME
Asset-Based	$	63,911	$	21,036	$	93,966	$	34,276
ArcBest		15,127		1,303		23,392		(106)
FleetNet		1,138		782		2,161		1,822
Other and eliminations		(5,877)		(2,696)	$	(13,029)	$	(7,748)
Total consolidated operating income	$	74,299	$	20,425		106,490		28,244
OTHER INCOME (COSTS)
Interest and dividend income	$	322	$	991	$	714	$	2,366
Interest and other related financing costs		(2,274)		(3,378)		(4,702)		(6,325)
Other, net⁽⁴⁾		1,111		2,696		2,303		(1,166)
Total other income (costs)		(841)		309		(1,685)		(5,125)
INCOME BEFORE INCOME TAXES	$	73,458	$	20,734	$	104,805	$	23,119

(1)	The six months ended June 30, 2021 includes an $8.6 million gain on the sale of an unutilized service center property.

(2)	Represents costs associated with the freight handling pilot test program at ABF Freight.

(3)	Gain recognized for the three and six months ended June 30, 2021 relates to the sale of the labor services portion of the ArcBest segment’s moving business in May 2021.

(4)	Includes the components of net periodic benefit cost other than service cost related to the Company’s SBP and postretirement plans (see Note G) and proceeds and changes in cash surrender value of life insurance policies.

The following table reflects information about revenues from customers and intersegment revenues:


	Three Months Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020

	(in thousands)
Revenues from customers
Asset-Based	$	630,145	$	439,585	$	1,159,869	$	935,313
ArcBest		268,038		149,683		518,279		312,631
FleetNet		49,951		37,245		98,385		78,989
Other		839		857		1,653		1,836
Total consolidated revenues	$	948,973	$	627,370	$	1,778,186	$	1,328,769

Intersegment revenues
Asset-Based	$	22,687	$	20,485	$	49,255	$	40,470
ArcBest		2,710		1,784		4,805		3,611
FleetNet		9,596		9,195		20,325		19,890
Other and eliminations		(34,993)		(31,464)		(74,385)		(63,971)
Total intersegment revenues	$	—	$	—	$	—	$	—

Total segment revenues
Asset-Based	$	652,832	$	460,070	$	1,209,124	$	975,783
ArcBest		270,748		151,467		523,084		316,242
FleetNet		59,547		46,440		118,710		98,879
Other and eliminations		(34,154)		(30,607)		(72,732)		(62,135)
Total consolidated revenues	$	948,973	$	627,370	$	1,778,186	$	1,328,769

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


	Three Months Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020

	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	389,146	$	305,220	$	748,541	$	650,166
Rents, purchased transportation, and other costs of services		347,760		187,914		657,098		404,942
Fuel, supplies, and expenses		80,020		54,838		153,169		126,611
Depreciation and amortization⁽¹⁾		30,282		29,086		60,636		58,099
Other⁽²⁾		27,466		29,887		52,252		60,707
	$	874,674	$	606,945	$	1,671,696	$	1,300,525

(1)	Includes amortization of intangible assets.

(2)

The three and six months ended June 30, 2021 includes a $6.9 million gain related to the sale of a subsidiary within the ArcBest segment. The six months ended June 30, 2021 also includes an $8.6 million gain related to the sale of an unutilized service center property within the Asset-Based segment.

- 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

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