ArcBest Corp (ARCB) 2003 Q4 法說會逐字稿

Good morning. My name is April and I will be your conference facilitator today. At this time I would like to welcome everyone to the Arkansas Best Corporation fourth-quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to David Humphrey, director of Investor Relations.

Welcome to the Arkansas Best Corporation fourth-quarter 2003 earnings conference call. We'll have a short discussion of fourth-quarter and full year results and then we will open up for a question-and-answer period. Our presentation this morning to 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 risks. 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 and the Company's most recent SEC public filing. We will now begin with Mr. Loeffler.

Thanks, David. Overall we feel like that we had a good fourth-quarter and a good year in 2003. Our return on capital employed after-tax was 13.2 percent. ABF had a fourth-quarter OR of 93.5 and a 94.3 operating ratio for the full year 2003. ABF's revenue for 2003 was up 7.3 percent over 2002, and ABF's fourth-quarter LTL tonnage was up 2 percentage points more than our normal historical trends would indicate. And basically we have no debt at the end of the year.

Looking at the overall results for the fourth-quarter, we have revenues of 387.1 million, which is up 1.5 percent from the previous year's fourth-quarter; our operating income was $21.1 million versus 26.2 million for the fourth quarter of 2002. Our GAAP earnings-per-share on a diluted basis, excluding the gain on the sale of the Clipper LTL division and the related exit costs associated with that, was 55 cents a share compared to 57 cents a share in the fourth quarter of 2002.

For the full year 2003, our revenue was $1,527,500,000, up 7.4 percent from the previous year. Our operating income was $73.2 million compared to a little over $68 million in 2002. Our GAAP earnings-per-share in 2003, excluding the gain on the Wingfoot sale, the gain on the sale of the Clipper LTL division and the associated costs with that, and the removal of our hedge (ph) designation on our swap was $1.66. Our GAAP earnings-per-share for 2002 before the accounting change and excluding the benefit of the IRS settlement was $1.48.

I'd now like to talk a little bit about our cash flow. I'd like to refer you to the GAAP cash-flow statement that's attached to our press release. Now I'd like to review the highlights and focus on the a few of the more significant cash-flow items. Our net income before depreciation and amortization and before the change in the fair value of the interest rate swap, the sale of Wingfoot, and the sale of the Clipper LTL division was little over $90 million. We had an increase in ABF's Accounts Receivable of a little over $3 million. We had a decrease in temporary investments of just under $33 million, and we had other changes in working capital that reduced cash by about $7 million.

We had net purchases of property and equipment of a little over $60 million, capitalization of software, $4 million. We had the proceeds from the sale of Wingfoot of over $71 million, and the proceeds from the sale of the Clipper LTL division of just under $3 million. We had positive change in our bank float of less than $1 million, purchase of treasury stock of $4.9 million, and the payment of dividends on common stock of 8 million. The end result of all of that was a decrease in debt in 2003 of over $110 million.

Looking at the status of our outstanding debt including current maturities, at the end of 2002 our debt less temporary cash investments was about $76 million. At the end of 2003, we actually had a little excess cash. Our debt less cash to equity at the end of 2002 was 0.21 to 1 and at the end of 2003 it was 0 to 1. Debt to capitalization at the end of 2002 was 0.24 to 1. At the end of 2003, it was .01 to 1.

Looking at our internal financial measures for the 12 months ended December 31, 2003, our after-tax return on shareholders equity was 12.2 percent. As I've indicated, our debt-to-equity ratio was 0.01 to 1, and our after-tax return on capital employed was 13.2 percent, compared to our minimum acceptable level of 10 percent.

Our net capital expenditures for 2003 were originally forecasted to be $69.5 million. We actually spent just a little over $60 million. Our lower expenditures than originally planned were a result of lower expenditures in the real estate and structure area. We weren't able to buy some of the CF facilities that we had forecasted. We were able to do some terminal expansion for less than we planned, and we also delayed some terminal expansion.

For 2004, our net capital expenditures are forecasted to be a little over $76 billion. The 2004 forecast is greater than what we spent in 2003 for several reasons. In 2003 we bought 393 road tractors and those were with the old engine. In 2004 we're going to buy 550 road tractors with the new engine. In '03 we actually bought a little bit less than a third of our fleet. This year we're going to buy a third of our feet fleet plus a little bit of catch up. In last year we bought no road tractors, and this year we're going to buy -- or excuse me, no city tractors and this year we're going to buy 125 city tractors.

