ArcBest Corp (ARCB) 2002 Q4 法說會逐字稿

You are holding for today's Arkansas BestCorp's conference call, fourth quarter 2002 earnings. At this time, we are admitting additional participants but expect to be getting started shortly. Once again, we thank you for your patience and ask you to please continue to hold.

Please stand by. We are about to begin. Good day and welcome to this Arkansas Best Corporation fourth 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 conference over to the Director of Investor Relations Mr. David Humphreys (ph). Please go ahead, sir.

Welcome to the Arkansas Best Corporation fourth quarter2002 earnings conference call. We will have a short discussion of the fourth 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 (ph), President and Chief Executive Officer of Arkansas Best Corporation and Mr. David E. Loeffler (ph), Vice President and Chief Financial Officer and Treasure 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 statements could be made during this call. As we all know, forward-looking statements by their very nature are subject to uncertainties and risk. For more complete discussion, factors that could affect the company's future results, please refer to the forward-looking statement section of the company's earnings press release in the company's most recent S.E.C. public filings. We will now begin with Mr. Loeffler.

Thanks, David. Overall, we feel we've had an excellent quarter. ABF had an operating ratio of 92-2 which was their third best fourth quarter in the last 25 years. Tonnage per day increased almost 13% from the trends they were experiencing prior to the CF closure. ABF's revenue increased almost 6% excluding the impact of the fuel surcharge from the fourth quarter of 2001, and ABF's operating income increased 64% from the fourth quarter of the previous year. Clipper's operating ratio is three points better than the fourth quarter of the previous year. From a total corporate standpoint, our total net temporary investments is down to $76 million and our ROCE, return on capital employee for 2002 is 9.6%. Now looking at the overall results for the fourth quarter, revenues for Arkansas Best Corporation were a little over $381 million. That's 13.1% above the fourth quarter of 2001. Operating income was a little over $26 million compared to $14.8 million in the comparable period the previous year and net income was $14.5 million, compared to $9.5 million in the fourth quarter of 2001. Earnings per share on a common diluted basis were 57 cents compared to 38 cents in the comparable period of the previous year.

ABF's revenues for the fourth quarter were up 14.2% in the fourth quarter of '01 and clipper's revenues were up 2% from the comparable period in the previous year. Looking at the total year's results, revenues were $1,422,000,000. When you compare that to 2001 excluding the revenues from G.I., which we sold in August of 2001, the revenues were basically flat. Operating income was $68.2 million compared to $75.9 million in 2001. Net income was $40.8 million compared to 41.4 in the previous year. And earnings per share on a common diluted basis were $1.60 compared to a $1.66 in 2001. ABF's revenues last year were basically flat from the previous year and clipper's revenues were down 6.6%. In looking at our condensed cash flow for the year 2002,our net income before depreciation and before the accounting change was -- which was the write-off of clipper's Goodwill was a little over $90 million. We had an increase in accounts receivable primarily at ABF, which was about $16 million. We had other changes that used working capital, about $7.5 million. We had net purchases of property and equipment of $46.5 million and capitalization of software of about $4.5 million. We had an increase in our bank flow of about $1.5 million so we had a decrease in debt of four temporary investments of$17.5 million.

The status of our outstanding debt including current maturities is our debt net (ph) temporary investments at the end of 2000 was 144 million at the end of 2001 was 119 million. And at the end of last year was down to 76 million. Our debt to equity ratio is down to.32 to 1. Our weighted average interest rate remains at about 6.84%. In looking at our internal financial measures, our after-tax return on stockholders' equity for the 12 months into 2002 was 11.76%. Our debt to equity ratio was .32 to 1. Our net debt to ratio is down to .21 to 1. And our after-tax return on capital is about 9.6%,and that compares to our minimum acceptable level of 10%. In talking briefly about capital expenditures, our capital expenditures last year were about $46.5 million. That compares to about $64.5 million the previous year, in year2001. The $64.5 million is about our normal maintenance rate for cap X. We're forecasting capital expenditures for this year of $69.5 million. That's just a little bit above the normal maintenance rate, but within that range, a little detail about that, we're looking to spend about 47 million on revenue equipment, 7 million on real estate, and about $16 million in other categories. That's primarily such things as yard tractors and forklifts, U-pack equipment, upgrading our main-frame, P.C.'s, those type of things. Our total depreciation and amortization that we're projecting for this year is about52.5 million. That compares to about 49.5 million last year. And in 2001 our depreciation and amortization was54.5 million, but that included about 4 million from the amortization of intangibles. I'll now turn it over to Robert.

Good morning. I want to talk about the individual subsidiaries in a little more detail. For the fourth quarter this year, ABF's revenue was 345 million. That compares to 302 million last year, about a 14.2%increase. And the operating income was 27.1 million compared to 16.5 million last year. And the operating ratio improved from a 94.5 last year to a 92.2 in 2002. Total pounds per workday were up about 5.4%, and LTL pounds per day were up 6.5%. I think Dave mentioned earlier LTL tonnage is above the third quarter 2001 by 6.5% per workday. If you take ABF's LTL pounds per day and look at them through the first two-thirds of the year, they were down 6.9% January through August of 2002 compared to 2001. ABF's L TL founds BER today increased 6.2% for the last third of the year September through December of 2002 when you compare them with 2001. So when you look at the -- how much we were down in the first two-thirds of the year and then how much we came up in the last third of the year, you're looking at about 13%increase in tonnage trends comparing these two time periods. And, of course, that's largely a result of consolidated freight ways exiting the market. And that was a good operating ratio for ABF.

