ArcBest Corp (ARCB) 2005 Q4 法說會逐字稿

Good morning, my name is Tony, and I will be your conference operator today. At this time, I would like to welcome everyone to the Arkansas Best Corporation Fourth Quarter 2005 Earnings Conference Call. (OPERATOR INSTRUCTIONS) Thank you. Mr. Humphrey, you may begin your conference.

Welcome to the Arkansas Best Corporation Fourth Quarter 2005 Earnings Conference Call. We'll have a short discussion of the fourth quarter results and then we will open it up for a question-and-answer period. Our presentation this morning will be done by Mr. Robert A. Davidson, President and Chief Operating Officer of Arkansas Best Corporation and Ms. Judy R. McReynolds, Vice President and Controller 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 filings. We will now begin with Ms. McReynolds

Thanks, David. Arkansas Best Corporation ended 2005 with a strong financial position and a solid return on capital employed. At year-end, our cash and short-term investments were $127 million, our stockholders' equity was $554 million, and we had no outstanding debt on our revolving credit facility. Our after-tax return on capital employed of 20.7% was the highest since we started focusing on this measure back in 1998.

To review our fourth quarter results, our revenues were $496.4 million, up 11% per day from the fourth quarter of '04. Our operating income increased 20% to about 48 million from the fourth quarter of '04. Our net income was 30.2 million compared to 24.4 million in last year's fourth quarter, and our earnings per share was $1.18 per share, a 24% increase from our fourth quarter '04 figure of $0.95 a share.

Moving into our full year results, our revenues were $1.86 billion in 2005, an 8.9% per day increase from the previous year. Our 2005 operating income increased 24% to about $154 million from 124 million in 2004. Our net income for 2005 was $104.6 million, compared to $75.5 million in 2004, and excluding the $0.38 per share gain on the properties of GI Trucking, our 2005 net income was 94.8 million, which again would compare back to the 75.5 million in 2004.

Our full year diluted earnings per share was $4.06 a share versus 2.94 in 2004. And, again, excluding the GI gain, our diluted earnings per share was $3.68, which compares to the 2.94 a share in '04, and that represents about a 25% increase in earnings per share.

I'd like to move up into a discussion of some key items in our cash flows, but I want to remind you that for a full cash flow statement, look at our earnings press release and refer to the GAAP cash flow statement that is attached. I'd like to highlight some of the more significant items from our cash flow statement .

We had operating cash flows of 148 million in 2005. Our net purchases of property and equipment were 64 million. We purchased Treasury stock for nearly 13 million. We paid dividends on common stock of 13.7 million, and we had proceeds from the issuance of common stock, which really relates primarily to our stock option exercises, and that was 5.4 million. Overall, our cash and short-term investments increased by 56 million during 2005.

ABF workers' compensation costs during the fourth quarter in full year of '05 experienced some positives where we had reduced workers' compensation costs when compared to the same period last year. Our fourth quarter costs were lower by about 4.1 million, and our full year costs were lower by about 7.9 million. These reductions relate really to two separate issues. We had fewer new claims and favorable severity trends on our existing claims, and we had a $1.4 million reduction in reliance reserves due to the California Guaranty Fund accepting some of our California Reliance claims after a clarification of a new law that passed in California in October of 2005.

The favorable claims experience that we had really moved our workers' compensation costs closer to our historical levels, and what appears to be unusual in the recent history that we've had is the 2004 year. With that, I'll turn it over to Bob to talk about ABF and Clipper.

Thanks, Judy. ABF had another good quarter and a great year in 2005. In the quarter, our revenue was 456 million, that's up 10.2% per day. For the full year revenue was 1.7 billion, that's up 8.2% per day. In the quarter, the total pounds per day were up 1.4%, with some positive trends during the quarter that I'll discuss later. For the full year, total pounds per day were up 0.8%. The quarter operating income was 48 million, that's up 28.7%, and the full year operating income was 156 million, and that's up almost 22%. The fourth quarter operating ratio for ABF was 89.4 versus a 90.5 in the fourth quarter of '04. That 89.4 is the best fourth quarter operating ratio in the last 32 years for ABF. For the full year, the operating ratio was 90.9. That's a full point improvement from the 91.9 in the full year of '04, and 2005's operating ratio was the second best full year operating ratio in the last 29 years for ABF.

