ArcBest Corp (ARCB) 2002 Q3 法說會逐字稿

Good day and welcome to Arkansas Best Corporation's third quarter 2002 earnings conference call. Today's conference is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Director of Investors Relations, Mr. David Humphreys. Please go ahead, sir.

Welcome to the Arkansas Best Corporation 3rd quarter 2002 earnings conference call. We'll have a short discussion of the third quarter results and then we'll open up for a question and answer period.

Our presentation this morning will be done by Mr. Robert A. Young III, President and Chief Executive Officer of Arkansas Best Corporation, Mr. David E. Loeffler, Vice President, Chief Financial Officer, and Treasurer of Arkansas Best Corporation.

We thank you for joining us today. In order to help you better understand Arkansas Best Corporation and its results, some forward-looking statement could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of the factors that could affect the company's future results, please refer to the forward-looking statements section of the company's earnings press release and the company's most recent SEC public filing.

We will now begin with Mr. Loeffler.

Thanks, David.

I would like to start by looking at our overall results. Our revenues for the third quarter of this year were a little over $375 million, compared to a little under $382 million in the third quarter last year. However, if you exclude the one month of results of GI in the third quarter last year our revenues were up .3%.

Our operating income was 23.9 million compared to 21.2 million of the third quarter last year, our operating ratio was 93.6, versus 94.4 a year ago, and our net income was $18.3 million versus $13 million a year ago.

Our earnings per share for common shareholders on a diluted basis were 73 cents versus 52 cents a year ago.

As we indicated in the first paragraph of our press release, our earnings this quarter included a 12 cent improvement in earnings per share because of an IRS supplement. We had 9 cents in improved earnings per share from gains on sale of properties, and we decreased earnings per share by 2 cents because of increases in reserves related to the Reliance Insurance Company bankruptcy.

In looking at the the revenues, ABF's revenues on a per day basis for the quarter were up slightly, Clipper's revenues on a per day basis were down 1.6%.

Condensed cash flows for the first nine months of this year, net income before depreciation and the accounting change, which was the write-off of Clipper goodwill, was $63.3 million. Our net purchase of property and equipment was slightly over $40 million, and we had capitalization of software of $3.5 million.

We had a decrease in our bank float, and the net of all this was we had a decrease in our debt of a little over $17 million from the end of last year.

In looking at the status of our outstanding debt, including our current maturities, and this is net of temporary investment, at the end of 2000 our debt was 144 million. At the end of last year it was a little under 119 million. At the end of the third quarter this year it's 103 million.

Our debt-equity ratio at the end of 2000 was .61 to 1. At the end of last year it was .38 to 1. At the end of the third quarter this year it was .33 to 1.

If you look at that, netting temporary cash advancement against our debt, our debt-equity ratio was .30 to 1.

Our weighted average interest rate, including our fixed swap rate, is a little over 6.8%.

Looking at our internal financial measures that we discuss every quarter, for the actual results for the 12 months ended September 30 this year, our after tax return on shareholders equity was 10.7%.

As I mentioned, our debt-equity ratio was .33 to 1, and our after tax return on capital employee was about 8.5%, compared to our minimum acceptable level of 10%.

We continue to expect our capital expenditures for this year to come in around 45 million. This excludes any expenditures that we might make as it relates to the available CF properties, and we're also still forecasting depreciation and amortization this year to be a little under $50 million.

Regarding the increase in the reserve for exposure to Reliance Insurance Company, our net exposure at the end of the third quarter, after factoring in the reserves that will be covered by the state guarantee funds, is $1.9 million. We increased our reserves in the third quarter from 500,000 to $1.4 million, so we have 73% of our exposure reserved at this time.

We increase those reserves for the following reasons. There's no new financial information that has become available regarding Reliance since the March 31, 2001 financial statements. We've tried every avenue that we know and we're not able to get any better or more current information.

In addition, on those March 31, 2001 financial statements, there was a large asset for reinsurance recoverables. There's a lot of uncertainty as to whether or not Reliance will be able to recover the full amount of those reinsurance receivables.