I think Dave mentioned earlier the third best in the last 25 years. So we're pretty pleased with our results for the quarter. The year, of course, was not nearly as good. Revenue for the year was pretty much flat. It was actually down .4% from 1.282 billion in 2001 to 1.277 billion in 2002. The operating income was off some in the prior year also for the full year of 2001. It was 79.4 million and for$200,268.8 million. The operating ratio was not as good as 2001. It was 93.8 for the year in 2001 and 94.6 for the year 2002. So you can see the substantial turn around that we had in the fourth quarter. For the full year, total pounds per day were down 4.2%. And LTL were down2.8%. The truckload pounds were down substantially more,9.6%. Probably the single biggest impact of the year in terms of operating ratio was our total insurance costs for2002 increased by $13 million over 2001. Had we not had that increase in total insurance costs, the year actually would have been more profitable. And I think that's pretty remarkable in light of the reduced tonnage and revenues that we were working with through the first two-thirds of the year. Our fourth-quarter LTL build revenue excluding the fuel surcharge is up 5.9% at 22.56,$22.56 compared to $21.30 in the fourth quarter of 2001. That's largely a result of pricing, but there were some profile changes, which is unusual. Normally our profile stays pretty static.

But in this quarter, (inaudible)went up some, went up from 1,222 miles in 2001 to1,260 miles in 2002 or 3.1% increase in length of haul. And that results in a higher revenue, of course. The commodity class went up from 73 to 74. That's a 1.4% increase in commodity class. And the weight per shipment went down from about three pounds in the fourth quarter of2001 to 971 pounds or about a 3% decline in weight per shipment. That also would have an impact on rates going -- or on revenue per hunter weight going up. We're seeing a business continue to be robust. After three months of record bit activity, the number of new bids received in December was back to historic levels. December normally, though is a strong month for bids as year-end rolls around. I have been able to report in the last several quarters -- I haven't looked back now to see how many, but it's been several -- that our productivity continues to improve and it did again in the fourth quarter of 2001. Our shipments per dock street and yard hour, these are our freight handling, were up 1.3% in the fourth quarter of 2001. And that's very encouraging.

Our bills per dock hour went from 4.12 to 4.19. Bills per street hour went from 2.35 to 2.38. I'm talking here a13-week average at the end of the year basically. Trailers per yard hour went from 4.4 to 4.5. And these were all positive trends, and while these numbers, incremental numbers look small, they're big bucks, because labor, of course, is about two-thirds of our total cost. I've mentioned in previous quarters our use of microbrowsers. And based on an analysis performed at the ABF terminals utilizing microbrowsers, we typically had a productivity improvement of somewhere between 4% and 6%. And we're still implementing the various programs that we're using with these microbrowsers. These microbrowsers are simply self-owned (ph) size links from our employees to information that lets them do their job better. Currently, there are 100 terminals using outbound planning. That involves city drivers communicating with the terminal using microbrowsers as they pick up freight (ph) during the day. Mobile dispatch by the end of this month and by the end of this month, 70% of our city drivers will be equipped with the microbrowsers. Six of our distribution centers are currently operating with a paperless dock. And all nine distribution centers and eight other terminals are currently using the dock and yard system. We'll be (inaudible) centralized dock management again utilizing these microbrowsers in the first quarter of 2003.

One trend that we've noticed for the last several years continued in the quarter. The density of our freight, in other words, the pounds per cubic foot, declined some. It was at about 10.2 in the fourth quarter of 2001, and it was at 10.0 in the fourth quarter of 2002. Or about a 1.5% drop in density. That tends to hurt our load factor, and it was down 1.7%,partially because of the decline in density. In addition to the density drop, our rail miles were up from 13.22% to15.82%. And rail schedules are typically about 86% of the capacity of a set of pubs. That's when we use a rail trailer to move the freight. As I mentioned, the rail usage for the fourth quarter was 15.9%. That keeps us well below what we can do under our labor agreement. But gave us the flexibility, and it's the reason it's up, it gave us the flexibility with the influx of a CF rate to move that freight in a timely manner when we didn't have the -- necessarily have the equipment to move it with over the road. And that is a good flex tool for ABF. Our equipment sales pretty unremarkable. We had small loss on equipment sales in the fourth quarter, but we're still ahead for the year by about $320,000. I wouldn't mention a number of that size normally except to say that it just shows that our residuals and the way we've got this equipment on our balance sheet is realistic and we continue it make a little bit of profit when we sell used equipment. We have for the last few years been working on transit times and improving transit times at ABF. And it has in fact improved our competitiveness in those lanes obviously where we've been improved transit times. In lanes currently two days or less, we've had an 8.7% increase in revenue in the fourth quarter over the prior year, a 2.2% increase in weight and a 6.7% increase in shipments. Lanes currently three days or more, we had a15% -- 15.6% increase in revenue and 8.5% increase in weight and a 12.3% increase in shipments.