The net of the road and city tractor purchases this year is $12 million greater than what we spent last year. We are also going to spend more on facilities and real estate. We're going to buy a couple of terminals and we're going to expand several terminals. Our depreciation and amortization for 2004 is forecasted to be between $59 and $60 million.

As we indicated in our press release, we had about $1.3 million of additional depreciation in the fourth quarter to get our salvage values in line with the trade-in allowance or our anticipated sales price. In 2004 we will also have some additional depreciation for the same reasons. In the first quarter of 2004 we'll have $960,000 of additional depreciation, in each of the subsequent quarters we will have $450,000 additional depreciation, for a total for the year of about 2.3 million. That's included in the $59 to $60 million number that I gave you.

Looking at the status of our non-union pension plans, again as we've indicated in the press release, on an ABO basis we're over funded just under $35 million; and on a PBO basis, which projects future salary increases, we're over funded just under $6 million. In 2003 our total pension expense was $11 million and we're currently estimating that our pension expense for 2004 will be in the $6 to $7 million range. We'll have a final number at the end of the first quarter on our actual pension expense for you once we get our actuarial states. I'd now like to turn it over to Robert.

Good morning. Talk about two subsidiaries, ABF and Clipper. Talk about ABF first. ABF is roughly 90 percent of our business. Revenue for ABF in the full year 2003 was 1,370,000,000, and that compares with 1,277,000,000 last year or a little over a 7 percent increase in revenues. And the operating income at ABF was 77.8 million, compared to 68.8 million last year, or about a 13 percent increase in operating income. So we did a good job of taking more of that additional revenue to the bottom line. The operating ratio for ABF for the full year was a 94.3 compared to a 94.6 last year, so we made some improvement in our operating ratio.

Looking at the fourth quarter for ABF, the total pounds per day was down 0.5 percent. The comparisons in the fourth quarter this year got tougher because that was the first quarter in 2002 of the increase in revenue that we got from the shut down of Consolidated Freightways. The LTL pounds per day in the fourth quarter this year were 21.317 million compared to 21.814 last year, down about 2.3 percent. Truckload pounds were up 7 percent. But truckload is a much smaller portion of our business, obviously.

Some facts about the December results that I think are interesting. What we have seen in the fourth quarter is we've gotten a feeling of increases in business year-over-year when you take out the CF factor; the daily average revenue had the highest year-over-year growth since September of 2000, again, excluding the first year after CF's closure. The daily average shipments had the highest year-over-year growth since August of 2000, and the daily average tonnage had the highest year-over-year growth since June of 2000.

Tonnage growth in December was higher than -- well, it was actually higher in only seven of the 56 months going back to April of 1999. So we feel like we're seeing some increase in the economy. It hasn't been overwhelming at this point, but we think it definitely is there.

The revenue per hundredweight for ABF in the fourth quarter was up over last year by 2.7 percent fourth-quarter '03 versus fourth quarter '02. The profile of the freight at ABF did not change particularly. Length of haul increased to 0.3 percent from 1260 miles to 1264 miles. The class stayed exactly the same. The rated class was 74 both years. The LTL weight per shipment was up 2.8 percent from 971 pounds to 998 pounds per shipment. So not much change in profile at ABF.

The LTL yield increased during the fourth quarter of '03 versus '02. The retention of the July rate increase through December now stands at about 2.74 percent, and the deterioration in yield during the fourth quarter is less than we've seen in recent years. The increases that we've seen on our contracts and deferred pricing agreements was up about 4.1 percent, which is a good number and ranks high from what we've seen in the last several years. We had some decline in productivity at ABF during the quarter, not significant, but nevertheless in the wrong direction. Shipments per dock, street, and yard hour were down from 5.36 last year to 0.519 this year.

I have seen in the third quarter -- the fourth quarter again showed additional shipment handling related to ABF's concentration on transit time improvements, and in premium services where we provide additional services at pickup and delivery and hopefully charge for them, adversely affected these measures. We're not talking about big numbers. LTL bills per dock hour were 4.19 last year versus 4.15 this year. Bills per street hour were 2.38 last year to 2.32 this year. And our movement of equipment on the yard, particularly this is concentrated at larger terminals, stayed exactly the same with no real change in productivity there.

