ArcBest Corp (ARCB) 2003 Q1 法說會逐字稿

Good day and welcome to the Arkansas Best Corporation First Quarter 2003 Earnings Conference Call. Today's conference is being recorded. At this time for opening remarks and introduction, I would like to turn the call over to the Director of Investor Relations, Mr. David Humphrey. Please go ahead sir.

Welcome to the Arkansas Best Corporation first quarter 2003 earnings conference call. We'll have a short discussion of the first quarter results. Then we will 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 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 a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section of the Company's earnings press release in the Company's most recent SEC Public filings. We'll now begin with Mr. Loeffler.

Thanks David. I'd like to start by first looking at the overall Corporation's results. Our revenues for the first quarter of this year were little under $360m which is a 12.3% increase over the first quarter last year, which was $320m. We had operating income double the first quarter last year of $9.9m. We had a net loss of $700,000 which was a loss of 3 cents per share, and this is after the impact of reporting the fair value of our interest rate swap at the end of the quarter. ABF's revenues were up 12.3% and Clipper's revenues were up 10%. Now looking at our condensed cash flow for the first three months of this year, we had net income before depreciation and before the change in the fair value of the interest rate swap of just under $21m. We had net changes in working capital, which were primarily reduction of temporary investments, of a little over $22m with net purchases of property and equipment of $7.3m; capitalization of software of about $1m. We had a reduction in our bank float of about 3.5m, purchase of treasury stock of 2.3m, and payment of dividends on common stock of 2m with a net reduction of debt of $25m. Looking at the status of our outstanding debt including the current maturities, our debt net of temporary cash investments at the end of December in 2001 was a little under $119m. That reduced further to just about $76m at the end of last year, and at the end of March, this year, our debt is a little over $87m.

Our net debt equity at the end of 2001 was 0.35 to 1, at the end of last year it was 0.21 to 1, and at the end of March this year was 0.25 to 1. Our debt-to-capitalization ratio at the end of the first quarter this year was down to 0.20 to 1. Our weighted average interest rate, including the fixed rate swap continues to be about 6.8%. Our internal financial measures for the 12 months ended March 31, 2003, our after-tax return on shareholders' equity is 11.4%. As I mentioned, our net debt-to-equity ratio was 0.25 to 1, and our after-tax return on capital employed is 10.2%, compared to our minimum acceptable level of 10%. We are continuing to forecast the net capital expenditures this year to be in the range of $69m. Our depreciation and amortization for the first quarter was about $12.5m, and we are continuing to forecast depreciation and amortization for this year to be a little under $53m. I'll now turn it over to Robert.

I am going to talk about our subsidiaries specifically. I'll start with ABF Freight System, Inc. Revenue for ABF in the quarter was $324.2m, compared with $288.6m last year, about a 12.3% increase. The operating income was double from $5.5m in the first quarter last year to $11.1m this year; and the operating ratio improved from a 98.1 in the first quarter last year to a 96.6 this year. The LTL pounds per day, a number that we pay a lot of attention to, was up 2.7 % from last year. To give you a feel for how that played out during the quarter, January was up 3.38%; February was up 1.5%, thanks to largely weather complications that we had in February; and then March was back to 3.29% over prior year.

The first quarter '03 billed revenue per hundredweight for LTL, excluding the fuel surcharge, was up 6.4% to $22.54 a hundred; and that compares to $21.19 a hundred in the first quarter of '02. The revenue per hundredweight was positively affected by profile changes, including increase of the length of haul, increase rate commodity class and a decrease in weight per shipment; all three of those things improved the profile. Length of haul was up from 1,222 miles last year 1,265 miles this year, that's about 3.5% increase in the length of haul. The LTL rated class was 74 this year compared to 73 last year, a 1.4% increase in commodity class; and then the weight per shipment declined from a 1003 pounds last year to 968 pounds this year, that's a decline of about 3.5%. Again all three of those changes were positive in terms of revenue per hundredweight. LTL yield declined by 0.86 from February to March, that's probably a little more than what we normally see in a month. In March ABF secured increases of about 4% on almost $4m in monthly revenue on contracts that came up for renewal and deferred pricing agreements of more or less the same thing.