You'll notice that the longer lanes had the higher growth, and that is because the CF business that we picked up for the most part was quite long-haul business. And so that impacted the quarter. That -- those numbers really have turned around some. We were growing faster in the short lanes as we began to become competitive in the second morning business. Effective December 3rd of2002, transit times were reduced in over 15% of ABF service lanes. These were generally long-haul lanes, by decreasing the maximum time allowed to handle shipments at our distribution centers. Combined with previous improvements in many of ABF's short-haul lanes, this most recent change has reduced transit times in approximately62% of ABF's terminal-to-terminal transit times since April of 1999. I will continue to do that, continue to work on improving transit times and becoming more and more competitive all the time in both long and short-haul lanes. In December of last year, selling pyro magazine named ABF is one of the top three companies to sell for in the service sector of the United States economy.

ABF was also named in the top five of the 50 best companies to sell for overall. Selling power survey ranked U.S. companies with sale forces of 500 or more sales reps in three categories, compensation, training, and career mobility. Top sale executives, training managers, and human resource managers were surveyed to determine those rankings. We're proud that ABF got that honor.

Moving onto Clipper. Clipper's revenue in the fourth quarter was a 30.3 million. That compares to 29.7 million in the fourth quarter of 2001. That was an increase of 2.1%, and if I recall correctly, that's the first time in a while we've had an increase in revenue at Clipper. The operating income was about $300,000 compared to a $600,000loss last year. And the operating ratio improved from a101.9 (ph) to a 98.9 (ph). For the quarter. Compared to last year, what brought about those improvements? Well, account profitability improved. Particularly on the LTL sector that clip he participates in. Higher rail incentives were an impact there as we utilized more rail than we have in past years, and then lower bad debt expense for the quarter also had an impact on that. The LTL revenue for Clipper was up 9% quarter over quarter. Intermodal and brokerage was up 7%. And clipper control logistics, the refrigerated operation, was up 4.9%. So they all had positive moves in revenue. Clipper for the full year had 118.9 million in revenue. That compares to127.3 million. So for the full year revenue was down 6.5%, and you'll recall that for the fourth quarter, it was up. So we're seeing a good turn there, at least so far, and the operating income for the full year was $1.1 million compared to a half million last year. The operating ratio improved from a 99.6 to a 99.1 for the full year, with an accelerating improvement in profitability and revenues in the last quarter. And the year pretty much followed the quarter in terms of how we compare to last year. Our LTL account profitability improved quite a bit.

We got higher rail incentives for the year and lower bad debt expense. One more comment about ABF, I think everybody's aware that we're involved in labor negotiations right now. We have a labor agreement that expires at the end of March. Where that stands is the negotiations have made good progress. So far the supplemental agreements are pretty much agreed upon. In past contracts, those have tended to drag out until the very end, so that's, I think, good news. The industry and the teamsters have exchanged economic proposals, as you might expect, we probably offered less than they thought was appropriate. And they asked for more than we thought was appropriate. We have adjourned to sit back and look at those economic proposals and weigh the impact of various aspects of that. And I'm sure that both the union and the companies will come back with additional negotiations in the not too distant future. Not surprised about where we are right now. It's difficult to get a contract. Until you have some pressure from a deadline and we still have some ten weeks to go, I think., before the contract expires. So we'll be --industry will continue to work on that. I'm not particularly concerned nor am I particularly happy. I'd be real happy if we already had a contract, but that's not the case. On the other hand, I would have been surprised had we had one by now. And that's kind of all we can say about that. I'm obviously not going to talk about individual pieces of the contract. We don't negotiate the contract in the press. Would not want to betray our confidence with the union by doing something like that. With that, I think I'll open it up for questions. David?

I think we're ready.

The question is answer session will be conducted electronically today. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch tone telephone. If you are using a speaker phone, make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us and we'll take as many question as time permits. Once again, please press star one on your touch tone telephone to ask a question. We'll proceed to our first question. This is from Mr. John Larkin (ph)with Legg Mason.

Yes, thank you. Good morning, gentlemen. A couple of quick questions here. Given that the teamster negotiations perhaps are progressing a little bit longer than we would have thought a month or two ago, what do you think the risk of freight diversion to the non union carriers might be here in the first quarter?

Well, obviously, the longer the negotiations go on, the more risk we have of diversion. As an industry, I think it's important that we recognize that getting a good contract is more important than getting an early contract, but it certainly behooves us to do it as quickly as we can. I can't quantify that, John. You know, whether it's this week or next week that we might have a - become concerned, start putting their freight on another carrier. Just hard to quantify that. And while I am concerned about that and mindful of it, that is not -- that is not our overwhelming consideration. Our overwhelming consideration is to get a contract that is good for us and good for our employees and that's the first order of business.

Thank you. One additional question on the general tenor of the economy out there. I got the impression in reading the press release and listening to your remarks this morning that the underlying industry economy remains somewhat flatish. Is that a correct assessment? Are you seeing any kind of an increase inactivity at all with your industrial customers?