In addition, Reliance has indicated that they will continue to accept claims until December 31, 2003, so that means there will be additional claims received and they'll be less available asset coverage as a result of that.

I'd like to now turn it over to Robert.

Good morning.

I'm going to talk about ABF and Clipper.

I'll start with ABF. Revenues in the quarter were 335.5 million, compared to 330 million last year.

The operating income was up also from 22.1 million last year to 23.7 million this year. And the operating ratio improved from a 93.3 last year to a 92.9 this year, for ABF.

LTL tonnage continued weak during the third quarter. It was down about 2.4% per work day, but in September, ABF's LTL pounds per day increased approximately 11% over tonnage trends experienced in August. And of course, that was the impact of the shutdown of Consolidated Freightways.

The third quarter LTL bill of revenue per hundred weight, excluding the fuel surcharge, is up 5.3% to $22.39 compared to $21.27 last year.

There was some change in profile, the length of haul went up some from 1,218 miles to 1,233 miles. The LTL rated class rose slightly from 73 to 74. And the weight per shipment went down some from 1008 pounds to 986 pounds. Overall, I don't think these changes in profile were very significant, but they had some impact.

The retention of the August 1 rate increase has been excellent. There was just no detectable slippage during August. The September figures, of course, are a little complicated because of the shutdown of Consolidated Freightways.

Shipments per dock, street and yard hour, are up 1% from the third quarter of 2001. This is several quarters in a row now we've been able to report improvements in our productivity.

LTL bills per dock hour went from 4.12 on the third-week average last year to 4.21 in roughly the same period this year, and LTL bills per street hour went up from 2.36 to 2.39, and trailers per yard hour during the 13-week period went from 4.4 to 4.6. That means we had an LTL bills per dock hour improvement of 2.18%, bills per street hour were up 1.27%, and trailers per yard hour were up 4.55%. Those are nice improvements and mean big dollars in terms of reducing operating costs.

Based on the analysis performed at ABF terminals using our netlink system, where we utilize microbrowsers has typically yielded improvements in dock street and yard productivity of about 4 to 6%. And we still have a ways to go. We've done obviously the areas where we thought we had the most to gain, but we still have terminals where these systems are not yet installed. Currently there are 96 terminals using the outbound planning. That's city drivers with micro browsers. 100 terminals will be utilizing outbound planning and mobile dispatch by the end of January next year. And at the same time, we think 70% of city drivers will have microbrowsers.

There are 3 distribution centers currently operating a paperless dock and we have six more DC's scheduled to begin to use this by the end of January. All 9 of our distribution centers are currently using the dock and yard system, with 20 to 30 end of the line terminals scheduled to begin use by the end of January, 2003. That technology has been paying off for us, makes our people more productive, and again, I think we have some additional productivity to pick up there.

Rail usage for the third quarter was 15.1% of total miles, and that compares to 14.4% in the third quarter of last year. Our cost there was up some because we had a higher percentage of our 28-foot trailers on rail instead of the rail trailers, which are more cost-effective. They're longer trailers to put on flat car.

We continue to have high workers compensation costs. It was $1,266,000 more this year than last year. That's -- part of that is the increase in reserve on the Reliance Insurance that David Loeffler talked about, and then part of that is increased development costs, because we now have a $1 million retention instead of a $300,000 retention that we had last year.

On a bright note, cargo loss and damage claims are down by $563,000 from last year and that's the impact both of the frequency of claims and severity of claims. We're doing some good work in the cargo loss and damage area and I'll say more about that later.

Equipment sales, again, were essentially a small gain. We've been showing small gains most every quarter in equipment sales. It's not significant to our earnings. The point is that we're putting the right residuals on our equipment and doing a good job of selling the used equipment.

We've reduced the ABF fleet by about 5% since 2000 because of the downturn in the economy. We will probably cut back on some sales for the balance of this year of used equipment in order to handle the influx of business that we've had from the close-down of CF.