We're still in a strong market environment where shippers are actively looking for value-added services, and they're willing to pay a fair price for them, and that certainly contributes to our results. Also during the year we saw several favorable trends. We had some excellent cost control. We used less rail and we used less local cartage, and those tend to improve service at the same time that they reduce cost.

Several of our quality issues improved. We had lower loss of damage claims and also Judy has explained the lower workers' comp expense. We saw continued pricing discipline during the quarter and the year. We had some solid yield numbers especially after you adjust for profile changes. We also had a favorable freight mix -- for instance, the higher weight for shipment, which was up 3.3% during the fourth quarter. We do have a couple of ongoing challenges that we're actively working on. Labor productivity both dock and street isn't meeting our goals, but I would point out that labor expense as a percent of revenue improved during the quarter. Our core LTL tonnage isn't as strong as we'd like to see on a year-over-year basis, but the trends are certainly positive.

Although the 2005 weight-per-day was up only 0.8% from 2004, it is up 8.8% over 2003. We had solid growth in 2004, and the comparables were difficult. I think it's really interesting and important to compare back to 2003, and look at the quarterly tonnage trends. Comparing 2005 to the same quarter in 2003, the 2005 tonnage was up 5.9% in the first quarter, 7.1% in the second quarter, 13.3% in the third quarter, and 12.1% in the fourth quarter. Comparing back against 2004, the fourth quarter tonnage per day was up 1.4%. Again, the trend is encouraging. In October, we had a slight decline, 0.2%. In November we were up 1.4. In December we were up 2.9% on a per-day basis. The December number may be pushed a little higher because of the treatment of working days around the holidays, but certainly there was a positive trend each month. In January, the month-to-date tonnage numbers are trending somewhat ahead of the December increases, although it's important to remember that in the first quarter you make it or break it on what happens in March.

Our yield numbers were certainly in line. Total billed revenue per hundredweight was up 7.7% with the fuel surcharge and 2.5% without. This is in spite of a 3.3% increase in weight per shipment and a 1.7% drop in average haul, and both of those, as you know, would depress the nominal yield, so we were certainly satisfied with the yield numbers.

During the fourth quarter, we were also able to achieve a 4.4% average increase on expiring pricing on some of our most price-sensitive customers. Rail usage for the fourth quarter was 18.6% of total miles, so that's compared with 20.0% in the fourth quarter of '04. We continue to use rail only to handle peak traffic in lanes where both service and costs are competitive.

Our earnings press release includes a full discussion of the multi-employer plan contingent liability for which we were finally able to provide an estimate. As you read those numbers, I think there are some important points to consider. These liabilities are triggered if ABF withdraws from the fund, but ABF has no intention of withdrawing from the fund. In the remote possibility that the liabilities trigger, the amounts would be paid over a long period of time, and it might be offset by some reduced compensation expenses.

Clipper also had a good quarter. The fourth quarter revenue of 29.5 million was up almost 20% per day. Operating income was 1.2 million versus half a million in the fourth quarter of '04. Clipper's operating ratio was 96 even, compared to a 98.1 in the fourth quarter of '04. We were encouraged that Clipper had growth and improved profitability in all of its business segments.

For the full year, revenue was 108.5 million, that's up 13.9% per day, and the operating income was 3.1 million. That's a nice improvement over the 800,000 of operating income in '04. Operating ratio for the full year for Clipper was 97.2. That compares to 99.1 in 2004.

Clipper's ROCE, return on capital employed was 12.8. That's above our minimum acceptable return of 10%, and it compares very favorably of the average of all U.S. companies.