It's really hard for me to say what's going on with the economy. The CF shut down back in September, and it's been, you know, several months now. It's still muddying the water a (ph) bit. -- the water a bit. We're continuing to see business come on. Whether that is a result of coming from CF or is just normal -- what's going on in the market plate, I don't know. Normally, I could give you a feel for that. But I just don't -- I don't feel confident saying one way or another. In talking to customers, they tend to sound pretty optimistic about 2003, but as has been the case for the last couple of years, they're always talking about the next half. So we'll just have to see.

And just one follow-up on the comment regarding your insurance expense. Sounds like if insurance expense had been about the same as last year that your O.R. might have been maybe as much as 100 basis points lower, which would have been absolutely spectacular. Is the $13 million primarily in the form of incremental premium due to the increased pricing of insurance? Or is there something else going on there?

Well, it's both. It's both retention level and premium. For instance, on worker's comp for last year, we were up about $5 million or .4 on the operating point line. The retention level went to $1 million in new claims and loss development decreased to 3.5 million. New claims severity increased .6 million. Other loss development was 1 million resulting from severity. Basically, though, our experience has been good. It's largely in the -- we've had to go to a larger retention in order to keep the rates at a reasonable level. And of course, we look back when we do that and look at history to make sure that this is being a good deal to take that larger retention and a lower premium. Bodily injury and property damage was up about 7.7 million or .6 operating points. And the balance then was in the claims experience. Does that help you?

Yeah, that helps to clarify it. Thank you very much.

And we'll proceed to our next question. This is from Greg Byrnes (ph) with J.P. Morgan.

Hi, guys. Just had a couple of he questions, Robert, on the price side. And you did a good job, I think, of breaking out the change of mix issue that impacted revenue for hunter weight. But I'm curious. You mentioned in the release that the CF business was lower yielding. And I'm curious even adjusting for the length of haul whether it was also lower yielding and then what I'm trying to understand is, what was a pure apples to apples price increase? If you guys had to look at it on business that was identical versus a year ago, what kind of pure price increase were you seeing as opposed to change in the mix, et cetera?

Well, the CF business that we took on -- and of course, I'm talking averages. There's some of that's better and some worse. The CF business that we took on was a little bit worse on an individual account basis than our ongoing business. Still good business for us and certainly impacted us from the -- impact of the additional business that we had to work with very positively. And that obviously improved the O.R. in the fourth quarter. The general rate increase was probably 2.2% of the revenue for hunter weight increase. Profile was probably around 3.9%. And fuel surcharge when you're looking at that number with fuel surcharge included was .2%. So we're looking at total bill revenue of -- impact of 6.3% including fuel surcharge. So it came from various places.

John, the profile change is really profile and mix. It includes all changes in everything other than the general rate increase.

Right. I mean, it sounds like your change in the profile was able to overcome having a few more lower margin shippers in the mix.

Yeah. I mean, obviously, the bottom line bears that out.

Right. And just shifting gears a second to the cost, make sure I understand this. You're saying that your insurance costs will be, you know, three will be flat versus '02, yet you're raising the retention. Am I reading that right?

Yeah, that's part of how we get it to be flat, by increasing the retention.

But the retention -- did the retention go up in '02 over '01?

In workers' comp, it did. This year we're raising the retention (inaudible). When you factor in the additional insurance costs we're going to have in that self-insured layer from half a million to a million and offset that against some slightly lower premiums, the net effect of it is that it would be about flat. But the only way we're accomplishing that is by increasing the retention.

Okay. So you -- okay. So essentially, you have to take out a little more risk to keep rates flat. And so from the insurance standpoint, they're still getting higher rates because they're charging you the same amount, but they're taking less risk. So rates are still going up. It's just you're assuming a little more risk. Is that the way to look at it?

That's correct. When we say it will be about flat, we're factoring into that our historical experience of self-insured claims that we will take on in that layer from half a million to a million.

Got you. Got you. And then the second area on the cost, the change in the pension assumptions. Do you have a -- you talked about fully funded cash flow. But just from an earnings expense issue, what the -- what you anticipate the earnings drag will be from these changes in'03 versus '02?

In '02, our pension expense was $5.3 million.

Right

And '03 we're working with an estimate right now. We won't have it finalized with all the (inaudible) studies and everything until probably April. But we're looking at something in the area of 10 million. In '03. And I might also add that in looking at the funding status, again, we're working with estimates on our liability side at the end of the year. But we're looking at an over funding in the area of 6 million to 7 million on the nonunion pension plans.

Okay. Okay. And then just final comment in terms of the outlook and you mentioned the industrial side of the economy. And I'm just curious, on January, you probably don't have enough data points. But in general, does it look to you guys like adjusting for seasonality, et cetera, that things are stabilizing, or getting better or sort of just -- can you give any sort of rate of change, characterization on what you've seen so far in the New Year?