You've heard me talk in previous quarterly conference calls about our NetLink system, utilizing micro browsers. That continues to expand, it's now -- we now have 74 percent of our drivers using the micro browsers, they connect the driver through the Internet with company computers. All nine of our distribution centers, 57 larger terminals are currently operating with a paperless dock. All nine distribution centers and also 57 terminals are currently using the dock and yard system. And we've got the enhanced centralized dock management now at two of our distribution centers. And we'll be expanded that as things go along. But these are really good systems and it's developed in-house and I think are going to be -- continue to be very good for us.

We saw some load factor decline, 0.7 percent from the fourth quarter of 2002. We think that the primary reason for that is the rail miles increased from 15.9 percent to 18.1 percent. Rail schedules, which typically move on rail equipment, 48 foot trailers, some 45's, typically are 86 percent of the capacity of a set of our pup (ph) trailers, our two 28 foot trailers that we normally pull over the road. So we actually lose some load factor when we go to the rail, but there's still good reason for doing that certainly in certain lanes.

Fuel cost for ABF was up 2.6 percent from the fourth quarter of '02, from a little over 88 cents, and this is without taxes, a little over 88 cents to almost 93 cents. That of course is offset by a fuel surcharge and doesn't impact us on the bottom line. David mentioned earlier nonunion employee welfare costs. They increased by $1.6 million over the fourth quarter of '02, and we saw that also in the third quarter of '03.

These increases were primarily due to the pension, the impact of the previous year's market losses that our pension fund enjoyed, and the lower discount rates that we used in reflecting what we saw in the market caused those expenses to be up significantly and 1.6 million is a pretty good hit there. We think will, as David mentioned earlier, that's going to come back in line in the coming year, and hopefully will be a nice pickup for us.

Dave also mentioned briefly the depreciation expense. Our depreciation expense related to line equipment is above the fourth quarter of 2002 by $1,723,000. Again, that was adjusting our depreciation to more accurately reflect the current market for that used equipment. What we try to do is when we trade that equipment is obviously hit the market exactly with our residuals. That's not always possible, but we try to adjust these residuals as we see changes in the market for used equipment.

What it came to in the fourth quarter was about an additional $1 million on road tractors and another $300,000 on road trailers for a total of about 1,320,000 thousand of additional depreciation that we were not expecting until we saw what was going on with the market for this used equipment. In the fourth quarter we actually had a gain on sale of used equipment of $285,000 and, ideally that would be 0, but we can't always hit the market exactly with these residual values.

ABF earned two awards in the fourth quarter from InfoWorld. It's their annual listing of leading technology innovators. They recognized the top 100 Enterprise projects using information technology to creatively achieve business goals. We're proud of that award. We also were named by Selling Power magazine as one of the top seven companies to sell for in the service sector of the United States economy. That's the second consecutive year ABF has been recognized by this Selling Power magazine, and we're proud to be a good place to work for salesmen.

We had an announcement a couple of weeks ago. Darryl Pirpich, Vice President of Marketing and Pricing for ABF, will retire at the end of this month, concluding 38 years with the company. Darryl's done a great job for ABF over the years, we will miss him. ABF has a deep bench and we'll be replacing Gerald with Chris Baltz. He'll be the new Vice President of Marketing and Pricing. He has 15 years of experience in yield management, customer relations and market strategy, and I think Chris will do an outstanding job there.

The new federal Hours of Service regulations went into effect on January 4th. We're operating under those new Hours of Service regulations now. We think that putting the driver on a 24-hour clock so that the driver starts to work pretty much at the same time everyday is probably good science and probably safer. We will probably lose a bit of productivity but the impact on ABF is not substantial because of the way we operate. We relay freight over the road, and typically are able to get drivers home frequently.

And when they have the new required time off we can generally give it to them at home which is obviously the most beneficial. It's a bit of a different problem for truckload type carriers, and that's because of the way they operate. But when we give the guy 34 consecutive hours off for a restart, he typically can do that at home. We think that that is generally a good move. There are probably some things to tweak to make it better. I don't know if that will happen, but in the meantime it's not a problem for us.

