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.

On November 3, 2016, the Company announced its plan to implement a new corporate structure which unified the Company’s sales, pricing, customer service, marketing, and capacity sourcing functions effective January 1, 2017. As previously reported in the Company’s 2016 Annual Report on Form 10‑K, the 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 reported under the ArcBest segment for the quarter and year ended December 31, 2016.

The Company has restated certain prior year operating segment data in this Quarterly Report on Form 10-Q to conform to the current year presentation. Segment revenues and expenses were adjusted to eliminate certain intercompany charges consistent with the manner in which they are reported under the new corporate structure. Certain intercompany charges among the previously reported Panther, ABF Logistics, and ABF Moving segments which were previously eliminated in the “Other and eliminations” line, are now eliminated within the ArcBest segment. There was no impact on the Company’s consolidated revenues, operating expenses, operating income, or earnings per share as a result of the restatements.

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. 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.

ArcBest segment operations are influenced by seasonal fluctuations that impact customers’ supply chains and the resulting demand for expedite services. 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. Expedite shipments of the ArcBest segment may decline during winter months because of post-holiday slowdowns but 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. The household goods 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. Seasonal fluctuations are less apparent in the operating results of the Truckload and Truckload-Dedicated services of the ArcBest segment than in the industry as a whole because of business growth, including acquisitions, in this service offering of the segment.

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 adverse 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
	March 31
	2017		2016(1)
	(in thousands)
REVENUES
Asset-Based	$	464,356	$	439,063
ArcBest(2)		152,876		142,397
FleetNet		40,238		43,564
Other and eliminations		(6,382)		(3,569)
Total consolidated revenues	$	651,088	$	621,455

OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	304,843	$	296,162
Fuel, supplies, and expenses		75,432		66,689
Operating taxes and licenses		11,869		11,980
Insurance		7,109		6,466
Communications and utilities		4,822		4,372
Depreciation and amortization		20,983		20,392
Rents and purchased transportation		46,608		39,696
Gain on sale of property and equipment		(617)		(172)
Pension settlement expense(3)		1,401		677
Other		1,791		1,800
Restructuring costs(4)		140		—
Total Asset-Based		474,381		448,062

ArcBest(2)
Purchased transportation		121,919		111,831
Salaries, wages, and benefits		16,536		18,581
Supplies and expenses		5,286		4,418
Depreciation and amortization		3,366		3,465
Other		4,058		4,094
Restructuring costs(4)		810		—
Total ArcBest		151,975		142,389

FleetNet		39,264		42,580
Other and eliminations(4)		(2,279)		(2,311)
Total consolidated operating expenses(3)	$	663,341	$	630,720

⁽¹⁾

Certain restatements have been made to the prior year’s operating segment data to conform to the current year presentation, reflecting the realignment of the Company’s corporate structure as previously discussed in this Note.

⁽²⁾

The 2017 period includes the operations of LDS, which was acquired in September 2016.

⁽³⁾

For the three months ended March 31, 2017 and 2016, pre-tax pension settlement expense on a consolidated basis totaled $2.0 million and $0.9 million, respectively, of which $1.4 million and $0.7 million, respectively, was reported by the Asset-Based segment.

⁽⁴⁾

Restructuring costs relate to the realignment of the Company’s corporate structure (see Note K). Other and eliminations includes $0.7 million of restructuring costs.


	Three Months Ended
	March 31
	2017		2016(1)
	(in thousands)
OPERATING INCOME (LOSS)
Asset-Based	$	(10,025)	$	(8,999)
ArcBest(2)		901		8
FleetNet		974		984
Other and eliminations		(4,103)		(1,258)
Total consolidated operating loss	$	(12,253)	$	(9,265)

OTHER INCOME (COSTS)
Interest and dividend income	$	274	$	401
Interest and other related financing costs		(1,315)		(1,247)
Other, net(3)		647		366
Total other costs		(394)		(480)
LOSS BEFORE INCOME TAXES	$	(12,647)	$	(9,745)

⁽¹⁾

⁽²⁾

The 2017 periods include the operations of LDS, which was acquired in September 2016.

⁽³⁾

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
	March 31
	2017		2016(1)
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	334,829	$	331,137
Rents, purchased transportation, and other costs of services		199,871		184,699
Fuel, supplies, and expenses		72,662		63,135
Depreciation and amortization(2)		25,394		25,151
Other		28,954		26,598
Restructuring(3)		1,631		—
	$	663,341	$	630,720

⁽¹⁾

Certain restatements have been made to the prior year’s operating expense data to conform to the current year presentation, reflecting the realignment of the Company’s corporate structure as previously discussed in this Note.

⁽²⁾

Includes amortization of intangible assets.

⁽³⁾

Restructuring costs relate to the realignment of the Company’s corporate structure.