I think, you know, pressed for an answer, to start with, you know, January is not a good month to look at and try to figure out what kind of trends you're dealing with. And plus we're only about two-thirds of the way through the month. But our best guess at this point is it's about flat. The economy doesn't seem to be getting any worse. Doesn't seem to be getting appreciably better. But it's really hard to get a chance of business levels till we see probably at least a couple of months of the first quarter.

Great. Thank you very much.

At this point, I would like to remind our participants, if you do have a question, you may signal by pressing star one on your touch tone telephone. If you have already cued up for a question and find that your question has already been answered, please press the pound sign to remove yourself from the queue. We will go to our next questioner. This is Mr. David Mack (ph) representing Credit Suisse First Boston.

Hi, guys. How are? It's Gary and David. Wanted to ask you a question about bonus accruals at ABF freight. Could you just refresh our memory on -- I know they were probably fairly back end loaded for the year. You can give us an update on how that came out in '02.?

In the fourth quarter of 2001 -- or I'm sorry -- in2002, we were above 2001 by 2.7 million in bonuses. Those include field bonuses that amounted to about 860,000 and our return on capital employed bonus at the officer level for about 2.1 million, makes up the total of the 2.9 million. And those are kind of expenses that I like to see go up.

Okay. Does that do a bit more of an evening out in '03? I know obviously the performance of the company is a variable we don't have the answer to yet. But is it -- are the odds it's less lumpy in '03 than '02?

Well, yeah, 2002 was heavily weighted towards the fourth quarter because that's when we had the big improvement in revenues and tonnage and earnings. Fourth quarter was so much better than the balance of the year. So that's why you had that surge right there in the fourth quarter. So, yeah, I would expect it to be more even in 2003.

Okay. I wanted to also ask about rail business,15-point -- up a bit from the prior year. Is rail business generally make you more productive and profitable?

Well, the way we use rail primarily is for balance reasons where we have lanes that are traditionally out of balance. We use rail to eliminate empties on our - over the road empties. And then we use rail or (ph) overflow where we don't have enough equipment at a given day of the week or day of the month peak. We can peak shave with rail. And that's very profitable to us because we don't have to own the equipment that we would need otherwise to handle those peaks. So it allows us to give service and yet not have enough equipment to handle the peaks. And that's where we'd like to be. We never want to have enough equipment to handle the peak load that we have towards the end of a month, particularly towards the end of a quarter. You see peaks really pick up. That's how it works for us. In most lanes, not all, but in most lanes, it's a little more expensive in our opinion to use rail assuming we have the trucks available. And then, you know, we want to keep our drivers working, too. So a - one way to do that is use rail peak shaves so we don't have to have drivers to work a few days a month. It's really unfair to them.

Okay. I just had another one for you

Okay.

I had a question on balance sheet and in terms of debt levels to think about for '03 and as well as, I guess what that would translate into for interest expense and so on.

Robert Young We don't provide projections on our debt levels. We have said in the past a number of occasions publicly that we could possibly be out of debt in the next 12 to 18months. Beyond that we don't provide any guidance on that.

One other question I had. What -- and this goes to the mix issue. I don't know if you have this, but for the quarter, what was the freight bill profile for the customers? You know, if you look at all the customers' average freight bill for the quart year on year -- quarter year on year. I'm trying to disaggregate, you know, if the existing customer spent more or these were new customers that gave you business.

Robert Young I sort of addressed that earlier. Our mix did change for the quarter, and I would assume that most of that had to do with the CF business that came on board. The LTL class went from class 73 to class 74. That's a 1.4%change. That impacts -- that means that the revenue per hunter weight goes up, class goes up. The weight per shipment went down 3.1%. That also improves revenue per hundred weight or raises it. Those are not necessarily good or bad things. I mean, the reason a higher class carries a higher rate is some characteristics of that frailty put it in a higher class, which generally means it's more expensive to handle for some reason or another. The average length of haul also went up about 3% from1,222 miles to 1,260 miles. I would attribute all of these changes -- or largely all of them to the CF rate that we took on. And generally speaking, that's what I expected. They had -- they've always had about the longest average loaning length of haul among the long-haul carriers. And so I wasn't surprised by that at all. The class thing is not something I focus on a whole lot, because generally, the class and the rates go together. They're appropriate. The weight per shipment generally it's less efficient to handle lighter shipments but you get paid more per hundredweight. Those are all things that happen in the fourth quarter that I would attribute largely to CF. Does that address your question?

Yeah. Yeah. One last question. Are you going to have to keep using the rails as much as you did in the fourth quarter going forward, or were you able to rebound (inaudible)?

Well, that depends on several things. Obviously, business levels will impact that. That's probably the single biggest impact we have is business levels because we peak shave with it. But I would assume that it will be in the 13% to 15% range going forward. I don't know that that's terribly important in looking at our -- if you're trying to estimate our earnings or something like that, I don't think how much rail we use -- as long as it doesn't swing a lot, mine, between 13% and 15% is not a big change.

Okay.

So I don't think that's a big impact.

Okay. Thank you very much.