Indications are that post-Consolidated Freightways shutdown, the more favorable pricing environment probably has weakened some, although I'm encouraged by the increase that we had on contract renewals during the quarter. I have been able to report for the last several quarters that our productivity has improved year-over-year; for the first time in a long time now, I’ve got a report that it was not quite as good. LTL bills per dock hour did not change; they were 4.20 in both years. That's a 13-week moving average that we are talking about now. LTL bills per street hour, on the other hand, declined some, from 2.35 to 2.32; and trailers per yard hour declined from 4.5 to 4.2. We think that that productivity is -- decline is temporary. It largely has to do with the weather that we had in February, and I'm looking forward to those coming back soon. We continue to make progress with our Netlink system. Currently there are 114 terminals using outbound planning -- that's city drivers with microbrowser; and 101 terminals using mobile dispatch, again with the microbrowser. 74% of our drivers now are city drivers, now have microbrowsers; 9 of our distribution centers are currently operating with the paperless dock; and all 9 DCs and 10 terminals beyond that are currently using dock and yard systems. And the centralized dock management system has been installed at 2 of our distribution centers. We've made good progress in this and we'll pick up some additional productivity, we think as we continue to install these systems in additional terminals.

We had a bit of a load factor decline in the first quarter from 24,207 pounds last year to 23,893 pounds this year. Some of that was due to a decline in freight density from 2.2 pounds per cubic foot to 10.1, and then rail miles increased from 13% to about 14.4% of our total miles during the quarter. Our rail schedule with a 48 foot trailer, typically 86% of the capacity of a set of 28 foot double traitors. So we lose some load ability when we go to rail trailers. I think that largely the reason for the increase in rail usage largely can be attributed to again weather. We got out of balance to some degree and got congested in a few of our DCs and we used rail to solve those problems during the quarter.

Our workers’ comp was a little out of the ordinary, we think, for the first quarter it was about $2.5m more this year than last year. We think some of that is a one-time thing in nature. We’ve gone to a computerized diary system used in for the first time in first quarter of 2003 where we are reviewing claims more quickly as we do that, then we pick up any update in those claims, and typically they get worse as they get older; and we think that’s one time in nature to some extent -- some of it has to do with some -- with some large losses that we had, that are generally, I would consider, out of the ordinary. We will see as time goes long if that gets back to the levels that we’ve experienced in the past; I hope it will, and we are certainly keeping a close eye on it. Our bodily injury and property damage actually was down $600,000 for the quarter; premium decrease makes up most of that.

The impact of the weather was severe. We are looking at probably $2m that we can attribute to weather-related cost. Major snowstorm occurred in the upper mid-west, north east and aligned coast regions around February 17. Three ABF distribution centers, three of ABF’s major line-haul relays were closed for almost two days. In addition, 38 of ABF service centers were fully or partially closed due to this storm. Operations were also affected by storms at south-east during mid-January and Rocky Mount regions during mid-March. The operating income impactof lost revenue and increased cost was, as I said earlier, about $2m. We lost about $2m in revenue, additional cost were about a $1m. We had variable cost savings to mitigate part of that so we think the operating income impact was about $2m.

Our non-union pension expense increased by about a $1m over the first quarter of 2002 and this is inline with a statement we made earlier that we are looking for about 4m in additional cost in 2003 versus 2002; fact is our cost in that area were probably unusually low in 2002 and they are probably a bit unusually high now, look at those market conditions. We should soon see that pendulum swing back towards middle; hopefully in not too distant future the stock market begins to perform a bit better. I have noted they were not helping that a lot. Non-union salary expense for ABF was up $1.4m over the first quarter last year and that has to do with cost relating increases that occurred in January. We have a small loss on equipment sales in the quarter; we lost about a $125,000 made up of road tractors, road trailers, city tractors and some miscellaneous items like forklifts and safety cars, not unusual number, not a big number. Don’t think that portends any trends, but we will see fuel cost was up 82.4% from last year, nice big round number. The fuel surcharge as a percent of total revenue was 4.35% compared to 0.87% last year. So, when you look at our numbers, generally looking at numbers without fuel surcharge, gives you a better comparison year-over-year.

