ArcBest Corp (ARCB) 2006 Q4 法說會逐字稿

Good morning. My name is Meredith and I will be your conference operator today. At this time, I would like to welcome everyone to the Arkansas Best Corporation fourth-quarter 2006 earnings conference call. All lines have been placed to mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS). I would now like to turn the conference David Humphrey, Director of Investor Relations. Please go ahead, sir.

Welcome to the Arkansas Best Corporation fourth-quarter 2006 earnings conference call. We will have a short discussion of the fourth quarter results then we will open up for a question and answer period.

Our presentation this morning will be done by Mr. Robert A. Davidson, President and Chief Executive Officer of Arkansas Best Corporation and Ms. Judy R. McReynolds, Senior 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 description 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.

Thank you for joining us this morning. Our Company has faced a very challenging operating environment in last year's fourth quarter. I will update you on the results for the quarter and year, and then I will turn over to Bob for his further discussion of the issues we faced during the quarter.

The total Company revenues and earnings figures are from continuing operations. I will start with the total Company results.

Our fourth quarter revenues were $449 million, down 3.9% per day from last year. Diluted earnings per share were $0.56 a share versus (technical difficulty) a share last year. For the full year of 2006, our Company had revenues of $1.86 billion, up 6.6% per day over 2005. Our earnings-per-share comparisons were impacted by a settlement accounting charge in 2006 and a gain from the sale of properties in 2005. If you exclude these adjustments, our 2006 earnings were $3.40 a share, and this compares to 2005 earnings of $3.61 a share. Our Company finished 2006 with a strong financial position as our full-year after-tax return on capital employed was 15.4%. This result compares favorably with the average after-tax return of the S&P 500 of 10%.

And now I will move onto ABS's operating results for the quarter. ABS reported fourth quarter revenues of $436 million, a drop of 4.3% per day from last year. For the fourth quarter, ABS tonnage declined 6.8% pounds per day. ABS's operating ratio was a 95.2 compared an 89.4 in the fourth quarter of 2005. For the full year of 2006, ABS reported revenues of $1.81 billion, a per-day increase of 6.4% over last year. If you adjust for the settlement accounting charge, ABS's 2006 operating ratio was at 92.5% compared to 90.9% in 2005. ABS total tonnage per day in 2006 increased 1.5% over last year. And now I will turn over to Bob for more comments on the quarter.

Good morning. Well, we obviously are not pleased with the fourth quarter results, but this is a cyclical business. When tonnage declines, it always hurts our profitability and we think we have a good handle on what happened during the quarter.

October is normally the strongest month of the fourth quarter and is one of the best of the year, but this October we saw a sudden and significant decline in business followed on during the quarter. In October and November, we had year-over-year tonnage declines of about 7.5%. We think that is consistent with or maybe a little milder than the relative drop that other carriers have reported.

To put this business decline in perspective, October in 2006 tonnage per day was sequentially below the previous month, September of 2006, by over 8%. That is the largest such sequential decreased by far in over 20 years. On average, you would expect the October daily tonnage to be about 1% less than the previous September. Year-over-year tonnage declines in December and so far in January are improved a little bit. In both months, tonnage per day is down about 6% compared to the previous year. I think it's fair to say that we did not react quickly enough early in the quarter to reduce system labor and other costs to match this sudden decline in business. I think we erred on the side the continuing to provide good service, even if what was supposed to be a peak time. I think it is good to maintain those service levels. We have now taken steps when it became clear that business downturn was not a short-term event, and I think we have taken the steps we need to reduce expenses to align them more closely with our current business level.

In addition, we're maintaining our conservative pricing discipline. If year-over-year tonnage levels continue at their current pace, we will continue to experience an increase in our operating ratio as a result of the negative operating leverage, and when tonnage levels improve, we expect the profitability should return to traditional levels.

No one should totally be surprised the operating results following such a decline in business. We've seen this before in our industry. Our most recent example was comparing the full year of 2001 with the full year of 2000. During that time, ABS tonnage per day declined 7.7% and our operating ratio increased by 3.5 points. In addition to the declining tonnage, there were some other factors that hurt our fourth quarter results. It was a challenge to ramp up our regional operation at the same time we were adjusting expenses for an overall decline in business. And as we told you last quarter, our fourth quarter OR increased by about 1 percentage point due to these ongoing investments and the RPM initiative.

Also, workers compensation cost added about half a point in our fourth quarter operating ratio. Our fourth quarter workers comp was really a good year at 1.48% of revenue. Unfortunately, we were comparing back against a superb quarter in the fourth quarter of '05, which included a $1.5 million reserve reduction. Our total weight per shipment declined almost 5% in the fourth quarter of '06. That is pretty significant and it hurt operating productivity and shipment profitability.