Tonight here in Fort Smith, we're going to gather to honor the careers of Dave Loeffler, our CFO, with 10 years of service, and Robert Young, our CEO, with 41 years. Our Company has a great debt to both Dave and Robert for their valuable contributions. You won't see a lot of changes here after they retire. This Company is in great shape with a positive, progressive culture, strong financial controls, and you'll see us adapt to changing conditions. But we're going to hold on to what makes us the best transportation company in the industry. As you know, Robert will remain as Chairman of Arkansas Best, and I expect to see him in the office on a very regular basis. Judy?

I wanted to discuss a couple of issues that will impact 2006. Our capital expenditures for 2005 to kind of set the stage for 2006, those were 64 million on a net capital expenditures basis. This was slightly lower than what we had provided as an estimate in the third quarter, and the lower amount really relates to a couple of issues: One, we weren't able to finalize the purchase of a facility, it carried over into '06. And then, also, we weren't able to finalize the sale and then purchase of the corporate aircraft that, again, we thought would be accomplished in that fourth quarter of '05. Our 2005 depreciation and amortization was 62.1 million.

For 2006, net capital expenditures are expected to be in a range of between 125 million and 145 million. The low end of this range is about 60 million more than what we spent in 2005. This relates to a few -- there are a few reasons for this increase. The 2005 capital expenditures included 20 million in proceeds from the sale of three properties of GI, which obviously that wouldn't recur. We plan to purchase rail trailers in 2006 for about 11 million. These will replace some units that we are currently leasing. We also, again, expect the sale and purchase of a corporate aircraft, and the expenditures there should be in the range of 8 to 10 million.

Another factor that we are dealing with in the total cost that we have to spend in capital dollars is our road tractor costs have gone up about 13% since 2004, and our road trailer costs are up about 16% from 2004, and so those cost increases are built into the dollars that we have to spend for replacements each year.

From a capacity standpoint, we aren't adding any capacity to our road tractors and our double trailers fleet. We're adding approximately 1% net capacity to our city tractor and trailer fleet. Most of what we're buying in these two areas is either to replace owned equipment or equipment that we're renting.

In the real estate area, we're adding about 1% to our existing number of terminal doors. We expect our full year '06 depreciation and amortization to be about 70 million.

Another area -- or another couple of areas that will impact 2006, I won't go into a detailed discussion, though, because our press release includes a discussion of these two areas. But stock-based compensation expense, you know, that will have an impact on our '06 results as we've outlined in the release, and our settlement accounting charges will impact both the first and third quarters, as we've outlined in our release. These are, again, two areas that will have an impact on our '06 results.

The last item I wanted to mention is that Moody's has recently announced that they're reviewing our Company's debt rating for a possible upgrade, and in that review they've considered not only our strong operating performance, but our conservative uses of cash balances and then also our exposure to the contingent liabilities in the multi-employer plan area. With that, I'd like to turn it over to David for questions.

Tony, I think we're ready for some questions.

(OPERATOR INSTRUCTIONS) Your first question comes from Chad Bruso of Morgan Stanley.

Great, thanks. Just a couple of quick questions for you on fuel in the quarter. What were the fuel surcharge revenues as a percent of total revenues in the fourth quarter this year versus -- or 2005 versus 2004?

Chad, they were -- the fuel surcharge revenues in the fourth quarter were 59.4 million, it was 13% of revenue.

What were they last year -- or '04, sorry.

In '04, about 37% -- excuse me, 37 million.

Okay. And what were they for the full year in each period, if you have that?

The fuel surcharge revenues for '05 were 185.3 million, and '04 nearly 98 million.

I can't do the math that quickly in my head, but you seem to have benefited just a little bit, as revenues are kind of outstripping costs potentially. If fuel flattens out or even goes down, I assume you probably want to go back to the customers and take up pricing to potentially offset the difference, but how quickly could you do that, or how should we think about that in 2006?