Our mix of business between 2 day and 3 day and beyond was as follows; we had a 7.5% increase in revenue on our 2-day business, 2.3% decrease in weight, and 1.2% increased shipment. Claims currently 3 days or more were up 14.8% revenue, 5% weight and 9.4% increase in shipments. We think that the increase on the three-day and beyond is largely the impact of CF business that we took on beginning last September. Our employee count increased 3.3% versus the first quarter of 2002. We are looking at about 11,804 people now —that’s contractual and non-contractual -- 11,804 versus 11,422 last year. Shipments per day are up 6.5% year-over-year and typically we consider shipments pretty much what drives employee count both in the office and in the city. So, we think those are good numbers. ABF has been selected as the top transportation provider for the freight show industry by show managers as compiled by Expo magazine. Trade show managers identified the best suppliers in seven categories and offered explanations for their selections. I think there were about a 150 managers that submitted carrier names up for this contest. We share that award with FedEx and that was -- that came out in March -- first part of March. We are out to be best provider for the trade shipments. ABF’s Bryan Shoot has been selected as the security professional of the year by ATA Safety & Loss Prevention Management Council. Bryan was chosen because he consistently demonstrated outstanding performance in areas of security and exceeded the expectations as most outstanding on the basis of written policies, employee selection, incentive and recognition programs, reduction in cargo theft, and security procedures. We are sure proud of Bryan for being selected at the contest.

American Trucking Associations announced the selection of two ABF drivers as a part of the 2003 America’s Road Team. Those two drivers are Garland Woods, city driver, from [inaudible] Oklahoma, and Ruben Armendaras of Albequerque, New Mexico. They were selected as captains for 2003 America’s Road Team. We are proud of them, and an ABF driver Otto Schmeckenbecker of Little Rock, Arkansas was selected as the alternate for the 2003 America’s Road Team. If one of the members are not able to serve, he will be the one who steps in and take the place during the year. This is a Volvo sponsored program and it tapped 13 premier million mile accident free professional truck drivers to represent the trucking industry and deliver its highway safety message to the motoring public and we are proud of those drivers for winning that selection.

On March 28, Motor Freight Carriers’ Association announced that the new national master freight agreement received an overwhelming ratification vote from Teamsters Union and from member carriers and that contract is now in place and I think, probably all of you have seen what the key aspects of that contract are. On the information technology side, on April 18, ABF announced launch of its report’s inbox tool enhancement of abf.com. The report’s inbox allows customers to schedule the ongoing delivery of customized shipment reports for distribution via e-mail. Report’s inbox allows placement in a secure online inbox located within the report center and report’s inbox places real-time or historical shipment information at a convenient location of the customer’s choosing. The customer can design what they want there to be reported on e-mail as things occur. I think they are going to really like that aspect.

Clipper had revenues -- Clipper Express had revenues of $28.5m in the first quarter of this year versus $25.9m last year; about a 10% increase in revenues. Clipper experienced an operating loss of $500,000 compared to about $700,000 last year and the operating ratio improved from 102.9 to 101.7. First quarter for Clipper is typically their worst quarter;they saw some nice improvements in yields during the quarter. They had a lower bad debt expense and they had lower rail incentives but I think we will see those come back during the year and that makes up a large percentage of their operating income typically. And we are accounting for those a bit differently this year, more conservatively. And, I think we’ll see those numbers improve as year goes along. And with that, I'll open it for questions.

At this time, I would like to inform everyone, in order to ask a question, please press “*”, then the number "1" on your telephone keypad. And now we’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ed Wolfe of Bear Stearns.

Thank you. And Robert, you mentioned in your comments that post-CF yields maybe were starting to weaken a bit. Could you give more flavor on that? I mean, I look at the yields you reported both before and after fuel surcharges and they are pretty impressive. What's the timing of when you are starting to see, you know, some pricing not stay as firm and who are culprits here?

Well, you know, I hear anecdotal evidence during the quarter. That can be misleading. All the carriers make mistakes every once in awhile. I suppose we do. I seldom hear about those, but I hear about the ones that our competitors make more readily. So you have to take the anecdotal information for the grain of salt; I think, the real -- the key is to look at everybody’s revenue per hundredweight and take into account any changes in the profile that they had during the quarter versus the prior year. And, that'll tell you the story, and I hadn’t seen everybody’s numbers yet. So, I really can’t opine as to who might be price aggressive. But that'll be evident to you as you see everybody’s numbers come out.