Pricing remains positive, despite the current environment. Our total billed revenue per hundredweight in the quarter was up 3.2%, and in fact it increased 4.7% for the full year. Some of that is due to profiles, but pricing still remains rational. During the fourth quarter, ABS secured average price increases of 4.6% from customers under contracts and deferred pricing agreements. I've seen some references out there about how the tonnage decline will trigger a price war, and I seem to see those same sort of comments every quarter. There is always a few odd stories of pricing, but honestly, we don't see any evidence of broad-based change in industry pricing and we're pretty encouraged by the current environment.

ABS now implemented its Regional Performance Model, targeting regional business in the eastern two-thirds of the United States. We expanded the RPM capabilities in the South and the central states beginning in October and we started full marketing in early January. RPM may not have a meaningful impact on our system revenue until the latter half of this year.

Meanwhile, it's costing us as I said about a point on the OR, and we think that is a good investment. The current environment is in a great time to begin a major new initiative like this, but we believe success in the regional markets is vital to ABS's future and we will continue our commitment to establishing and growing this important part of our business. In our view, the sooner we start, the sooner we reach our goals.

During 2006, ABS continues to excel in areas that are important to our customers and employees and to the general public. For instance, our cargo claims ratio was the best that we've seen in over 20 years. Careful cargo handling matters to our customers and we believe we lead the industry in this important measure. Our impressive safety record continues to get even better. ABS DOT reportable accidents per million miles decreased by 14% over the road and by 25% in the city compared to 2005. That is a remarkable improvement in serious accidents, and this is despite the significant number of new drivers we hired and also increased freight that we moved from the railroads onto our own equipment on the highways. We believe that ABS is the safest trucking company on the highway and we are proud of their record.

ABS city driver, [Tony Sperro] was named last week to the American Trucking Association's new America's road team. We are proud of Tony, who follows in a rich tradition of ABF employees excelling at the national level.

In a number of ways, ABF offers a unique value proposition in the marketplace. We think it will allow us to continue to be successful in any economic environment and in any segment of the trucking marketplace.

All in all, 2006 ended on a soft note, but it still was the fifth-best operating ratio since deregulation in 1980. I will now turn it back over to Judy for some other comments.

I will provide you with some information on our cash flows and then our capital expenditures and some other items you should consider for 2007.

Our operating cash flows were $168 million, and that included depreciation and amortization of $68 million. Our net purchases of property and equipment were $136 million. We purchased Treasury stock for nearly $27 million and we paid dividends on our common stock of $15 million. Our balance of cash and short-term investments was $140 million at the end of December.

If you would like more full details of the cash flow statements, you should refer to our GAAP cash flow that's attached to our earnings press release.

We anticipate our 2007 net capital expenditures to range from about $110 million to $135 million. This includes road and city equipment replacements of about $63 million and further investments of RPM for about $20 million. Outside of the purchases related to RPM, our 2007 capital expenditure plan does not include expansion of the road tractor and double-trailer suite. The low end figure for this year is below last year because we won't have a need to purchase any rail trailers and we're not planning to add as much city delivery equipment. We have the potential for additional capital expenditures of up to $25 million above the low end figure of $110 million. These capital expenditures would be for real estate opportunities and perhaps the purchase of city equipment if we see the need. We expect this year's depreciation and amortization to be between $75 and $80 million. And as always, we will subject our capital expenditures to our 10% after-tax return criteria and we have the flexibility to reduce our capital expenditure plans or sell excess equipment if our tonnage levels continue to be challenging.

As you know, we have an unfunded supplemental pension plan for our executive officers. We have already reported to you that in 2006, the benefit distributions associated with this plan caused us to record pre-tax charges of $10.2 million, or $0.24 a share net of taxes. We have another officer retirement scheduled at the end of this month. As a result in this year's first quarter we will be recording a pre-tax charge of about $1.1 million, or $0.03 a share net of taxes. Remember that we closed this plan to new participants as of the end of 2005.

As a result of new accounting requirements, at the end of 2006, we were required to recognize the funded status of our non-union defined benefit pension and other postretirement plans on our balance sheet. Because of the adoption of these new rules, our stockholders equity was reduced to net of taxes by about $34 million. I'm also pleased to report at the end of last year, our non-union pension plan is fully funded on an accumulated benefit obligation basis.