Someone asked earlier about what kind of a trend we see, and I -- I'll share this with you. On LTL tonnage, and this is just LTL and it's tonnage, not revenue --October -- these are year-over-year, 2001 versus 2002. In October it was up 4.32%. November, 7.68. December,8.79. And then for the whole quarter, 6.52%. So there has been some increase in the increase, if you'll allow me that. Since CF went under. And how much of that is us picking up additional CF business how much is the economy, I can't tell you but I think some of the CF business is still moving around.

And gentlemen, our next question will come from Mr. John Barnes (ph) from Deutsche Banc.

Okay. Thanks. First of all, I apologize for how slow I write but on your cap X breakdown, could you just go through it again one time? 47 million on revenue equipment. What was the -- what were the other two categories?

7 million on real estate. And 16 million in other.

And again, the other was just kind of everything else, I.T. and some -

Yes, it's yard tractors, forklifts, U-pack equipment, safety cars, decking tables, upgrading the main-frame, PC's. I mean, it's just a host of other items.

Okay. On your revenue equipment, can you give us a breakdown as to tractors versus trailers? I know you mentioned in the release that you were going through a trailer replacement program for both ABF and Clipper in '03. You can give us a little bit more color on that?

We're going to order just under 400 road tractors and about 1,700 trailer -- road trailers.

Okay. On the tractor purchases, you know, you can give us an idea of the type your looking at, what experience you've had with the new engines so far, and are you doing this because you're taking advantage of any manufacturers' incentives at this point?

The -- the approach we're taking this year is we're ordering Mercedes engine. Mercedes is not a party to the settlement agreement that the other manufacturers agreed to so they've got another -- I don't know if it's 18months or two years before they have to comply with the emission standards. So we get an engine that is not burdened with that additional technology. The -- that's the good news. The bad news is we don't have experience with those engines, and we're --we don't like to do that very much. But we think it's probably the best move for us at this time. So that takes care of 2003. What we do in 2004, of course, I don't know yet. Eventually, we need to get some experience with the new technology. Higher (ph) maintenance people tell me they're not overly concerned about it, that the manufacturers have faced this sort of challenge before and that they generally rise to the occasion and come up with good solutions. But just in case that didn't work this time, we're gonna buy the Mercedes engines this year.

All right. All right. Obviously, you know, you've done a very good job at improving the quality of your balance sheet over time. I give credit to the entire industry for that. But you've got a pretty significant cash flow opportunity coming up here in the next four or five months. Curious as to where you stand in terms of what to do with the cash at that point. You know, is share repurchase dividends because you haven't been very active in the acquisition market recently, but can you just elaborate a little bit on what you see as the - you know, the use of your balance sheet and your cash flow going forward?

Well, I think our first fall-back position is we'll pay down debt. We still have in the neighborhood of$70 million in debt. And that's about equivalent to what we're going to get from the (inaudible) to good year on our investment there. The options of paying a cash dividend or buying back stock or maybe some combination of those two things or -- that's a conversation that our board is having now and has not determined what they feel like is the best approach yet. You can imagine that will be the topic of conversation between now and April, assuming we exercise the foot that will put pressure on us to make a decision in that area. But we have not come to a conclusion yet.

Okay. And then lastly, kind of, you know,50,000-foot, you have been very, very disciplined in terms of your pricing. Have a history of that. But in the recent appropriations bill for the department of transportation, that was clause in there that eliminated some of the hurdles for the re-emergence of rate bureaus. And I'm kind of curious as to your stand -- you know, your thoughts on that. Is it a threat to you, to the industry, you know, in -- you know, how are you working to alleges -- the legislative an toll counter some of that.

I don't think you'll find many people in the industry that want to go back to regulated rates. It's taken us about 20 years to learn how to deal with unregulated rates. I can't imagine that would progress very far. I don't think there's a lot of sentiment anywhere that I'm aware of. I know hour customers don't want regulated rates. I'm sure that the national industrial transportation league would go into orbit if they thought (inaudible) were going to take over and the rates were going to be non-competitive going forward. So I just don't think that's much of a possibility. And we're certainly not in favor of it.

Okay. Thanks so much for your time.

I would like to remind our participants again if you do find your question has been answered and would like to remove yourself from the queue, press the pound sign. Our next question will be from Jeffrey Rosenberger (ph) with Clover Capital management.

I realize and fully understand your reluctance to, you know, get real specific about the teamsters contract, but I'm wondering if you can just give us some broader sense of where the issues are. Are work rules part of it, or are they strictly economic issues at this point?

Well, what we invested at the -- over the - recessed over the weekend, to go back and look at their proposals and they, I'm sure, want to look at our proposals and evaluate both sides evaluate what approach they would take coming back in to negotiate the economic part. As I said, the supplemental agreements have been pretty much agreed upon. You know, nothing's in concrete until it's over. But in past negotiations, SBIF been at this for a longtime -- and I've been at this for a long time, supplemental agreements were always kind of hanging around until the last minute. And so this -- that's good news. Obviously, the economic part of the contract is a big part of the contract. And that's the issue where we are now. I would not want to characterize it as either good or bad at this point. It's a matter of same old deal. They ask for way too much, and we didn't offer near enough, depending on which side the fence you're standing on.

Right. Well, from an economic standpoint, are the sticking points primarily hourly rates, or are they things like pension contributions and medical costs?