The October 1 engine deadline did not have any effect on tractor purchases made by ABF in 2002. We went ahead with our normal program. For next year I think that we will likely buy fewer tractors, but we will be buying tractors with new technology engines in order to learn more about them and see what type of reliability we'll get out of those, but I think, again, we will probably be buying fewer tractors, road tractors than we normally would.

Terminal sales in the quarter resulted in a gain of 3 million 7, and that's something that happens from time to time as we sell off excess properties, but would not be expected to happen in every quarter.

ABF's employee count went up with the CF shutdown. We've returned about 100 people from layoff and we've hired about 818 new employees around the system. Obviously, some of those 818 new employees are not full-time yet, but that gives you some feel for the influx of new people as a result of the additional business.

In August, ABF was named to the top 10 of the net marketing 100 ranking of the best business to business websites. This award sponsored by B-to-B Magazine ranks the best business to business websites through a detail evaluation process.

What they look at is quality and presentation of the information, the ease of navigation, design, the E-commerce features, and any other extras. We rank 10th out of the 100 best sites and we're a repeat winner of this award and the only LTL motor carrier website selected last year. We're proud of the continued awards going to our website. It's a key part of our business nowadays.

We're also proud of ABF driver Scott Harris who was selected as the 2002 national driver of the year by the American Trucking Association. Harris is the second ABF driver to receive this honor in the last three years.

ABF was recognized by the American Trucking Associations for the second consecutive year as the top motor carrier in claims loss prevention. Over the past decade, 99% of all of our shipments have been moved without a loss or damage claim. And we recently had a record low of 99.23% of all shipments moving claims.

Our Director of Customer Service, Richard Lang was selected by the American Trucking Association as the 2002 claims loss prevention professional of the year. Under Richard's leadership, ABF has been recognized by the ATA as the top motor carrier in claim loss prevention for 2001, and 2002. And I suspect he will continue to get awards like that in the years to come. Richard does an excellent job, and as you heard earlier, our costs were down well over $550,000 for the quarter, that much improvement over last year.

On a sad note, ABF President and CEO Dave Stubblefield will retire January 31st of next year. Dave's been with the company for 43 years. I've worked with him for a long time. In addition to his excellent skills as an executive, David is probably one of the most honorable gentlemen I've ever had the opportunity to work with. We will miss him. I'm glad he can retire. I think he has nine grandchildren now and maybe still counting. I think he wants to spend a little more time with those folks.

David will be replaced by Robert A. Davidson. Bob's been named Stubblefield's successor. He is currently the Vice President of Marketing and Pricing and has been with ABF for 30 years, and I think 23 of those years he's worked for Dave Stubblefield, so we will continue with a very experienced and successful executive in charge of ABF.

Talk about Clipper. Revenues in the quarter were 32.4 million and they were 32.4 million last year.

The operating income, on the other hand, improved significantly, was up from over 200,000 last year to over 700,000 this year, and the operating ratio of Clipper improved from a 99.2 to a 97.7.

Clipper has three revenue streams. The first is an LTL forwarding operation on rail. That business was profitable in the quarter, intermodal in brokerage. The intermodal in brokerage is moving volume freight in trailers on rail, or, in the case of brokerage, via truck. That also was profitable for the quarter and Clipper control logistics, which is our refrigerated operation using trailers on the railroad, refrigerated trailers on the railroad, again, was also profitable.

All segments of Clipper made money in the quarter. Clipper's problem now that we need to work on is getting our business levels back up. The slowdown in the economy has impacted Clipper quite a bit.

Clipper gets in a normal year quite a bit of its income from rail rebates based upon volume of business that we do with the rail, and with the economy in the last year or so, that's not been forthcoming. We've not been earning the rail rebates that we normally get. As business turns up there, and I assume at some point in time it will, then we'll begin to reap those rail incentive payments again and we should get better Clipper margins at that point in time. Made good progress during the year and we've still got a ways to go.

With that I'll open it up for questions.

I think we're ready for some questions.

The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the organize that you signal us and we will take as many questions as time permits.

Our first question comes from James Valentine with Morgan Stanley.

First I want to wish David well. Hopefully 43 years gets him a watch or something, he did a great job here.