But your year yields are pretty strong. You gave us the sense of the tonnage throughout January, February and March. Can you do that for the yields, how they held up through the quarter and into April?

I don’t have them by month.

Would your guesstimate or your directional process be that they’ve held up less well throughout taking fuel away?

I don’t know. I just don’t have it by month. I couldn’t tell you.

Okay, how about April generally? How’s tonnage year-over-year and yields holding up versus, you know, you gave us January through March. How is April starting off?

Yeah, the trends are pretty consistent with what we saw in the first quarter on a year-to-year basis.

Okay, can you talk a little bit about the cost that you mentioned. The worker’s comp, particularly and the pension cost. How much of those costs were in the quarter -- the pension? What were the incremental pension costs in the quarter? And on the worker’s comp side, you gave the incremental as $2.5m I think over a year ago. What was the total cost? What was the worker’s comp actual total cost in the quarter?

Ed, we don’t provide the total cost on work comp and BIPD. On pension, my memory is right, in our fourth quarter conference call, we indicated our total pension expense this year would be around $10m, which is about $4m for the first quarter.

So, it’s a little bit front-ended heavy is what you are saying?

No, not necessarily.

I thought you said $10m for the year and $4m in the quarter.

Yeah, but it’s a percent of payroll, that’s the way we kind of look at it. So, if you go through the year, the payroll is going to increase, second-third quarter tend to have higher business levels.

Right.

If we treat it like a fringe type cost.

Okay, but if I look at absolute cost, it’s about $4m in the first quarter and will split $6m over the next three?

You will have to do those numbers, Ed.

Okay, can you talk about the timing of the Wingfoot inflow of cash. What's the timing and do you expect to pay down debt with the full proceeds?

We are looking at getting the cash on April the 28th, and we will use that cash immediately to pay down the debt.

And that’s the 6.4% debt? Which debt is that?

Well the debt is, 6.4 is high because of our interest rate swap. We’ll still continue to have the interest rate swap in place on a notional amount of $110m. But the debt will come down significantly from the $87m that we saved -- that we had at the end of the first quarter.

To a $70m of payment, is that right?

The payment will be a little below that net of tax, probably -- will probably net to $66-67m net of the taxes. We got a very high tax base.

Okay and what’s the average interest rate you’re paying on that $87m?

Well, excluding the swap, we are paying LIBOR, which right now is a little over 130 plus the 100 basis points.

And then one last question is, obviously, starting on April, you have the increased cost from the New Master’s Freight Agreement. Is there anything that’s more front-end heavy in terms of start up with the contract in this quarter or is it pretty even throughout the contract?

I think it is pretty even throughout the contract.

Okay.

We’ve got the information. I think you probably have it available too in terms of the increases and the timing of the increases as well. We can provide that to you if you need it.

No, we have that. Thank you very much for the time. I appreciate it.

Your next question comes from the line of the David Mac of Credit Suisse First Boston. David, your line is open.

Good morning gentleman. I want to ask you a question and two about the freight mix. Is this shift in freight mix a result of or was the bankruptcy of CF, a type of catalyst for the mix that you guys implemented in the first quarter?

Yes, I think the change in the mix, the length of haul or size of shipment are directly a result of business that we took on CF beginning last September.

Now, is this a permanent trend or you are going to try and go back to how you were before?

Well, I think the latter. I think that you will see the trend probably overtime change back towards where we were. Just because of our natural selectivity. But that will be, you know, over a period of time. Not quickly; not next quarter or something like that, over a period of 18 months or 2 years perhaps.

Okay. In terms of pricing, are you -- I know that you are saying that it’s anecdotal and you have to take it with grain of salt, but you know, have you seen some new underlying weakness in business levels that weren’t there say in the beginning of the quarter that are spurring these on or what do you think the cause of some of the rate pockets of weakness are?

Well, if in fact we’ve had declines or perhaps not strong increases in revenue per hundredweight, the better way to put it. I’d suspect it has to do with weakness in the economy. We are not seeing any strength at all in the economy that you are seeing to these shorter bump [in along], that will be my guess.