Well, we look at that all the same thing, whether it's -- see, what we do on health buffer and pensions, we pay so much an hour.

Right

So we look upon whether it's benefits or salary is all the same as far as we're concerned.

Okay. Thanks.

You bet.

And our next question will be from Edward Wolf (ph) from Bear Stearns.

Hi, gentlemen. Recently last week at yellows analyst meetings, one of the things yellows' management talked about was their desire to rejigger their network and get into the next-day market. I'd be interested to, one, understand if that's an issue the flexibility with the teamsters to get into the next-day market is something that matters to you guys as a company in this negotiation, and, two, if you think that's -- is that an issue that's on the table? Could such flexibility be part of this contract?

Every contract I've participated in we've asked for flexibility. In some cases we've been successful and some cases we haven't. That's certainly something that the industry's always interested in and this contract wouldn't be an exception.

But specifically, is -- do you think your network allows to you be in the next-day? Do you want it be a regional carrier as well?

You know -- go ahead.

I think rode way is on the record as saying they're buying regionals and putting them together. Yellow is now on the record as saying we're going to get there on our own with one network. What's Arkansas Best's view?

We don't have any plans to get into the overnight market. That could change. But we don't have any plans to do that right now.

Is it something from a technology from the way you load your vehicles something that you think is doable to be in -- to serve both the longer haul markets and the regional markets from one network?

Well, it's not an easy thing to do. The -- what's important in an overnight market and a long-haul market is very different. A short-haul carrier, an overnight carrier typically would have a load average of something like 15,000 pounds, which would be half of what along-haul carrier typically has per load average. , in that range. If you run long haul at 15,000 pounds, you can go out of business. On the other hand, in the short-haul market, you have to run for service, and generally, you have to hit a cutoff time in order to make the long (inaudible) ones particularly, longer overnight routes. So it is a difficult task to train your people to do both things at once. It's a little bit like getting on a horse and kicking him and then pulling on the reins. It confuses the horse, causes all sorts of problems. So if you're telling your people this one has to be (inaudible) don't worry about it we'll run it at 630. That's difficult to do sometimes. I'm not saying it wouldn't can't be done. We don't have any plans right now to try to do that.

Thank you. That's a helpful explanation. Switching gears for a second, you went through the sequential tonnage of October, November, December. You can give us a sense year over year taking the seasonality out what the tonnage so far in January looks like year over year?

No. It's not far enough along. And I could be misleading you if I tried to fell what you January is going to do. The months tend to do a crechenedo (ph), start slow, finish as strong and how slow that crechenedo (ph) is makes a big difference.

How about pricing? You did a good job explaining there's a lot of mixish issues here but if you look at it revenue per hundred weight going out from here, do you think it more likely strengthen, weaken, stay the same? How should we look at this going forward?

Well, I think my best guess would be it will stay strong because we took a huge amount of capacity out in September. And it's than helpful. Our renewals on contracts remain strong.

So revenue per hundred weight near 6% is something if we model going forward year over year for, you know, at least three more quarters until that grandfather wouldn't be out of line?

Nobody which wouldn't -- no, I wouldn't extend that on a straight line. Keep in mind, I said there were some big profile changes there in the fourth quarter. More than we normally -- normally, our profile stays pretty static. Doesn't change much at all. But fourth quarter it changed quite a bit. I think I out lined that earlier. I don't look for a profile change like that going forward. I wouldn't extend the 6% based upon the fourth quarter in that respect.

Did you acquire any CF terminals since September and are there any you expect in your capex budget to go after this year?

No, we have not acquired any CF properties. I think there a are a few more that will be sold and I think we're interested in some those. If we were to buy them all, which is highly unlikely, you're talking $2 million, $3 million, not a lot of money.

That's in the cap X budget if we're successful. But to this point, we haven't been.

Okay. And then one last question. Clipper now the revenues actually starting to move upward for the first time in a while. The operating income still slight. Is there a reason -- is there a synergy or an overall reason to maintain Clipper or overtime is it something you're likely -- you know, now that you've stabilized it and now improving it to try to sell?

There's no synergy between Clipper or any other Arkansas Best operations. It's a stand-alone company. If Clipper can meet our requirements in terms of return on capital employed, and can start to grow at a reasonable rate, they could be a long-term player. On the other hand, it's -- it is something that is separate and, you know, it's a card we could pull out of the deck if we wanted to sell something. And it's certainly in a better position now if we wanted to do that than it was, say, a year ago. I've been pleased with what I see there, particularly if you saw the fourth quarter numbers really start to turn. That it's gonna be heading our -- hitting our numbers here before long.

What is the return on capital employed currently and what's where it needs to be directionally to hit your goals and similar with the growth rates?

Well, the return on capital employed is a little bit skewed at clipper right now. Because of the write-off of the Goodwill and the low equity. But they need to improve -- they need to get down in the 97 operating ratio range to hit acceptable targets.

Is that something you think is achievable in'03 with a stable condition economy?