Want to ask a little bit about the whole business model or business mix relative to CF going out of business. In that you had a great quarter, you beat our number, I think we were the high on the Street, so there's no slight here, but you did mention that you're seeing about 11% growth from CF and I think Roadway made some reference to they were seeing about 17% growth, and if everyone is getting their fair share, it would seem like maybe you're getting a little less, maybe it's good, maybe you're being more disciplined, but I was just kind of hoping you could talk to that point.

Well, our information is that an overwhelming majority of their business was on contract. A lot of those contracts will be renegotiated, I would expect, around the first of the year. That seems to be the general practice. We think we'll have a shot at some of the additional business at that time. Our field sales force and our national account sales force at ABF are very optimistic that we've not hit our peak in business from CF.

On the other hand, I'm more concerned about getting the market share of profits than I am the market share of business and I think you'll see us hold our own in that case for the third quarter and I expect going forward.

Okay, great.

And if I can kind of switch gears here, talk about cash flow on two topics. First, maybe someone can give us an update on Wingfoot in terms of, assuming we still get the cash, I guess, early next year or in the first quarter of next year. Then what will you do with that, and all in the same vein, you made some reference in your press release about you may want to buy some of CFS, I'm trying to understand, would it be the full 20 million that I think your reference was, or was that just kind of the high end?

Jim, this is Dave.

Our put is at the end of April of next year.

I'm sorry, second quarter. Okay.

Although no final decisions have been made, more than likely we'll put that and more than likely we'll use that cash to pay down debt.

As it relates to the CF properties, really there's nothing more that we can say, at this point, than what we've indicated in the press release. We haven't made a final decision on exactly how much we would bid for, but we gave you the high end. We don't anticipate it would be any more than 20 million and we'll just have to see how that works out.

Okay.

And one final point based on your response, is being debt free really the, I guess, ideal capital structure? You seem to be implying that your ROE is going to be tougher to get that to go north if you're paying more and more debt down. Just want to kind of get your feel for where the ideal capital structure will be going forward.

Jim, we don't really have an ideal capital structure target.

It's not our goal to be debt free, but at the same time we're not going to invest cash if we can't generate acceptable returns. And we could well end up in the next 12 to 18 months debt free and we're discussing alternatives as to what we might do with that excess cash, because we don't -- also it's not in the shareholders' best interest to generate a lot of cash and leave it on your balance sheets for a long period of time.

Right. So potentially a dividend or buyback are real possibilities for next year.

Those are things we're discussing.

Excellent. Well, great. Appreciate it.

And next with Stevens, we'll hear from Dan Moore.

Good morning, gentlemen.

Hi, Dan.

Congratulations on a great quarter.

Just a couple of questions here. I was wondering if we could talk a little bit about the type of business you've been bringing on since Consolidated went out, specifically I'm just wandering if you've seen more two-day, more three-day, and if there's any way to provide some color in terms of incremental margin and that sort of thing, that would be great?

Dan, the business largely is three-day and beyond. If you'll recall, our profile, the average length of haul went up a little bit, and that doesn't surprise me. That's what I expected from CF business that we might get. They had the longest length of haul for sometime. I hadn't seen it recently, but they used to be up around 1400 miles which is a couple hundred miles more average than ABF.

So we did get a little bit longer length of haul, and we got a little bit smaller shipment, and we get a little bit higher class. That's all buried in the total numbers so I can't tell you for sure that came from CF, but that would be my guess.

The CF freight that we've taken on has about the same operating ratio as the ABF freight did prior to CF going down. But we picked up some margin because we filled the cream pitcher. We're -- the operating leverage went to work for us.

So that's how you would explain a better operating ratio, even though it only impacted us for one month of the quarter, and it was not that one month that was such a big impact. We were operating in the low 90s in August. But overall, I think it's been very positive and it's about the same freight we've been dealing with, again with just those minor changes in length of haul and size and shipment class.

Great.