Chad, it's hard to sort out exactly what the impact is, because our fuel prices impact more than just the supplies and extension line. Rail and cartage is certainly a good example of that. But I think the premise that you offer is correct. You've heard other carriers in the industry talk about the fact that yield to some extent is [inaudible], that the lower -- as fuel prices drop, our ability to increase yield in other areas -- I do expect the increase. I agree with you that there is probably a timing issue, but, honestly, we don't know what will happen. I think one thing that's interesting is that the fuel surcharge has dropped significantly. I think it has dropped 7.1 percentage points from the peak Katrina level. It's interesting that in the fourth quarter we were able to get that 4.4% increase and raised it on those prices to customers. So there is some tradeoff and, honestly, we don't know what the timing will be, but we know it will happen.

Okay, that's great, and then just one more for you. I've gotten a lot of questions this morning from investors regarding your comments about the multi-employer plans. I mean, in your release I think you estimate that your exposure could be as much as about half of your current market cap here. How shall we think about that, or how do you think about that? What can you do to reduce your risk, or what do we do on that front?

Well, I think it's important to look at it in context. It is a contingent liability. It's not an amount that's payable to contingent if we withdraw from the fund. Certainly, we have no current intention to withdraw from the fund. If in the remote possibility that we did withdraw from the fund, (a) we would pay that amount over a long period, maybe 10- to 15-year period, and I would expect to see the Company buy some reduction in compensation expense. It might in fact prove to be an investment rather than just expenditure, but it's an amount -- if you look at it this way, this wouldn't happen, but if we were to pay this amount this year, we would be able, using cash and current borrowing base, to pay the full amount and not break [covenant]. So, obviously, that scenario is not going to happen, so looking at it in that context, it's not a number that keeps us up at night.

Would it be fair to say that you probably keep your balance sheet in better position than you otherwise might just with this lurking kind of in the background?

Well, I don't think this amount is lurking, because as long as we remain in business, remain in the plans, the amount [inaudible]. We've got good uses for our cash in growth areas of our business. We plan to use that money in those places.

Great. Thanks for the time.

Thank you, Chad.

Your next question comes from Ed Wolfe of Bear Stearns.

Hey, good morning, guys, and I don't know if David and Robert are on the call, but certainly congratulations to them on their retirements, or in the case of David, anyway, and Robert on his change in duties.

They're listening in and I know they appreciate your comments, Ed.

Yeah, it's been a pleasure to work with them and continue to work with you guys. Anyway, getting on with the call a little bit. On the tonnage side, what do you think is really leading to the positive trends that we're seeing not only in the quarter month-to-month, but over the last couple of quarters?

Well, again, I'd point you to the comparison in '04 -- '04 was just really an unusual year in lots of ways. It created a bubble, and in trying to evaluate our results, we go back to '03 and kind of neutralize that year. You see some ongoing positive trends quarter-by-quarter and month-by-month. We think it relates to some success we're having in some growth initiatives happening.

I mean, the economy, if anything, has slowed a little. Other than the comps, you don’t break out the truckload in LTL, but are you actually seeing the LTL tonnage improve, too, or is this on the truckload side?

We're seeing both improve, but as you can infer from the 3.3% increase in weight per shipment, we're seeing greater success in the larger shipment bracket. As you look at the economy, I think it's important to point out that we have perhaps less exposure than other carriers to automotive and their suppliers, so some of the issues at least in that sector maybe affect us less than other carriers.

Okay. And in terms of some of the headwinds that Judy discussed, if you look at the workers' comp levels that you talked about, I think the language you used was more comparable in the quarter to historical than the last year's levels. I infer from that that you think this is sustainable going forward; is that fair?

Ed, what we're seeing there is, you know, we have the positive of the 1.4 million in reversal of these Reliance reserves, and I would characterize that as unusual, but the rest of the experience that we're seeing, what we're experiencing is really a more normal year in 2005, and that 2004 is really the unusual year when you look back over the last three or four years.

We told you in '04 that those were unusually high, and it turns out we were right.

And then on the supplemental pension benefit that you talked about in first quarter and third quarter -- and this is my ignorance -- can you talk a little bit about what that is, and in your own mind, do you look at that as kind of one-time in nature, or is that something that's going to persist?

