OPERATING SEGMENT DATA

9 Months Ended

Sep. 30, 2022

OPERATING SEGMENT DATA

OPERATING SEGMENT DATA

NOTE K – 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. In recent periods, including the three and nine months ended September 30, 2022, the Company’s operations have not been as heavily impacted by seasonal fluctuations, due in part to strategic initiatives undertaken to enable profitable growth through seasons and cycles. The acquired operations of MoLo on November 1, 2021 resulted in increased business levels for the ArcBest segment for the three and nine months ended September 30, 2022, compared to the same periods of 2021.

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. Historically, 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; the impact of yield initiatives; and the impact of adverse external events or conditions, 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. Historically, 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 adverse external events or conditions, 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 or other disruptions to customers’ supply chains. Plant shutdowns during summer months may affect shipments for automotive and manufacturing customers of the ArcBest segment, but disruptive 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 are influenced by seasonal variations in service event volume and the impact of other external events or conditions.

The Company’s other business activities and operations that are not reportable segments include ArcBest Corporation (the parent holding company) and certain 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 operating 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 Company’s Board of Directors, and certain technology investments. Shared services costs attributable to the reportable 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 reportable 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 the Company’s reportable operating segment information:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2022		2021		2022		2021
	(in thousands)
REVENUES
Asset-Based	$	791,531	$	681,164	$	2,299,464	$	1,890,288
ArcBest(1)		515,235		305,207		1,660,174		828,291
FleetNet		89,276		66,514		249,786		185,224
Other and eliminations		(44,211)		(36,228)		(129,590)		(108,960)
Total consolidated revenues	$	1,351,831	$	1,016,657	$	4,079,834	$	2,794,843
OPERATING EXPENSES
Asset-Based
Salaries, wages, and benefits	$	332,359	$	305,839	$	973,924	$	893,903
Fuel, supplies, and expenses		97,279		66,947		281,406		192,477
Operating taxes and licenses		13,089		12,426		38,405		36,977
Insurance		13,180		10,175		35,808		28,568
Communications and utilities		4,794		4,559		14,129		14,192
Depreciation and amortization		24,117		23,233		72,885		70,025
Rents and purchased transportation		123,714		95,855		348,249		266,525
Shared services		72,286		71,017		215,020		196,255
Gain on sale of property and equipment(2)		(5,910)		—		(9,975)		(8,624)
Innovative technology costs(3)		6,068		6,903		20,982		21,303
Other		1,243		592		2,629		1,103
Total Asset-Based		682,219		597,546		1,993,462		1,712,704
ArcBest(1)
Purchased transportation		425,567		256,900		1,382,107		694,498
Supplies and expenses		4,378		2,741		11,907		7,785
Depreciation and amortization(4)		5,072		2,352		15,720		7,104
Shared services		56,371		31,048		164,554		86,198
Gain on sale of subsidiary(5)		—		—		(402)		(6,923)
Other		8,463		1,984		22,309		6,055
Total ArcBest		499,851		295,025		1,596,195		794,717
FleetNet		88,395		65,245		245,596		181,794
Other and eliminations		(34,395)		(28,720)		(103,454)		(88,423)
Total consolidated operating expenses	$	1,236,070	$	929,096	$	3,731,799	$	2,600,792

(1) The 2022 periods include the operations of MoLo, which was acquired on November 1, 2021.

(2) The three and nine months ended September 30, 2022 include a $4.3 million noncash gain on a like-kind property exchange of a service center, with the remaining gains related primarily to sales of replaced equipment. The nine months ended September 30, 2021 include an $8.6 million gain on the sale of an unutilized service center property.

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

(4) Depreciation and amortization includes amortization of intangibles associated with acquired businesses.

(5) Gain recognized relates to the sale of the labor services portion of the ArcBest segment’s moving business in May 2021, including the contingent amount recognized in second quarter 2022 when the funds were released from escrow.

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2022		2021		2022		2021
	(in thousands)
OPERATING INCOME
Asset-Based	$	109,312	$	83,618	$	306,002	$	177,584
ArcBest(1)		15,384		10,182		63,979		33,574
FleetNet		881		1,269		4,190		3,430
Other and eliminations		(9,816)		(7,508)		(26,136)		(20,537)
Total consolidated operating income	$	115,761	$	87,561	$	348,035	$	194,051
OTHER INCOME (COSTS)
Interest and dividend income	$	1,147	$	323	$	1,614	$	1,037
Interest and other related financing costs		(1,749)		(2,072)		(5,551)		(6,774)
Other, net(2)		(189)		338		(3,822)		2,641
Total other income (costs)		(791)		(1,411)		(7,759)		(3,096)
INCOME BEFORE INCOME TAXES	$	114,970	$	86,150	$	340,276	$	190,955

(1) The 2022 periods include the operations of MoLo which was acquired on November 1, 2021.

(2) Includes the components of net periodic benefit cost other than service cost related to the Company’s SBP and postretirement plans (see Note H) 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				Nine Months Ended
	September 30				September 30
	2022		2021		2022		2021
	(in thousands)
Revenues from customers
Asset-Based	$	778,473	$	655,737	$	2,242,964	$	1,815,606
ArcBest(1)		503,182		303,076		1,633,684		821,355
FleetNet		72,318		56,656		207,505		155,041
Other		(2,142)		1,188		(4,319)		2,841
Total consolidated revenues(1)	$	1,351,831	$	1,016,657	$	4,079,834	$	2,794,843
Intersegment revenues
Asset-Based	$	13,058	$	25,427	$	56,500	$	74,682
ArcBest		12,053		2,131		26,490		6,936
FleetNet		16,958		9,858		42,281		30,183
Other and eliminations		(42,069)		(37,416)		(125,271)		(111,801)
Total intersegment revenues	$	—	$	—	$	—	$	—
Total segment revenues
Asset-Based	$	791,531	$	681,164	$	2,299,464	$	1,890,288
ArcBest(1)		515,235		305,207		1,660,174		828,291
FleetNet		89,276		66,514		249,786		185,224
Other and eliminations		(44,211)		(36,228)		(129,590)		(108,960)
Total consolidated revenues(1)	$	1,351,831	$	1,016,657	$	4,079,834	$	2,794,843

(1) The 2022 periods include the operations of MoLo, which was acquired on November 1, 2021.

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

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2022(1)		2021		2022(1)		2021
	(in thousands)
OPERATING EXPENSES
Salaries, wages, and benefits	$	451,824	$	397,116	$	1,321,871	$	1,145,657
Rents, purchased transportation, and other costs of services		596,631		382,759		1,854,387		1,039,857
Fuel, supplies, and expenses		112,834		82,051		331,759		235,221
Depreciation and amortization(2)		34,707		30,359		104,860		90,995
Other(3)		40,074		36,811		118,922		89,062
	$	1,236,070	$	929,096	$	3,731,799	$	2,600,792

(1) The 2022 periods include the operations of MoLo, which was acquired on November 1, 2021.

(2) Includes amortization of intangible assets.

(3) The nine months ended September 30, 2021 include a $6.9 million gain related to the sale of a subsidiary within the ArcBest segment.