David, talking about properties, you know, earlier in the call, you indicated that you were looking at several properties. Could you just remind us, you know, geographically what areas, if I remember correctly, California was an area you were looking at pretty closely? Has there been any additional terminal facilities that you have come into contact, any other geographic regions of the country, in light of the failure, that are looking more attractive now than they did prior to the bankruptcy announcement?

You're correct, the west coast, but also, we've had some interest on the east coast as well.

Okay.

And then I was wondering if we could talk a little bit about Clipper? Robert, you know, some great margin improvement here in the third quarter. Can you give us a sense for where margins could go moving forward, how much additional improvement we could realize, and where that improvement would come from? If I remember correctly, a lot of the margined there, historically, has been driven by volume-based discounts through the rail.

Yeah, that's correct, and we haven't had those to the extent we normally do this year because our business has been flat.

I think what's encouraging to me is without the rail incentives, they were able to improve the operating ratio fairly significantly and they did it by controlling costs by improving loadings, by getting more on the rail.

They moved some of their freight over the road, largely to give service, depending on the day of the week, and then the balance on the rail and they've moved the rail percentage up and still given the service. The rails have improved their service levels almost across the board, and in the lanes that we really operate in, they're doing an excellent job. So I'm real encouraged that Clipper has been able to control those costs to the extent they did in the third quarter this year. Now, if we'd just had those rail incentives back, which normally are there, then we'd have had a heck after quarter, but maybe in the future.

Yeah, it would seem that there is still quite bit of opportunity remaining.

Lastly here, the IBT, understanding that you all are in the middle of negotiations and really not in a position to maybe say as much as we might like to hear. Can you give us a sense for what's on the table, how the negotiations are proceeding thus far, and how soon we might see a contract settlement, especially in light of what's gone on on the west coast here recently?

It's a complex negotiation. There are all sorts of regional negotiations that have to take place, the supplements as they're called in the contract, they're geographic in nature. Those generally have to get done first before you can take up the national issues, which is largely pay, and they're proceeding. I can't tell you, at this early stage, anything definitive about it, and as it gets more intense I won't tell you what's going on.

Understood.

For, I think, obvious reasons, but I'm encouraged that we're off to a good start. We started six months ahead of the contract expiration so we've got enough time to get this done and perhaps get it done early. Although that's a goal, the main goal is to have a good contract.

Well, guys, I appreciate it. Again, congratulations on a great quarter.

Thank you.

And next we'll go to John Barnes with Deutsche Bank.

Hey, guys. Good morning.

Good morning, John.

In looking at the additional properties and going through this process of potentially buying some of the stuff from CF, we've been hearing that the process is kind of haphazard right now, that there's no real defined plan on how to go about the disposition of these properties. Is that the same thing you're seeing? Is that what's holding you up in terms of being able to give us a better idea, or have you, within the organization, have you not been able to decide, yes, we want to commit to this one, but, no, we don't want to commit to this?

Well, we don't have a firm schedule on when these properties will be disposed of. We've got to do due diligence on these properties. Largely what we're looking at is any potential hazardous material liability that might be involved with them, and we'll be careful about that.

You know, our best guess is that, perhaps, and I would underline perhaps, that they might get around to auctioning these properties by year end, and at max, we would be bidding on what we consider to be about $20 million worth of value.

I would add I've got a board meeting later this week where I've got to talk to them about adding that to our Cap Ex, but assuming they would approve that, that's where we would do, or what we would do, max. But the likelihood of us being successful on bidding on every one of those properties is probably slim, so that's really an outside number.

Okay.

The second question I had is to the question of buyback possibilities, share repurchase possibilities, do you currently have any type of share repurchased authority from the board?

No, we don't.

And then can you give us -- what do you anticipate in terms of when will you get the new engine technology into your system as part of your new trucks in 03?

We've got bids out right now and we haven't awarded the bid yet. And, you know, my guess would be they would start coming in in the late spring and be delivered over a, probably more, I think Jim Curtis who is VP Maintenance at ABF has indicated he might want to take delivery of them over a longer period of time, so if we run into problems that maybe we can nip them in the bud as we take delivery on these tractors, but we want to go ahead and get some experience with them. They're here to stay, and so what we'll do is probably take a few less than we normally would just to kind of hedge our bet and get on with it.