Okay. In terms of Clipper, and how its performance has been tracking. I mean, are you -- I am guessing from what you were saying, you are optimistic that the trends in profitability, in terms of your year-over-year improvement should continue for the rest of the near future?

Well, that’s certainly our intent. Normally you see Clipper have a loss in the first quarter and then it picks up after that. Last year it got stronger as the year went along. We made significant profits there last year for the full year, and I think it bodes well for this year, that the first quarter is better than the first quarter last year. Certainly there are no guarantees that that will be the case that is certainly our intent though.

Okay. Could you explain for me one more time why the workers comp -- why the new system resulted in what you might consider an unusually high expense this quarter and why it won’t -- and then why you think it might revert back down?

There are really two pieces with that, one is we had some unusual losses. We had a couple of big claims in the million dollar range that were, we think, out of the ordinary. And you never know on that but based upon prior years they’d be out of the ordinary. And then the other thing was we got a new system where we are reviewing the claims more frequently. As claims age, they tend to get worse almost universally -- and workmen’s comp claims do. And since we reviewed them more frequently during quarter with this new system, we picked up some of that aging effect that ups the cost of claims. If things turn out like we think that will be a one-time bump because we did some catch up, so to speak on reviewing those claims. They are constantly under review as they age. Comp claims can last for 10-12 years or more, but we think -- part of that is a one-time bump and way we look at the claims -- looking at it more frequently.

How come that wouldn’t just result in just an overall higher level as a base? Why would it….?

Bob talked about a year-over-year comparison, speeded up during the quarter and then we stay at same track in terms of reviewing the claims.

I see. So you are saying it -- you are not looking for it to necessarily go down, except for the larger claims; but you’re looking for it to at least flatten out?

Yes. We are now on a 90 day review schedule on these claims; that has speeded up the look. But I don’t look for that to happen again, I guess, you are right. David the other thing that I might add in -- the period from 1997- 2001, we had two work comp claims over a $0.5m; and in the first quarter this year we had two work comp claims of over $0.5m -- we have one over $0.5m and another one that was higher than normal. Based on history, we would anticipate that would come back down if history repeats itself.

Were those weather-related or just unusual?

Unusual.

Okay.

The other thing, Ed, I need to correct what I said, when I said 4m I was thinking about the increase on the pension. Our pension was between 2-2.5m at the first quarter, because it generally will be higher in the second and third quarter or third quarter because it is a percent of payroll; it's treated like a fringe rate, but the $10m is still our estimate for the year.

Okay. Operator, I am done with my questions. Thanks a lot guys.

Okay. Your next question comes from the line of Mark Levin of Davenport & Company.

Thank you very much. Most of my questions actually have been asked and answered. But just, gentlemen, if you could guesstimate how much excess capacity is in you system right now; and then geographically if you are seeing any areas of the country that either look weaker or stronger than others? Thank you.

Dave Loeffler and I just look at each other, both mouthing 10% more capacity in our system would be our best guess.

Okay.

Mark, the trend has been also the west has been a little bit stronger; and how much that might be influenced by CF going out of business and that's hard to speak to.

Okay. That's perfect, thank you gentleman.

The next question comes from the line of Ken Hoexter of Merrill Lynch.

Hi. Good morning Dave and Robert. Just if I could ask -- I think before you mentioned that January growth was about 3.4%, February 1.5%, March 3.3% and; obviously February you noticed was due to the weather. And then you mentioned on an earlier question that April seems to be shaping up relative to how that first quarter volumes were. Was that volumes or was that tonnage or what were those numbers related to?

That was tonnage.

That was tonnage. So.

And you also got to keep in mind that we are speaking about April without seeing in the whole month -- the months tend to always -- conclude a little bit stronger.

Right, the only reason I ask is because in the release you mention the economic pressures, at least three times. And if you are suggesting the tonnage is still -- I mean unless you are suggesting that 3.5% growth is extremely weak relative to what you would have expected? Just curious there.

I think we also mentioned in the release that if you take the tonnage per day in the fourth quarter of last year and look at the normal trends that we see going forward from a historical standpoint, our tonnage was 1.5 percentage points lower than what we would have expected to see in the first quarter. That’s got a lot to do with our feeling about the economy.

Okay.