Yes, I can. What happens there is it's in a supplemental pension plan, really, any pension plan where you use pension accounting, if you have distributions that exceed that plan, annual service and interest costs, then you have to deal with settlement accounting when you have those distributions. And what we have are two sets of distributions. One group, the larger group going out in the first quarter and it relates to retiring officers this year and some officers that have retired in past years that deferred their amounts, and then we have some additional amounts going out in the third quarter. Really, what those represent is, you know, if you have actuarial losses, which many plans do because of the declining interest rates and various other reasons, you have to take a portion of those losses in the settlement charge, and it's just a requirement under pension accounting rules. Basically, I think what the concept is, is that you don't have an opportunity to spread those costs in the future if you have large distributions.

Did you have any costs like that in '04? Is this an unusual amount of retiring people at this point?

It is unusual. We have, really, four people that are impacting this, and it is unusual and I would characterize it as unusual. We can have a settlement accounting charge in some future period, but I wouldn't anticipate it being this high.

Okay. In terms of other potential headwinds, are there anything out there -- when you look at the interest rate for the pension or anything like that, is there any shore-ups that need to be done or changes?

We're not seeing or don't anticipate any dramatic changes there. Everything seems to be pretty consistent. We haven't finalized our actuarial evaluations yet that we would do normally in the first quarter, but I've seen some preliminary information on that, and we wouldn't expect anything unusual there.

Okay. Hey, Bob, can you give us an update on the rollout of the regional business and what's going on on the trials you've been doing, and the timing for any expansion, if there is any update?

Sure. Our pilot in the Northeast is still ongoing. We're encouraged by some of the business we're developing, although it's not contributing materially to our results. We have plans to expand that, but they've not been finalized. As I mentioned before, I'd encourage you to look 18 or 24 months out before you see this to begin to impact our Company.

Is any of the capex increase this year related to any of this expansion?

Not very much. Most of the capex relates, as Judy relayed, to some unusual differences between '04 and '05, and to replacement of equipment that we had been renting or leasing.

Yes. Shifting gears on Clipper for a second. From an operating standpoint, this was kind of an inflectional feeling kind of quarter with 210 basis points in improvement, and I think you said a return in its cost to capital. Is there anything or any reason why this isn't sustainable going forward as we look at the next year and start to project?

When I look quarter-by-quarter, year-by-year, Clipper has performed, they're doing excellent. They had a great year and we applaud them for it. Just looking at the numbers, I don't see anything unusual.

Okay. And then the decision of, you know, you've always said we want to run it for a while, get it -- to see if it can sustain basis return, our return hurdles, and if not maybe get rid of it at some point. Is it becoming more integral or less integral to the rest of your business, would you say?

Well, there are not a lot of synergies between Clipper and the rest of the business, but it has an excellent return on its investment. We certainly want clipper to be larger so that they can have a meaningful impact on the overall results, and we're encouraging them to continue to grow and do that.

And then one last thing, and I almost want to thank you for all this information on the potential contingent liability with the Teamsters. I think you might have frightened some people, but I think most people realize that this is very theoretical and way out there if that were ever to resolve. That $500 million number is probably about one-tenth the size I thought it was. How did you get to that number? What were some of your assumptions?

Well, we honestly didn't have to make any assumptions. The funds are becoming more cooperative in releasing that information. We would have provided this information before if we had it, but there is actually pending legislation before Congress, which would force mandatory disclosures of this kind of numbers, so the funds are actually being forthcoming with information. We were able to assemble it and provide it. We're glad -- we talked about it in our SEC disclosures for a long time, but now we've finally put a number on it.

What if something like Confreight going bankrupt? How would that have an impact if another big company went bankrupt, or what would happen as a result of Confreight on that? Where is that liability potentially to you guys? That, I think, is a lot of the confusion. It's joining several -- people know UPS is also involved in this, but they're not quite sure what would ever trigger that unfunded portion to be due.

Well, again, as companies in our industry, or other participating employers go out of business, some of that liability shifts over to us. But, again, the amount doesn't trigger unless we withdraw from the fund, and we have no intention of doing that.