Okay.

Have you ever had a similar situation where you've taken this new technology in, and if so, do you have a benchmark you can go off of and say when you take in this kind of technology maintenance costs are going to go up X% or do you have any kind of feel for that?

Well, we've been putting in new technology in engines for the last 20, 25 years. Generally, the manufacturers do a pretty darn good job of making the equipment operate properly.

The exception I can think of is the first round of antilock brakes we put on didn't work too well. Seems like when people would key their citizen band radios, the brakes would freewheel. That was sort of exciting. That was a long time ago. The second round of antilock brakes works fine.

Because of the technology there's a lot of speculation these engines will cost a bit more to maintain and will be a little bit less fuel efficient. We're hearing different things from the manufacturer. How much of that is technological talk and how much is sales talks, I don't know. That's why we've got to get some and run them for a while.

Last question, do you anticipate being able to get your after-tax returns back up to the necessary threshold internally to pay the bonuses, and should we expect bonuses to increase wage costs in the fourth quarter and into the first half of next year?

I sure hope so.

Okay. Thanks for your time.

And with Goldman Sachs, we'll hear from Jordan Allenger.

Hi, morning.

Just a couple of questions. One, on the pricing front yields were pretty solid in the quarter. Can you just give a sense--- I would imagine most of that's from the rate increase, but could you give sort of a bigger picture view as to how CF may be, or not, impacting the pricing environment at this point? I assume since contracts come up later on, it may not be fully known, but early indication?

Jordan, this is Dave.

There's so many things at work here in September, it's really difficult to get too precise. You have new accounts that are coming on, you have growth in existing accounts, you have some normal turnover of business, we have the rate increase, we have the increase in the length of haul, increase in class, decrease in weight per shipment. All of those things combined, it's just very difficult to get very precise on that number.

Presumably though, yields should stay, I don't know if they'll be at the levels you just reported, but presumably they'll stay pretty solid for the time being.

From what we see at this point, we don't see anything different occurring, but we -- it's hard to get a good measure on what's going on from a yield standpoint during the month. We have some overall information that's available, but we really need to see our costing system information at the end of the month get very accurate information.

Just given the productivity numbers, I think you have a sense for this, but how is your network been absorbing that incremental freight from CF as you moved into September? And then sort of tied into that, do you have a sense for what you can expect from, sort of, maybe an incremental profitability standpoint on that CF freight with your existing capacity?

The additional freight's like salve on a wound. We were running light and we've not had any trouble handling it. It's been good. It's helped the system.

I think I mentioned this earlier, but what we perceive is not a lot of change in operating ratio on the freight that we absorbed from the CF shutdown, but we got additional operating leverage from the additional freight which means a lower operating ratio overall, but essentially the freight is, we think, about the same OR as what we were experiencing before CF shutdown.

Thank you.

And Ken Heckster with Merrill Lynch has our next question.

Hi, good morning.

I think you mentioned briefly the impact of the west coast strike was offsetting some of the benefits you were seeing in some of the CF freight. Can you talk a little bit about that, and then, Dave, is it possible to break out some of the ABF expenses as you have in the past, and then finally, I don't know if you can talk a little bit about the fuel surcharge, the impact of what we're seeing right now on a shipment basis? Thank you.

Well, first of all, on the west coast dock strike, we don't -- it was not a big impact on us. It's more of an indirect impact on us. We don't haul a lot of freight off the docks, although we do some, and we have accounts in California, in particular, that are importing and then reshipping by us. Those accounts, very often, had inventory that carried them through, but in some cases they would have, on an order, they would have 10 of the 12 items ordered and would hold the whole shipment waiting on the other 2 to come in, so we had some impact, but it's more indirect with us. We might feel it in Kansas City or Denver rather than on the west coast and it might come several weeks after the shutdown. It was hard to gauge, we had so much other stuff that was impacting our revenue that it just made it difficult to determine how much the dock strike was impacting us, but we don't think it was large.