By the way those numbers were LTL tonnage on a per day basis. That’s of course 2002 versus 2003.

Okay. Dave, can you give us the ABF expenses on a break-up basis?

Yes. I think -- I assume you are talking about the income statement lines?

Yes.

No. We normally just provide those when we file the 10-Q.

Okay. And then just the decrease -- I was just trying to see where some of those increased costs, I guess on a per line basis -- just with the vagaries of just the overall expense line, I guess is there -- because you have thrown out a couple of things suggesting workers comp [inaudible] -- employees were up 3%, I am just trying to see which line item, kind of, caused of some of those relative expectations? Because obviously expectations for fuel were up as was the fuel surcharge, so I was wondering if there was anyway to get -- kind of drill down to where some of these costs on a more exact basis were kind of out of whack with relative expectations?

Work comp is in salary and the wages, and fuel is going to be in maintenance area.

Alright. On the decrease in the operating ratio, I guess related expectations obviously increased or performed better year-over-year. Noting that a lot of this was due to weather and some of the -- the workers comp issues, can you talk about what your expectations are going forward; should we see a return to the almost 250 basis point improvement year-over-year that we saw in the fourth quarter? Or is that based on the economy as well as some of these potential increase costs connected to you at a smaller level that we saw in the first quarter?

Ken we don’t provide guidance or talk about our internal forecast.

Okay. Thank you.

Your next question comes from John Larkin of Legg Mason.

Good morning gentlemen

Hi John.

David, I was wondering if you could give us a little help in figuring out how the interest rate swaps, which are I gather, going to be in place for a while longer, how they behave relative to a rising interest rate environment, a declining interest rate environment or perhaps stable interest rate environment?

The interest rate swaps to the extent that interest rates increase, than you will see income generated by the change in value of the swap. If interest rates go down further from where they are currently and this was all geared -- we are looking at the kind of movement LIBOR and treasuries -- if they go down further then you will see additional expense for the interest rate swap. And if they stay the same, then there won’t be much change in value other than the shortening of the timeframe. And the shortening of the timeframe, as we move closer to the maturity each quarter, we have to pay the difference between our borrowing rate under our credit agreement and the rate under the interest swap; and that is reflected in interest expense. Now did it go -- if we would end up with a borrowing rate higher than the interest rate swap, then we would have a reduction in interest expense. And this is based on similarly termed treasury instruments.

Okay. That is very helpful. Thank you David. Question for Robert on pricing, you know the yield increase, exclusive of fuel surcharge of 6.4% on the surface looks pretty good. But you have added a couple of caveats saying that a portion of that is due to an increase in length of hauls, decline in shipment size, and an increase in freight class. If you were to net out the effect of those three changes, do you have any sense for what the true so called pricing increase might be?

It is about half and half.

Okay. That’s very helpful. And then also I want to make sure, I heard you correctly when you were talking about the tonnage gains in your two day lanes versus the tonnage gains in the three days lanes and beyond. Did I hear you correctly to say that the two day lanes actually showed a tonnage decline?

Yes. The two-days or less were a 7.5% increase in revenue but a 2.3% decrease in weight and a 1.2% increase in the number of shipments.

Okay, so the shipment size was up -- or the shipment size was down, shipments as an absolute number were up?

That’s correct.

Okay, but that -- I guess that's reflective of perhaps some of the non-union competition being concentrated in those two-day lanes as opposed to the longer haul lanes where the the spoils of the CF demise are being divided up three ways?

That’s probably pretty good guess.

Alright. It was very helpful. Thank you, gentleman.

Your next question comes from the line of Mike Manelli of Morgan Stanley.

Hi, Robert, at the risk is kind of harping on this pricing thing too much. Just want to see if I can get any color in terms of looking across your book of business? Are you guys seeing more pricing pressure, may be, at the two-day lanes than you are in your longer length of haul lanes or does pricing looks pretty consistent across the book of business?

I think it is pretty consistent across book business.

Okay, and next question was in terms of the new labor contract, I understand one of the big wins being this premium service employee. At this point, I realize the contract’s only been in place for two weeks or so. Have you guys implemented any changes in operations? Are you taking advantage of this new employee structure at this point?