So with Consolidated Freightways, did something trigger when they withdrew?

Nothing triggered except the plans took on responsibility for benefits for those employees, and then the remaining employers in the industry became the supporting employers for that benefit, but we've seen that happen dozens of times over this industry, and the remaining employers are solid. You know, Yellow Roadway is solid, UPS -- I didn't get a chance to listen to their call, but I think they're still in pretty good shape.

Three and a half billion of free cash this year.

Okay. Well, I think they'll cover their part. I guess what I'm saying is, it looks like we may be near the end of this story.

Okay, thank you very much for all the time. I appreciate it. Again, good luck, David and Robert.

Thank you, Ed.

Your next question comes from Jack Waldo of Stephens, Inc.

Good morning, guys. Nice quarter.

Thanks, Jack.

Yes. I wanted to ask you, you mentioned some pending litigation surrounding this disclosure of possible pension obligations. Could you go in a little bit more detail; is that something that would hit the income statement, balance sheet, or is it a footnote issue?

Jack, you said pending litigation?

I'm sorry, pending discussion in Congress.

Pending legislation, that would be different. There is pending treatment of multi-employer plans within the context of Congress dealing with single employer plans. We think those are all going to be positive, Jack.

Okay. So, I guess I'm trying to understand, how would that affect your financial statement?

Well, I think what Bob's saying is, I mean, there's nothing that's in that legislation that would cause a change, really, in our financial statement, or the fact that this is really a contingent liability. And, Jack, what this is, is really a disclosure issue for us. It's one that's just an awareness that this contingency is out there, but as Bob said, it's really remote, because it would only be triggered in the event that we withdrew from the plan, which we're not planning to do.

The legislation may provide the plan some more freedom in dealing with benefits, particularly accrued benefits, and we think that would be positive. It's also positive that plans that are surreally under-funded in addition to dealing with accrued benefits may be additional contributions from employers -- I think it's interesting to put those numbers in context. This year our health and welfare payments for the contractual employees under the plan increased about 5.9%. In '06, we expect those numbers to go up about 5.4%, maybe. If you look at non-union health and welfare expenses, our own are going up 12 to 15%, we think that's true of most of the folks in the industry. So if you look at that in context, our contractual health and welfare expenses are high, but those numbers are embedded in our results already in going forward. Those plans actually may have lower percentage increases than those outside the plan.

Okay, and on that note, just kind of looking at the directional -- the direction of expenses going forward, is your -- what do you anticipate for pension expense in '06, and how does that compare to '05?

Jack, we'll provide that in our first quarter call. We don't have complete yet the actuarial valuation for -- this really is as of January 1 of '06, but we'll provide that to you on the first quarter call.

Okay. What was it in '05?

It was about 10 million in total.

Okay. And you mentioned D&A is going to go up.

Yes.

What is your sense for purchase transportation, you know, expenses. I know you made some great improvements in utilizing more of your own assets as opposed to rail. Do you expect that to continue going into '06?

I would expect to see a reduction in the 18.6% of total miles. Rail is still useful to us in some lanes, but 18.6 is maybe a little higher than where I'd like to see it.

Okay. And then last question, could you talk a little bit about your expedited service offering and kind of some new initiatives you might have in time definite service, and how that's going?

Like a lot of other carriers, we do have a service which provides time definite expedited services. It's been growing rapidly from a relatively small base. I think more importantly than that, we're seeing dozens and dozens of examples where customers give us their poor LTL business because we've done such a good job by getting them out of a jam, and that's the ultimate value of that sort of -- we're coming off of a fairly small base, but we're very satisfied and pleased with the results so far.

Thank you, and congrats on a good quarter again.

Thanks, Jack.

Your next question comes from Jordan Alliger of Deutsche Bank.

Yes, hi. Just a couple of things. One, without necessarily asking you specifically for where you think margin can go in 2006, let me just ask, when you look out to '06, what do you view as the potential margin drags or tailwinds that could contribute to wherever that margin may get to?