Dave Loeffler, you want to take the second half of that?

Ken, the fuel surcharge is currently running at 4%. So that's allowing to us to cover our increase in fuel costs as it has in the past. I'm not sure exactly what you're talking about with about additional breakdown of ABF information.

Okay. On the first part though, revenue per hundred weight, excluding the fuel surcharge, would be what?

5.3% for the quarter. That's what we indicated in the press release.

Okay.

Then, I guess just on the breakdown of on the ABF expenses, just, there's a total transportation. Can you give any kind of breakdown as for what was -- I didn't see a wage and salary kind of breakdown for ABF or fuel expense. Can you break that out?

That will be in the 10Q.

Okay. Thank you.

And next we do have Mark Levin with Davenport and Company.

Great quarter, gentlemen.

A couple of quick questions. The first on, just your general comments about the economy. I realize it's difficult, given the impact of CF on the quarter, but I'm just curious what you guys are seeing from, just, general economic conditions and if you could comment on that?

I don't have a clue right now. I could tell you prior to September 2nd, I could give you a fairly good feel for how it is impacting us, but because of the impact of CF, it's all obscured now. I really don't have much feel for what's going on with the economy.

Fair enough.

The second question is on pricing. I mean, clearly you guys, clearly the GRI is sticking and you guys are doing a great job maintaining discipline. I guess my question is about your competitor's approach to pricing, especially given this major event that's occurred in the industry. Are you seeing a similar level of discipline? Are you encouraged, discouraged by what some of your other competitors are doing, from what you're hearing from your pricing people? Thanks.

Well, I think what you mean is, was pricing stable in relation to the CF rate that came on the market, I think that's what you're ---?

Exactly.

Okay. You know, I hear anecdotal information from our sales force that would indicate there's been some aggressiveness there, but let's wait and see what the numbers are when they -- Of course, Roadway's numbers really only included seven days, so those numbers are not indicative of what went on there, but in the case of our other competitors, let's wait and see what their revenue for hundred weight did and then we'll know. I could speculate on it, based on anecdotal information. But as you might guess, my sales force tells me everybody else is nuts and we're doing the right stuff.

Certainly.

Let's wait and see what those numbers are, and I think we'll see one of them later today and some others. I think we saw one today already, and another later today, and so forth, so that will tell the tale.

Very good. Thank you.

And with Legg Mason we have John Larkin.

Good morning, gentlemen.

Most of my questions have been answered already but I did have one question regarding the spool-up of your labor force. I think you indicated that you brought back something like 100 people that were on furlough and hired an additional 800 or more incremental folks. I presume most of that took place during the month of September, and I'm wondering, you know, if you have certain in-processing expenses and startup expenses associated with layering in all of those people, and how long it really takes for them to become fully integrated with the overall operation?

Good question. There's some minimal costs of bringing those people on board. It's not significant,, but the reverse of that actually is what's nice. Those people come in at a starting wage, the new ones do, not those recalled from layoff. They come in at a starting wage which is 75% of scale and then move up over time, so we get some advantage there, over time, on the new hires.

For the most part, we're bringing on people who are very experienced. These are not rookies, these are not 18 or 19-year-olds. These are people that a whole lot of them worked for CF and are experienced freight people, and they have to have some training on our systems and procedures, but I don't think that you would see that impact in our numbers. It would be very small.

Have you hired all the people you think you'll ultimately need to absorb the increased volume resulting from the CF failure?

Well, I don't know. It depends on what happens over the next couple of months. If we pick up additional business there, then we'll be hiring more people. But for right now, we're in good shape.

Is it your sense that some of the customers may have tried out, perhaps, lower-priced carriers, and may ultimately end up being dissatisfied with them and then shifting back over to a carrier like your own?

There's some speculation about that. We -- I'm told from our sales force of business that we know's coming on board that has not yet, they've told us they'll give it to us, but it's going to happen at such and such a date, but my theory on that is let's wait and count it until after we've got it.

All right, that's helpful. Thank you.

And as a reminder, if you do need to ask a question today, please press star 1 on your touch-tone telephone.