No, we've not done anything at this point. We are making plans to do some filings of changed operations, to take advantage of this, perhaps work with some additional business we get using this flexibility, but we have not done anything yet.

Do you guys have any indication -- my understanding in in the old contract there was previously a change in operation, but this is supposed to be a more streamlined process now in terms of, you know, how quickly you guys can get something through the new process versus how long you just take under the old process?

I didn't participate in the labor agreement talks this year. And I am not familiar with if there was any change in the way we do a change of operations. If there was I hadn't heard about it.

Okay. I guess then my last question, would be just kind of taking a longer term point of view right now. Obviously, you are going to be pretty close to debt free very quickly here. In going forward, our expectations is, you know, throw off a fair amount of cash flow, given that you still got excess capacity at ABF. I don’t believe that Clipper’s yet at the point where it’s earning you acceptable rate of return. I am mean where do you guys anticipate re-investing this cash flow or is it a matter of -- I think you are going to return a lot of it to your shareholders?

Well, you are probably familiar that we announced the stock buyback up to $25m and we did some of that in the first quarter. That will probably be the continuing program for us. And of course we announced a common stock dividend last year also, actually first part of this year, and those are two areas that you can look at that we will continue probably. And that’s kind of where we are right now.

I mean, [extra] there is no business as you see right now that you'd like to expand your presence in and now that the cash flow generation’s there that may be you want to re-investment in this point in time?

We are constantly looking at ways to enhance our current business. If we can find something that will contribute to what is, you know, a really strong franchise for ABF a nation wide operations in the LTL business. If we can find something that we think plays to that strong hand, that’s the kind of thing we are going to be interested in. We are constantly looking at ways that we might do that. Some of those things would require some capital expenditures or perhaps an acquisition, but others would not. That’s where our emphasis is going to be going forward.

Okay. Well, great. Thanks guys.

Your next question comes from the line of Jason Seidl of Avondale Partners

Hi, gentleman, how are you today?

Fine.

Quick question, you said that the sequential increase in the fourth quarter to first quarter was not as strong as you had anticipated, but my sense is that the first quarter has been a little bit muddled with a lot of the weather; if you were to go on a more normalized weather weeks, how was the sequential increase?

Well, we haven't looked at it that way, but it would probably still be less than what we would have expected.

Okay. So, the quotes that the economy is still bumping along the bottom and the quote in your release that it appears that there is some deterioration, that's more related to fourth quarter to first quarter then?

Yes.

Okay. And in terms of pricing, sequentially it looks like there was only some very, very minor down tick. In fact, I would probably call it flat sequentially from the fourth quarter because all the other numbers looked virtually the same, and you are getting price increase of 4%, I guess I am like the rest of my colleagues here failing to see the weakness in the pricing market that you say you are experiencing -- it hasn’t showed up in the numbers, and you are citing higher prices. So, can you give us any more color behind that? I hate to be the dead horse here

Well, I think we mentioned the fact that we expected greater tonnage growth from the fourth to the first quarter, that's in our press release as I recall and that's sort of what we are referring to. We did have the sort of increase from fourth to first quarter that we would normally expect. Go back and look historically, it is a little stronger than what we were able to show here.

Okay. In the comments that you made about the second quarter shaping up similar to the first, I was assuming you were talking about January and March and not the April percentage increase, is this correct?

Yes. What I was really talking about was the first quarter percent increase, in LTL tonnage compared to what we are seeing till this point in April. But, you’ve got to keep in mind when you look April is the first month you get Easter in there and we've only seen, you know, three weeks of April. So, that's very preliminary information.

Okay. Thanks gentlemen.

Your next question comes from the line of Tom Albrecht of BB&T Capital Markets.

Hey. Good morning. A couple of questions guys. First off I was kind of curious on your comment on the BIPD that you thought that part of the recent decline was your premiums had gone down. Did I hear you correctly?

That's correct.

Why did you have such good fortune there compared to the punishments, so many carriers are undergoing with their premiums?

Well we took a larger deductible for one thing.

Sure. What is your current deductible right now?

Yeah it is a million dollar. What happened is the premium went down because we increased our retention on BIPD and we didn't have any bad experience in that layer in the first quarter.

Okay.

So we are getting net savings.