I want to move on briefly to Clipper. I think Dave Loeffler mentioned the fact that we sold the business of Clipper's LTL portion at the end of the year. We'll be out of that business now. We'll concentrate going forward on the intermodal business, the moving truckload freight on rail. The revenues for Clipper in the fourth quarter were 31.3 million compared to 30.3 million last year, about a 3.3 percent increase in revenue. The operating income was actually a loss of 1.3 million. That essentially is the LTL exit cost that pushed that into the loss column. And that certainly should not be recurring. And I think that we've got Clipper lean and mean now to focus on the intermodal and brokerage and to control logistics or the refrigerated trailers moving on rail where we seem to do a better job.

The revenue in intermodal and brokerage is up 23.9 percent year-over-year in the fourth quarter. Nice growth in our intermodal and brokerage. The operating income was a couple hundred thousand dollars, about a 98.9 OR for that portion of the business. And while that's a small margin, it's a good return on capital employed because we have no assets involved. We're using rail assets there entirely, and that makes that a pretty good return business.

The Clipper Controlled Logistics, or the refrigerated trailer operation, made about $300,000 in the quarter compared to a couple hundred thousand last year with a 96 operating ratio. That's better margins at Controlled Logistics but we need better margins because we do have some investment in refrigerated trailers there. We don't own any power equipment, we don't own road tractors, but we do own trailers and Controlled Logistics. So those two areas are what we're going to focus on Clipper going forward, and I think that will certainly produce better results for us. That's all I've got on the subsidiaries and I'll open it up for questions now.

(OPERATOR INSTRUCTIONS) John Larkin of Legg Mason.

I was looking at the income statement a little bit here. I noticed the increase in depreciation and amortization. I guess that's totally related to adjusting the salvage values to reflect the lower values in the marketplace, but also wanted your thoughts on the rent and purchase transportation. Is that all related to the increased use of rail, or is there something else going on there?

No, it's rail.

Also wanted to bore in a little bit of this Hours of Service change. There's some speculation that perhaps that could be a benefit to the LTL industry on the margin. And I was wondering if you had any thoughts as to when that might kick in as an incremental piece of traffic for you?

What we're hearing from the truckload carriers is they all have either planned to or have already raised prices on stopoff shipments. Some of that freight migrated over there from us over the last 20 years where they've put two or three large LTL shipments together and move a truckload with two or maybe three stopoffs. The new Hours of Service regs make that hard for the truckload carriers to do because they start running out of hours, and then they lose the utility of the driver to move the equipment.

We're hearing anecdotally of some business that has come our way. I don't know what that's going to amount to at this point in time. We've got a couple weeks experience with it. But I would anticipate that that would in fact provide some additional business for us.

Okay. And then just one last question on pricing. Given that the fourth quarter was really the first apples-to-apples comparison we've had since CF went out of business, we have a sense for what your pricing is looking like here year-over-year. Would you expect that 2.5 percent rate of increase in revenue per hundredweight for the LTL traffic to pretty much continue here going forward? Do you see that moving up or down? And if so, why?

John, what we've seen for the last several years is the rate increase goes in and then over the next 12 months it gets discounted partially away, and there's generally some decline every month although it's not an even stair step. So I would anticipate that we would probably see some additional decline until we do another general rate increase. That's been the pattern in the past. At the same time, we're increasing prices on contract accounts as those contracts mature, and some do of course every month. So you have that mix in there. And then of course any change in your profile will impact that yield number too. So you've got all those things going on. But that's been the history of it.

Okay, thank you very much.

James Valentine of Morgan Stanley.

Robert, ABF continues to have one of the best margins in the LTL sector and I applaud you guys for doing such a great job there. But given that volumes were down in I guess a fairly stronger economy, we won't know until the GDP numbers come out, but it looks to be the case. I'm just trying to understand what the long-term alternatives are to stem the tide of what appears to be a marketshare shift to some of the non-union players.

Jim, I've been hearing the market shift to regionals for the last 20 years and there certainly has been some of that as they have grown geographically. If you open a new freight terminal in a town, that new player will get some marketshare. That's inevitable. And so the existing players will lose some share to that individual -- new individual carrier that's come to town. So as carriers have grown, the regional carriers have grown by opening terminals and expanding their business across the country.