And the last area that I will cover is our 2006 stock-based compensation expense. Last year's expense from stock options and restricted stock grants was $4.7 million pre-tax, or about $0.11 a share net of taxes. In 2007, we anticipate granting restricted stock units under our existing plan and we expect this year's stock-based compensation expense to be similar to our expense in 2006.

And I will turn back over to David.

Okay Meredith, I think we're rated for some questions.

(OPERATOR INSTRUCTIONS). Justin Yagerman, Wachovia Securities.

I wanted to touch on pricing here. Definitely was surprised by the strength of it a little bit and wanted to kind of get a little bit more insight into the conversations that are going on with shippers. Considering that you have accelerated the price increase to 4.6%, up from 3.2% on a third of those contracts on average, what is that conversation sounding like? Are they concerned about capacity in the back half of the year?

At the risk of making a self-serving comment, ABS really does provide a lot of value in the marketplace. I mentioned cargo claims, which is really important, some of the technology we have. So it's easier for us to get price increases. Also in the past, we've told you that as fuel surcharge comes down, we thought that we would be able to convert a little of that into overall price increases. And so I think you were seeing that it certainly happened last year. When fuel dropped, we were able to increase our increases on [defers] in contracts. And so there is a relationship there and we are seeing some evidence of that.

So you are backfilling so on the loss on fuel surcharge revenues with actual rate?

Yes, it's easier for somebody on a transportation budget to give you an increase to the overall dollar that's going down (inaudible).

Okay, that is fair enough. Can you give us insight into what you're fuel surcharge was year-over-year in the fourth quarter?

We've decided to stop breaking that out. We view it at one element as price, and as I've just indicated, it's to some extent fungible with the overall yield. I can tell you that it dropped a little bit, but it was in a fairly narrow range through the quarter.

So on a percentage, just without giving the number, what would you say your fuel surcharge came down year-over-year in the fourth quarter?

I don't have the number in front of me, but it was down some though.

Okay. On the labor front, when you look at the deterioration in the OR, besides the RPM, besides the worker comp issue, which are different issues, we just take productivity is the one thing that hurt you in the quarter?

It definitely was a factor. We were a little late in adjusting labor. We did so, and I'm pretty comfortable with where we are now, although we still have a negative operating leverage with tonnage being down. But you're right, productivity [was] definitely a factor (inaudible).

So as you went through the quarter, what would you say -- in terms of headcount reduction, what was the percentage that you had to do, and where does that leave you now versus what you were at the beginning of the quarter?

I don't have the numbers, and they were not really relevant because, recall when we reduced our rail miles by almost 25%. So on the road, even though we got pore productive, I think our headcount actually went up a little bit. Does that make sense?

Yes. On the RPM side, and I will turn it over to someone else afterwards, I just wanted to see if I could get you guys to give a kind of timetable that you are using to hit the ROC of 10% that you look for in your investments. You guys are investing a lot of money in this thing, I'm assuming you're going to give it some time to get to a point where it's turning a profit for you and a healthy return. What is that in your heads, in terms of making this thing work? How long are you giving this?

We believe that in order to reach our goals, it will take three years, maybe more, but we think we'll be able to report meaningful headway sometime later this year.

So when we think about OR impact on an ongoing basis, should we still be modeling about 100 basis points per quarter for the rest of '07 until you get to fourth quarter?

I think you probably ought do that until we tell you the results are meaningful.

And I guess then, at that time, as we get closer to fourth quarter, you will have an idea if there is still year-over-year deterioration on top of a --?

Right.

I appreciate it. I will turn it over to someone else.

Edward Wolfe, Bear Stearns.

Hi, guys. Just a heads up, you were fading in and out, it was getting hard to hear you on some of those answers. I'm just trying to understand when, all of a sudden you have a drop in tonnage and you're trying to hold onto your infrastructure to provide service, you talked about some of the headcount. What are some of the other things that you have done to reduce that? And how we think of going then into the first quarter where you normally see a good drop-off in margin from fourth quarter? Should the margin or the OR be worse in first quarter than it was in fourth this quarter?

I don't think we're in a position to predict that or to give guidance on it, but I will say that we, early in the quarter, had some productivity issues that we began to fix towards the end of the quarter. We have done some other things. We've very severely reduced outside cartage. We've reduced rail, we've turned back equipment that we weren't using. We've made some other adjustments in (indiscernible) cost. So on a relative basis, I'm comfortable that we have made some progress.

But directionally, I am right that directionally, typically, seasonally, fourth quarter would be a worse -- first quarter would be a worse margin than fourth quarter? Is there a period you can remember where that was not the case?