I don't know how to respond to the question, Jordan. I guess there are always a lot of moving parts in this industry. I mentioned a couple. I mentioned that we're continuing to work on productivity. I think that while yield success will oscillate and vary from year to year -- you know, you have these questions about whether our numbers are sustainable, and I think it's important to look at the longer context of this industry. Did something happen in this industry around the mid-90s to make it fundamentally different? Our full year operating ratios from 1980 deregulation into 1994 averaged 96.5. We had a challenging acquisition in '95 and '96, but if you look at the average from 1997 through 2005, our average operating ratio was 92.9, and it's down from that other 96.5, and that includes two pretty challenging years, '02 and '03. This industry is fundamentally different than it was immediately after deregulation. Consolidation has been good for all the parties. So I think when we're looking at, are our numbers sustainable? They certainly will vary from year to year, but we're in a new environment, and all the players in this industry that survived are benefiting from that change.

The next question may be more of a technical question. When I look at build revenue -- if I did the math right, if I take sort of tonnage and multiply it by the build revenue per hundredweight and get a revenue number, there seems to be a bigger gap between the income statement and that number than usual. I get about 8.5 million, and I guess it's what you call deferred revenue, or revenue deferral. I'm just wondering if you could help me refresh my memory as to how the math works and how it affects things?

Jordan, I think -- tell me again what you're comparing?

Well, in other words, if I took the tonnage, the total tonnage, multiplied that by sort of the billed revenue per hundredweight, you know, all in with the fuel for the ABF Freight, sort of get a revenue number I think of about 447 million, but the income statement revenue, I think, for ABF Freight is 455, so it's sort of like 8.5 million difference, which is a bigger adjustment than we've had in the past. I'm just wondering what that is. You have a little footnote here that says build revenue does not include revenue deferral required. So, I'm just wondering how that calculates.

Well, it's done -- you know, the same approach is taken in both periods, or for really any period that you're looking at, and what you have is just a bigger effect of the revenue deferral. That's what is the difference between the two. And so you really -- that's what's happening there, and there's nothing really unusual in the way that's coming together. And the revenue deferral is, as I'll remind you, is just done on the basis of percentage of completion. On the revenue side we have to recognize revenues as they're earned throughout the freight delivery process, and so we're doing the typical calculations, really, in both periods.

It makes a lot of difference how the holidays fall in December, and there were a lot of differences in the calendar between '04 and '05.

Okay, so it's more of a timing thing than anything?

And calendar construction issues.

Okay. Thank you.

Thank you, Jordan.

Your next question comes from John Larkin of Stifel Nicolaus.

It's actually Stifel Nicolaus, but thank you, operator. Morning, Bob. Morning, Judy. Hi, David.

Hi, John.

A couple of questions, most of the good ones have been answered already, but you did mention, Judy, that you were going to spending some incremental capital on the local city side of the operation, maybe to add 1% more doors and increase capacity on the street. Is that concentrated in a few areas where you're having a little more success from a marketing point of view, or where the economy is a little hotter, or is that pretty much evenly spread across the system?

Well, what we're doing there is, as we do so many times, we will look at the business levels in a given area and really be certain that they're there before we spend capital dollars. And so what you see is that we've had some rental costs and some cartage costs, where we really think it makes more sense to buy that equipment and utilize our own equipment, and so those are some decisions that we're making. We're also, as I pointed out, purchasing rail trailers, because, really, the railroads are not going to make available to us their trailers, and we were leasing some trailers. Again, what we were doing there was to try to determine what the best buy for us was, and now that we've been through the '05 year, we've really made decisions there and are moving forward and making those decisions to own that equipment.

We are looking at increasing dock doors and terminals that have high dock door pressure, but there's no particular part of that country where that's centered. As far as city equipment, we adjust those weekly, even daily.

That's helpful. Also, when you talked to the formerly, mostly intraregional non-union folks, many of them are spending a lot of time and effort developing capabilities between the regions. Do you attribute these non-union carriers move into the intraregional and [inaudible] markets for some of the softness that you're perhaps seeing in your core LDL tonnage that you alluded to earlier, that you're sort of making up with what I'll call truckload overflow for lack of a better term?