Next we'll go with Tom Albrecht with B B & T Capital Markets.

Good morning, guys.

I had a couple of questions that may be coming at some of the broader issues from a little different angle here. Kind of, again in, the post-CF world, if you had to estimate where your system stands in terms of overall utilization, relative to your capacity, could you put a ballpark number on that?

I think we're running at a good level right now. I certainly wouldn't say we're running at 100% capacity. Plus there are things that we can do, if we were to have additional business surge, very quickly.

For instance, using more rail. Under our labor agreement we can use up to 28% rail miles, of our total miles, and we're only using about half of that, so we could use more rail over a little bit longer period of time. We obviously can bring in additional equipment.

In terms of terminals, there's all sorts of things you can do to relieve door pressure. Some are somewhat expensive in terms of labor costs. But we could respond to more business, say, maybe 15% more business, fairly easily. But on the other hand, we're running at a good level now and you saw the operating leverage impact the third quarter with only one month of the operating leverage there. The operating ratio improved, actually, over last year. So we're in a very comfortable position right now in terms of enough business, but could absorb more without too much effort.

Would it be unfair to suggest that maybe you're operating at about 80% of capacity without doing a lot of extraordinary things to change the door pressure and stuff like that?

Well, you know, that would be a number that would work, I guess. I don't know that I know at what level of capacity we're working at, because tell me, you know, how much freight can we put through X number of door terminal. I don't know. Under certain circumstances, a whole lot.

Then you may have addressed this. Have you had to buy a lot of additional trailers, and if so, approximately how many to, kind of, accommodate the post-CF demand?

No, we haven't bought any additional trailers. We've slowed down the sale of some trailers that were slated to be sold, but we've not bought any additional trailers.

What's your load --

Outside of our normal purchase we make every year.

And how much has your load factor gone up? Would it be comparable, I guess, to the tonnage increases you've seen, or have you been able to capture all of that, I guess is what I'm asking, in your load factors?

Actually our load factor declined during the quarter .2 of 1%, but now, remember two months of the quarter was before CF went down. I don't have the September numbers right in front of me, but obviously, we took on more business and that, no doubt, impacted load factor in September.

Okay.

Where that really impacts us is, in our, from the break off terminal, or from the distribution center terminal, to the end of the line terminal, we have more freight to work with, because we're going to run that every day anyway, and so that was -- that's one of the things that helps our operating leverage when we pick up more business.

Then lastly, you eluded to your second day business volumes. Where is that as a percentage of your overall, either tonnage or revenues, right now?

Second-day business has, in the most recent quarter, has declined a little bit. It's about 25% of our business, in terms of revenue, but it -- for the quarter it was down some. But the whole quarter was down, with the exception of September.

Sure.

And it's about 36% of tonnage.

And that's about how it has been running for the last 12, 18 months.

Yeah, that's correct. I just wanted to kind of track that as an ongoing measurement. Okay, gentlemen. Thanks very much.

And with Morgan Stanley, Andy Petery has our next question.

Good morning, gentlemen. Giving my best to Dave, if he's on the call. Happy retirement to you.

He's working today. He doesn't get off until January 31st. He doesn't have time to chitchat with you guys.

All right. He's always been silent, and the best.

I'm trying to find, where did this contract business go that CF had? Do I assume it went to Roadway and Yellow on a temporary basis and then it will be redistributed?

I'm sure they don't think it's temporary if they've got it.

It went a lot of places, certainly Roadway and ABF and Yellow got a lot of it, but it went to lots of different types of carriers, different places, and trying to pinpoint that is pretty hard to do at this point. As the year unfolds, maybe we'll have a better idea of where it went.

Presumably, from what I'm hearing that Roadway and Yellow are pretty full right now.

I hope so. That would be good.

All right. Thanks very much.

And as a reminder, if you do have a question, please press star 1 on your telephone.

We may just take one more call. One more question.

At this time there are no further questions in the queue, though.

Well, we thank you for joining us this morning and we appreciate your interest in Arkansas Best Corporation, and this concludes our call.