Okay good. Then when you talk about mix, I know typically 32%-33% of your business only is contract compared to a higher amount, at other carriers, and I think that's been a real long-term positive, is that still around that level?

Yes.

Okay, good. Thanks guys.

Your next question comes from the line of Dan Moore of Stephens Inc.

Good morning guys.

Hi Dan.

Couple of quick questions here, a lot’s been covered. How was the service, just to touch on this very briefly? Almost everyone expects some changes here coming up and I was wondering if you could maybe speculate for us, you know, as to what some of the gossip has been? What sort of impact that might have on your operations, specifically, reducing the overall duty day by an hour or so, but potentially increasing the number of hours behind the wheel. It may be too early to speculate, Robert, but just any sort of visibility there, if it is not a big deal, great, if it is?

We will know a lot more on Thursday. I think it is going to be released on Thursday. I think there's going to be a lot of information, but basically what we saw during the proposal period, I was going to 24-hour-day rather than generally an 18-hour-day, what we have now, which causes the day to rotate around the clock. The 24-hour-day will probably be included. I think from a safety standpoint that's probably a plus. We have drivers going to work at the same time everyday, of course we are talking about road drivers. That probably helps their system adjust. So, there should be a positive and I think the industry generally agrees with this. There should be positive safety aspect to that. It will potentially give us more driving time, on a tour of duty and, of course, there will be a compensatory time off to offset that, but it may change where we have relays or domiciles, we don’t know. It could make our drivers more productive and that would be a plus if we had safer more productive drivers but we just haven’t seen the rule yet and like I said we’ll know more on Thursday.

Sure. You know, this has been kicked around quite a bit and at the risk of getting booed, I am going to kick it around a little bit more; but on the yield front, I am just wondering if you could give us a sense for what your expectations were for the quarter relative to where you came in?

Dan, again we don’t talk about not only going forward forecast, but how we are performing in relation to our internal forecast either.

Okay. With respect to CF business and I realize this is a somewhat difficult thing to do, but can you give us any color whatsoever on what do you think CF is doing to your business today from a total revenue standpoint? I can come up with some numbers myself but if there is any way to help clarify that?

Dan we don’t have any better information than what we have provided fourth quarter, you know, where we indicated the trend was an increase of 13%, I think it helped billed tonnage. You have got to keep in mind some of this, quite a bit of this business in fact comes from existing customers, providing more and so you lose the ability to very accurately measure it pretty quickly. Then we, you know, to the extent we would try to be providing much information on that, we’d be guessing a lot.

This is what the couple of private LTL carriers hear up in last four weeks and couple of those were pretty large and more than one indication we got -- more than one indication that we might not see the same level of GRI this year that we have in years prior and I think the consensus was that it might actually come in a little lower and I am not trying to put words in your mouth but, given the yield trends you are seeing in the market place right now, in your opinion, Robert, is there any cause for concern that we might see yields come off of the 5.9% type GRI we have seen in the past, and I am not asking you what you are going to announce to your customers but based on historical trends of where we are today relative to previous periods, you know, is there anything that we need to be aware of that could be a potential negative from an industry settlement standpoint.

Well, of course, I have yet to see anybody announce a general rate increase and I guess anything could happen before the first one is announced but I am not hearing much right now speculative on who is going to do what; there may be some change in approach, may be a two-step type approach to it or -- something like that could happen; it’s something we have not done in the past but I don’t know, I couldn’t tell you.

Kind of a shot in the dark question there so, I appreciate the time guys and good afternoon.

We have a follow up question coming from David Mac of Credit Suisse First Boston.

Hi guys, I have one last question. In terms of competition in the 2-day market are you seeing this more from that your traditional national competitors or mainly from the regional competitors that are edging more into the national space?

We have not noticed any change in competition in that 2-day or last market. It is pretty much the same. Obviously, the short-haul carriers and then all of the long-haul carriers were in that market today and pushing it hard so it is coming from all over.

And what about in the three-plus lanes?

Well, that is largely the longer you go out -- it is largely the long-haul carrier.

So you have…?

You are seeing some movement in what I would call the nationwide short-haul carriers to pick up some of the long-haul freight but that is not really their strength.

Okay. Okay, thanks a lot guys.

At this time there are no further questions.

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