A recent example of that was the old American freight would grow a state at a time -- maybe two or three states at a time every year and did that for a long time until now they are pretty much nationwide as I understand it, and then that opportunity for them goes away. In the meantime we had a new competitor in town wherever they operated. That is a game that you can play until you cover all 50 states, and then that's over with. The larger ones like Conway and what is now FedEx Freight and some of the others are pretty much where they're going to be in terms of coverage, so I would expect that type of expansion to slow down and perhaps we'll see less impact on us as companies go through that.

But yes, that's been there. When we got into the two-day market in a big way about three years ago now, we took on a lot of two-day business from regional carriers. There was nowhere else to get it, and we grew fairly rapidly there. Now that's sort of slowed down with the economy in the last three years, but we took marketshare there and there was no place to take it but from regional carriers. So there's some give and take between the different types of carriers. We overlap with them and they overlap with us, but I don't see any secular trend there.

If I can just drill down maybe a little further on something that you had pointed out in terms of some of this overlap. If we think about -- if we look at the regional LTL's, most of them have got some plan to, and have had some plan for the last year or two, to expand further and further in longer length of haul. And you've seen some now go from anywhere from 500 to 600 mile length of haul now to as high as 700 even 800. In fact I think Old Dominion is over 900 miles length of haul. And they seem to be inching up every quarter a little bit more in that they're trying to get these two and even three-day lanes. Given that you did mention that your productivity was down a little bit in the quarter partly due to your efforts to try to improve transit times, is it fair to assume that that's because these lanes are getting more competitive or your effort to try to improve transit time, is that more versus Roadway Yellow?

I think you're hitting the nail on the head. It is more competitive. If we're doing next year what we were doing last year in terms of service or anything else for that matter, we'll be going backwards. We have to get better every year at everything that we do. Competition is tough and that's what we work at, trying to stay ahead of them.

Right. But the fact your productivity went down as you're trying to compete with some of these players, is that a trend that is going to be tough to reverse, given that they are trying harder and harder to get into the longer lanes?

I don't think so. I think we've done some things that don't have anything to do it that. For instance, we're pursuing a lot of special services now with customers where we provide additional services either in pickup or delivery. That might include unpacking, hauling off the packing materials, setting up something that's shipped knocked down, that sort of thing, which is not something that our type of carrier normally does.

We're emphasizing some of that because we think we can make ourselves indispensable to some customers that way and that costs us more. Our productivity goes down. We charge more for it, so net net it's not necessarily a bad deal. In fact, we hope it's a good deal. And part of that's in there too. When I mentioned improving service, that's just a piece of the productivity puzzle.

Okay, great. Thank you very much for your answer.

Edward Wolfe of Bear Stearns.

Good morning, guys. A couple things. First thought process is the operating ratio was a bit weaker year-over-year for the first time in five quarters, and I'd be interested hear from you. You did talk about some things on the depreciation side, but nothing that really moved the dial the way the OR was. Why do you think that it's weaker? Did you expect to see some freight maybe from Roadway Yellow and you had a little bit more capacity than was needed? Or is this kind of the direction of the way things are going to go for a while?

Well, we had an exceptionally good year last year in the fourth quarter, the 92.2 on the OR which I was pretty proud of last year. That's kind of hard to hit year in and year out. For the full year our operating ratio improved by 3/10 of a point from 94.6 to 94.3. So for the full year we actually did better. No, I don't think we've -- we hadn't put in any assets in the event that they began to merge the operations of Yellow and Roadway. We can do that quickly when it's appropriate. But no, that's not in there. I think that the fact that our tonnage was off in the fourth quarter year-over-year means that we did have some fixed costs that we couldn't get all that out and that impacted the margins some.

But Robert, you said in your release that the tonnage if anything was a little better than you would have thought -- signs that the economy was picking up even though it was down. So I'm trying to understand why that would have a negative impact on you. I guess if I look back at the last five quarters, the year-over-year margin improvement is as expected with seeing the windfall from Con Freight. My question is, is it not sustainable going forward even in a better economy?

This is Dave. I think you kind of have to put it in perspective of the quarters. Your fourth quarter is the next to the weakest and your first quarter is the weakest. And although we did keep our cuts labor in line and actually reduced it a little bit beyond the tonnage decline, there's a lot of costs that you really can't reduce. You've got your terminal fixed cost, you've got your salespeople, your supervisory people, your office people that, yes, you could reduce, but from a long-term standpoint that wouldn't be a good decision.