I don't 93 if it's achievable in '03. We feel that it might very well be achievable. But whether '03, you know, I don't know. Keep in mind Clipper has gotten very little benefit from the CF closure. So what they're doing is in, I guess, pretty much a flat economy.

That's fair. Thank you very much for the time.

Steven, we'll do one more question.

Very good. Our final question, then, will be from Mr. Dan Moore (ph) from Stevens incorporated.

Good morning, guys

)) Hi, Dan.

Thought I'd never make it on to the Q&A section here. Just wanted to ask a couple of questions. First off, great quarter. As we compare your results to your peers, such as rodeway and yellow, my sense is the best metric for comparison is to look at the year-over-year change in revenue, the year-over-year change in operating income and for you it implies about a 25% incremental margin. I'm assuming that the profile of the business is probably similar, although I don't suppose you know seeing as though they haven't reported yet. Is there anything else we should be aware of as we compare Arkansas Best to rodeway and yellow over the next couple of days?

No, I -- you know, obviously I'd rather you compare us on net operating earnings than revenue.

Absolutely

Robert Young We do better on that end.

Sure

And you return on capital employ.

Like to be compared on that basis. We think that's what it's all about.

Is there anything in this 20 - when I do the math here, it says you have a 24.7% incremental margin on the business you picked up fourth quarter of '01versus fourth quarter '02. Is there any reason to believe that March margin is going to deteriorate moving forward if we hold all other things constant, assuming to significant change in the contract and that sort of thing. I guess what I'm really asking here is, are there any lagging costs to bringing that refer new on that we should be forecasting for in the first, second, and third quarters of '03?

Dan, I think just the opposite is true. I think whatever costs were there have already been incurred. We have, a I think I told you, on average, it's not yielding as well as our base business that we had before CF shutdown. So we'll be looking to improve those yields going forward. That's not on all business. Obviously some of that business was better or equal to our existing business. But on balance, on average, it was worse. So we'll be looking to improve that going forward.

Great. You know, curious, any changes in networking capital that we should anticipate, Dave? For '03,any significant changes in working capital?

Just going to be a function of the results of operation. Capex which you have, and what we do on the put. Dan, I think we ought to -- I think it might be helpful to just remind everybody, you know, we talk about yields and the impacts to yield and the CF business isn't quite as profitable as our average business. But we're talking overall (ph) numbers and kind of generalities and all of our decisions when it comes to pricing are based on account by account profitability. We're just kind of rolling all that up and trying to talk about some trends, but when it comes town to it, every decision is made on each individual account. And that's how we really manage the business and manage the profitability and the pricing.

Well, yeah, and I would think if you're bringing business on at what appears to be a 25%incremental margin that not too many people should have --have a complaint with that. Dividend, you're going to have what looks to me like you're going to have some cashflow again here in '03. Any thoughts on what you're going to do with your cash, especially if you exercise your put?

Well, I think Robert already said, you know, about everything that we can say on that. We're -- the board is currently and has been discussing and it continues to discuss the alternatives, particularly of a dividend or a share buy-back or some combination of that. But no decision has been made at this point.

I apologize if I missed that

Also that's all right.

Fantastic. I guess just we'd be remiss if we didn't pay some respect to Mr. Stubblefield (ph) here before the call's concluded. I don't think anybody brought it up before. But certainly appreciate his contributions over the years and I don't know if he's on the call or not, but, you know, done a great job and he's got -- somebody's got some big shoes to fill so again, great quarter, guys. And appreciate it.

Dan, good point. Dave Stubblefield deserves a lot of praise. There's gonna be lots of folks living under ShadeTrees he planted over the last 43 years he's been here. Dave's done a fantastic job. In addition to that he's a great person. We're going to miss him. I think he has done a good job of training lots of folks that work for him. And, of course, Bob Davidson who's taking that job is a 30-year employee. He's worked for Dave, I guess, for maybe 20 or 25 years. But we're going to miss Dave Stubblefield both business-wise and personally. He's a very outstanding person that I've always been very pleased to be associated request. I've never worried about David representing this company at all in any sort of way. He's an ethical guy, just exactly the kind of person you want to be associated with that you know will always represent you well. He's -- by the way, he's still working hard. We were in meetings this morning early. He's got about, let's see, A's seed it, he's got about ten days to go. But Dave will be at it till the last minute. And then he's going to Aruba, I think, for a week, try to break it off maybe. But that's a loss to our company and one we can celebrate, though, that he's been such a fine guy for all these years. He's been my go-to guy over the years when we've had a problem, when we deregulated in 19 80. I put him in charge of pricing, because he didn't know anything about it. And that was a good move, because knowing something about it was a hindrance in those days. If you had a lot of experience under the regulated part of business, it hurt you going forward, and -- but Dave has done a wonderful job. We're going to miss him. Great guy.

Guys, once again. Great quarter. And thanks for the time.

I would like to apologize for anyone in the queue that we were unable to get to your question. We appreciate your understanding. Gentlemen, at this time I would like to return the conference to you for any additional or closing remarks.

We thank you for joining us this morning. And we appreciate your interest in Arkansas Best Corporation. That concludes our call.

Thank you for your participation today. We hope that everyone has a wonderful day. And thank you.