That may be true. I notice some of those carriers, not all of them, some of them, have modestly longer length of hauls. We have shorter length of hauls and, as we've said for several years, we expect to see other carriers move into our core lanes, and we expect to move into their core lanes. So there is some of that probably going on.

But in general, the pricing is rational on everybody's part?

We certainly think so.

Okay. The other thing that I thought was interesting was that you had the 4.1 million total favorable variance on your workers' comp claims, but you've heard Robert and David talk in the past about how the workforce is getting older, and I guess you would expect it as the workforce gets older, unless you have an extraordinary safety program, that you'd begin to have more workers' comp claims. What's driving that differential there?

Well, John, first of all, I'll take this opportunity to point out, we do have an extraordinary safety program. We've won the American Trucking Association President's Trophy for the safest carrier. We won that five times. No other carrier has done that. We spend a lot of attention on safety, and the results show not only in our workers' comp, but also in our accident frequency. The thing with the older workforce is that you see -- sometimes you see higher severity, but you see fewer claims per employee. Our employees are professionals at what they do. They're trained, and their long tenure helps us rather than hurts us in managing this expense.

That's very helpful. Just one final kind of clean-up question. You mentioned that you were very pleased with the revenue per hundredweight both with and without fuel surge given the decline in length of haul and the increase in average shipment size. Any comments on how freight class may have changed and what impact that may have had?

I think it was fairly level -- I guess if it changed noticeably, it would be on my list of profile changes here, so I think it's fairly flattened year to year. I think the density may have dropped a bit, but not much.

Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from Ken Hoexter of Merrill Lynch.

Hi, great. I just have two real quick follow-up ones. On the rail containers, Judy, that you mentioned, is there a desire to add -- to use rails more frequently, or is this cost benefit analysis where you're just kind of changing how you're moving the trailers onto the rails?

Ken, the rails have placed all the carriers on notice that they're getting out of the equipment owning business, and so you'll see anyone who uses rails either start to move to third parties to get equipment or to own that equipment themselves. In '05, knowing this was coming, we leased some rail trailers to test their effectiveness. We're pretty pleased with the results, and so in '06, we're replacing those rentals with purchased equipment. It does not mean more miles on the rails, just that some of the miles that we had been moving previously on rail-owned equipment, and in '05 in leased equipment, we'll now move in owned equipment.

What's your percentage that you move on, let's say in a container versus what you just put your trailer on?

Well, keep in mind, these aren't containers, they're trailers. I don't have a breakdown for you on how much is in pups versus 53-foot rail vans, and that mix will change over time.

Okay. So you've been moving it on rail equipment, not your own pup put onto the back of a rail car.

Well, we have done both. We have some ABF pups that have moved on the rail, and we have some rail-owned trailers, and that's pre-'05.

Got it. And then just the last question, I just want to clarify on the -- coming back to the multi-employer plans for a second. I just want to clarify that. The legislation that's proposed right now, is that single employer plans might -- not definite -- might end up on balance sheets, but you're saying that there has been no move to do that for any kind of multi-employer plan; is that what you were saying before?

There's a house bill and a senate bill that are different. I've seen only a rough synopsis of those bills, and I haven't seen any mention of that.

You don't see any mention of multi-employer plans.

I have not seen any mention of including multi-employer plans on the balance sheet.

Right. So you ran through this exercise as, really, as just an exercise in numbers of what would happen -- are you making any statement as to any desire to pull out of the plan, or you just putting numbers to what would happen if you did?

No, we're not making a desire to pull out of the plan. We have no current intentions of doing that. Just a question that had been asked and we were finally able to quantify it and thought it was important to disclose it, since we now knew the numbers.

Great help. Thank you.

Thank you, Ken.

At this time, there are no further questions. Are there any further remarks?

Well, we just want to thank everybody for joining us this morning. We appreciate your interest in Arkansas Best Corporation. That concludes our call.

Thank you for participating in today's conference call. You may now disconnect.