I think it might be helpful to try to put the tonnage situation in a little better perspective. And it's always good with hindsight once you finally see all the economic indicators, but we clearly saw in the first six months of last year, based on the indicators that we look at, a decline in the economy. And that decline resulted in our tonnage being down, our LTL tonnage being down 5.4 percent in September. I think we indicated in the press release as we went through the fourth quarter the rate of decline in tonnage reduced to where it was only down 1 percent in December.

Also, if you compare the fourth quarter of '03 to the fourth quarter of '02, as we were going through '02's fourth quarter our tonnage increase was getting larger every month, as we went through those comparisons, as we went through the fourth quarter really got more difficult. So all in all we were pleased that in December we were only down 1 percent in LTL tonnage, and we did see an increase in the our tonnage levels of 2 percentage points in the fourth quarter compared to what we would normally see when you look at September trends to the fourth quarter. So all of that we felt was pretty encouraging.

When you look at January so far is tonnage positive? Negative? Where are you in January.

As everybody knows, January is a tough month to assess, but to this point our LTL tonnage levels are pretty much flat with a year ago but each week as we're going through the month it appears to be picking up momentum.

Okay, and just while we're on the tonnage scenario, Jim Valentine had asked a question about losing market share to regional players, which you discussed this kind of a 20-year fact of life. Is it possible that there's other areas that are impacting you right now? could you be losing to Roadway Yellow instead of taking from them like people thought initially? Is that something that's crossed your mind or is that just impossible from where you're thinking right now?

We're not seeing anything that we can quantify that would indicate that at all, but at the same time we can't say that -- we're getting a little bit of business here and there, but we can't really say that it's that significant.

Is there any customer or type of customer where you're seeing more strength and more places where you're seeing more weakness or geographies?

No, not really. We're hearing a lot of talk and a lot of concern, but nobody is really doing that much there. Everybody seems to be taking more of a wait-and-see attitude.

And in terms of your attitude, at some point do you get more aggressive on pricing to try to lure some of that freight away from Roadway Yellow, or is that not in the mindset at all going forward? I know that's not historically your mindset, but is it changing here?

No, I don't see our mindset changing. We're great stay focused on account profitability.

Thank you very much. I appreciate the time.

Dan Moore of Stephens Inc.

Actually this is Jack Walden (ph). I had a few questions. One was in regards to a comment you made regarding the strength of your balance sheet and putting the company in a position to take advantage of other opportunities. Could you expand on these other opportunities? Are they within the LTL industry? Is it different types of services? I'm just trying to get a little color on that.

Well, we don't have any acquisition in mind at the present time. We certainly are in a position to look at things. I think that there are some developments that everybody sees going on with international freight. If the outsourcing of manufacturing, which we've seen customers that have done that, continues at that pace that we're on, you're going to see more and more freight moving into the United States from offshore, and we're looking at ways to improve the supply chain there for our customers in the United States. There might be some opportunities in that area. In fact, we think there probably are. And we have the time and the finances to go look at that, pursue it, and that probably would offset some of the loss of business that we've seen when customers start sourcing offshore.

Next question. On transit times, your focus on improving the transit time, do you anticipate that having a material effect in your length of haul in '04?

No, I wouldn't think so. I don't think you'll see any big change in our length of haul.

And then last question, could you estimate the capacity that you think ABF is operating at now?

That's a pretty squirrelly number because you're talking about equipment and you're talking about terminals, for the most part.

Sure, on a terminal basis?

It varies by market obviously, but overall we're probably running something like 90 percent of capacity.

Thanks a lot, guys.

Gregory Burns of J.P. Morgan.

A couple quick questions. I want to revisit the tonnage outlook a little bit. It sounds like things are picking up in January. Just looking at the comparison you had as you come into the first quarter, if I recall, Robert, some of the CF business sort of slipped away a year ago first quarter, and maybe the good part of that is that it gives you an easy comparison. One, is my memory correct there? And two, should you be looking at sort of five-ish or six-ish tonnage growth given the easy comp when all's said and done in the quarter based on what you see?

Greg, as you know, we don't give guidance on tonnage growth. We did indicate in the press release that if you see -- if we were to see our normal historic trends from fourth quarter to first quarter, that it would indicate that our tonnage in the first quarter would be flat with the first quarter a year ago. That doesn't consider anything from the economic improvement from any benefit we might get from the Hours of Service or the (indiscernible) truckload capacity, or any diversion of freight that may or may not occur as a result of the Yellow Roadway merger.

But can you talk about then historical results from the fourth-quarter of last year to the first quarter? Did you have some temporary CF business in the fourth quarter that disappeared in the first quarter? One, was that the case? And two, wouldn't that naturally improve your comps?

Well, what we saw in the first quarter was more of an economic impact as opposed to being able to quantify and say specifically that we saw some CF freight move away. As I indicated, if you look at the economic indicators for the first half of last year, they were clearly declining.

And then just to clarify your comments on price, and you've seen the typical give up I guess of the GRI as the year progressed. But I guess the question is should the rate increase year-over-year that we saw in the fourth quarter hold? Because, after all, a year ago you would see that same price erosion, and I believe the GRI was bigger this year. So I guess the question is looking at the pricing outlook, should we look at this quarter as representative of something that could probably hold through the balance of the first half?

We're actually a little ahead of where we would have expected to be on the general rate increase. Retained more of it than we expected to based upon historical numbers. But that can change tomorrow. That's hard to predict. So far so good. It looks better than it has. But again, it does normally decline as the year goes along.

And just one question on the -- I believe the pension return assumption was changed, if I read that correctly, and you increased the ROI assumption. I'm curious, was there an asset allocation change in the pension? In other words, what drove that? Are you putting more in equities or something or -- just what was the reason for increasing the return on asset assumption?

We didn't change our composition. It was purely looking at our 10-year historical returns, and we've developed a methodology where we look at what return to set based on our 10-year historical return together with the return projections from our investment advisers. Our 10-year historical return looking at our current asset composition is over 9 percent, so we just moved it a little bit in relation to that.

Okay, thank you.

Mark Levin of Davenport LLC.

Hi, gentlemen. Just a quick question with regard to Clipper. I'm curious if you exclude the LTL operation portion, the least profitable portion of Clipper, was Clipper's return on capital employed above or below 10 percent for the year?

Mark, I don't have the exact number because we haven't looked at it by specific components, but I'm sure it would be below 10 percent a little bit.

David, given that fact, I would think this has been at least several years of sort of below satisfactory -- at least the way you define satisfactory -- ROCEs. Does this mean that Clipper is something that you would look at selling the remaining portion in 2004, or are you committed to this business?

Mark, Robert Young. The returns there have not our expectations. You're exactly right on that. That's the reason that we decided to get out of the LTL business and concentrate on the area that seems to be doing well. Our growth in the intermodal business, almost 25 percent, and it seems to be doing quite well now, going in the right direction. We think that by taking away the distraction of the LTL portion, which by the way was most of the people and a lot of their technology was aimed at that because it's a high volume in terms of bills. Now that they can concentrate on the portion that is left, I think that it has the potential for doing even better. So we're going to watch that and see how it goes.

Second question pertains to free cash flow. Obviously, as you alluded to, there's basically no debt on the balance sheet. You do have a share repurchase program in place. You initiated a dividend last year. Given the fact that maybe nothing comes to mind from an acquisition perspective at least in the near term, can you give us an idea of how you are approaching the free cash flow situation in 2004, i.e., should we expect accelerated share buybacks, potentially another dividends increase?

Well, I can't read my board's mind, but we constantly talk about that issue, and what are we going to do with the cash that we're generating? I think we have probably -- at the current time we have more cash than we have debt. We have some long-term debt that's stuff that you can't get rid of, I think about 1.8 million. And we've got more cash than that. So the cash is kind of a high-class problem, but we do need to figure out what to do with it. And you touched on the potential, a larger common dividend is an option. Share buyback, we have a plan in place now and that certainly is something that we will continue to look at.

And of course we would like -- the ideal thing is to find ways to grow the core business or things that complement the core business and invest money there at even better returns, so that's what we're trying to work on. We don't want to jump out and do something just so we'll have something to talk about at the next quarterly conference call. We want to make sure what we're doing makes sense and that we can make a good return for our shareholders on it, and that's where we're headed.

Is there still some sense that you want to keep some dry powder in the event that Yellow Road Freight does move toward ABF to be able to deploy that cash toward that end? Or is that something that isn't necessarily a front burner issue as you sort of approach the free cash situation?

If we were to somehow enjoy a windfall there, we certainly will be a good position to take advantage of it. We're in position to buy whatever equipment we need and do whatever terminal expansion we need to do. That would not be a problem for us. And with the free cash flow that we're looking at last year and in the coming year we wouldn't even have to borrow a lot of money to do it. But that's not something that we're sitting around hoping will make our year for us. That happens or it doesn't. We don't have much control over it.

So, yes, we are in good shape if that comes along and if we find opportunities to invest, for whatever reason, we're in a good position to do it. And I think if you look back at the history of the company, we've seldom been out of debt for very long. It seems to me for a long time there we always had a Turkey in the oven long about November. Kind of ruined the holiday. But we'll be looking at trying to spend the money wisely and not just spend it because we've got it.

Fair enough. Thank you, gentlemen.

Ken Hoexter of Merrill Lynch.

I just want to start off on pricing again. It sounded like in the release you talked about competitive pressures really stepping up a bit, and obviously you keep talking about the general rate increase kind of whittling down through the year. But just to come back to what Greg Burns was mentioning before, just that on a year-over-year basis you should see this every year, so shouldn't we kind of see part of that holding firmer throughout the year going forward? Is it a potential or is the competition really stepping up pressure to lower these rates?

I may have been misunderstood on that. What I'm saying is in terms of competitive pressures not so much in the rate arena, it's in performance. Customers are asking for more and carriers are providing more in the way of transit time and other services. And for instance, our website that connects us to a lot of our customers now is something we work on constantly, but so do our competitors. We think we stay in the forefront of that and the award I mentioned earlier I think is some independent verification of that. But in any event, that's where I see more competitive pressure.

The pricing arena, while it's tough, it's no different than what it was last year. It might even be a little better. And I think the fact that we have one less independent company out there now is probably bullish for pricing. I think that goes in the right direction, one less -- at least in some people's minds -- one less competitor. So, I hope I wasn't misunderstood there. I don't see a whole lot of additional pricing pressure. It's always been there. I'd like to be able to charge all my customers 10 to 15 percent more. Not possible. But we do have a lot of competition in terms of performance.

That's helpful. Thank you, Robert. Just keeping on that same theme, though, as you see Conway and USF and others extending their lane offerings, as was asked earlier, does this -- do you see more competitors coming in for bids for your long-haul business? Are you seeing on a nationwide basis an extra one or two competitors going in for every bid?

No, we're seeing the same competition for the most part. I don't really see a lot of change in that. That's not to say it won't happen, but at this point I really haven't seen that.

And then one last question for David Loeffler. When you were talking on the increased CAPEX before, should we look at any increased potential for degradation to the OR because of the decreased fuel efficiency of all the new tractors, or is that too minimal a difference on your overall picture to impact the OR?

At this point I wouldn't -- I wouldn't look at any significant change there. We're just starting to get experience -- this year we'll be getting experience with those, so we'll have to see how that shakes out.

And is there any change in the driver turnover at all lately? Just obviously -- I know the long-haul is a completely different business, but as we see a completely tightening market because of the economy on drivers have you noticed any long-haul driver capacity job changes like any increased turnover?

No, not really. We've talked in the past that our turnover tends to run in this 7 maybe 8 percent range, but when you take down normal retirements it only runs about 3 percent.

Okay, great. Thanks, Robert. Thanks, David.

Gary Yablon of Credit Suisse First Boston.

Most of the questions have been answered, but -- sorry to harp on the volume thing but I just want to get this clear. We can't say that comps are getting easier because you don't really know if you've lost some of Consolidated Freightways business that you gained in the fourth quarter of '02?

Well, it is hard for us to identify when we lose business from an account. We don't have any way to identify that and (indiscernible) to say that was CF business or that was something else. It's just what we see in the total business levels. You might know anecdotally in a case or two, but I'm not aware of any trend on the CF business.

Let me also be sure you're understanding what we're saying is that in the fourth quarter we saw actually business improving on a sequential basis, not declining. The declines that we saw really occurred in the first six months of last year, and then as we start going through the fourth quarter that situation was actually improving.

April, are we still there?

April, are you there? I'm not sure if anybody can hear me, I'm trying to get the operator back here. I guess we'll just go ahead and close. We've had quite a time of Q&A here. We appreciate you joining us this morning and we appreciate your interest in Arkansas Best Corporation. So that will end the call at this time. Thank you.