I think that you're right, but I'm speaking year-over-year GAAP. And keep in mind that, as long as tonnages is off, and as I've told you so far, in January, it looks like it's off 6%, we'll continue to have higher year-over-year ORs.

Okay. In terms of the RPM rollout, you had said on third quarter that you would be into more facilities and rolling out everywhere I think by the end of first quarter. I did not hear you talk about that. Has that timing changed at all?

We're looking at probably second quarter to flesh out the West. There's honestly not an awful lot left to do there because of the distances. So it would be a minor portion of what we're doing, and we're looking probably more at the second quarter now.

And how should we look at what you're doing right now? It seems like it's not material in the revenue, so is it just kind of testing the product as opposed to marketing and selling the product?

No, it's not a test. It's a full-fledged implementation, but we're going out and getting business. We're not going to get it on the basis of prize, we're going to get on the basis of providing value. What that means is, the business will be more profitable, and more importantly, we think it will be more stable with us. So it's going to develop over time. But we're no longer in pilot. We piloted this last year, we're comfortable with the results, and now we are fully engaged in the eastern two-thirds of the United States.

And when you look at it based on what you have seen in your pilots, and now you're more full engagement, you $1.8 billion let's call it in revenue, what percentage of that customer's revenues wants a piece of this business? Do you get some semblance that in one terminal, you sell the X-percentage of the existing customer, and that is fluent through other terminals, or is it different in different parts of the country? What are you seeing?

Clearly, you're going to have a different story in every terminal, and when you have 80,000 customers, there's a lot of different flavors out there. But generally, the easiest sells are with our current customers and we are approaching those first.

Is there some percentage that you expect as a sell-through when you have three years when you're ramped-up? What should that number look like?

I don't know how to express it in those terms. I would just say that our market share in regional business is substantially below our market share in the long haul business, and I don't see any reason why they cannot be comparable.

Okay. In the release, and I think you mentioned it too, you talked about the average price increase on a portion of the business that came up was 4.6. Just for a reference, what was that, say, a year ago?

In the fourth quarter, it was like 4.3 maybe. We have the number here somewhere. It was 3.9 in the most recent third quarter.

And that number includes a fuel surcharge, does not include a fuel surcharge?

It has no fuel surcharge effect in it. It is the increase in base rates of the reduction and discount for the effective yield. It does not include a profile impact, it does not include a fuel surcharge impact.

It seems to be higher than where you were, at least last quarter, third quarter, net of fuel and what you were reporting. So what else is averaging that down than what you reported? Spot market of some kind?

Definitely, we have had spot market impact. If you recall that in the third quarter, we reported spot volume business being down pretty significantly. It has recovered a little bit, but it's still down -- spot market is still down by double digits tonnage levels. So that certainly an impact in there. Ed, I guess, I read your comments this morning, and I think that the industry may be fundamentally different from the way that you've suggested. In an era and in a time like this, particularly when fuel is declining, we don't see -- despite some challenging tonnages out here, we don't see the difficulty in price that you seem to imply.

What I'm implying is that usually first tonnage goes, then pricing goes, and it just seems to us there's a lot of people into a downturn trying to grow into new areas and new products where the last downturn, people were kind of buckling down the hatches a little better. Are you seeing -- as you roll out the regional, we have a lot of examples of regionals, whether it's UPS and FedEx getting into businesses and saying they're going to grow them faster, or the private regional guys growing new territories. Are you seeing some of those guys out there? It sounds like you're not on the pricing front, at least yet.

We are seeing out there head-to-head in competition, but I don't recall a time in the last 35 years where we didn't have competitors that we were bumping up against. The names change, but there has always been competition and there always will be. It seems like every quarter, I see predictions of a price war, and those don't seem to materialize. I think, even in a downturn, the players that are left here are rational. They sell on value and all you have to do is look at revenue for underweight charts over the last 20 years to see that over the last 10 or so, the industry's fundamentally different. That doesn't mean that we don't occasionally get outbid by somebody and occasionally we will outbid somebody else. But in our industry now, that is no longer the predominant way to do business.

What do you expect direction of tonnage going forward? You said that you had expected tonnage to be better than it turned it out at the end of last year. When you look to '07, do you expect ISN to be above 50? Do you expect tonnage to be positive at some point in the year?

I don't have the ability to predict that. Certainly, I think October surprised everybody. It was just a sudden, dramatic drop in tonnage. At the beginning of October, our third quarter had pretty decent growth in it. We were gearing up to continue that into the fourth quarter, and just at the beginning of October, it did not happen. Going forward, you see a pretty decent economy, but if you look at the manufacturing sector as opposed to the service sector, you're seeing totally different numbers. The service sector is continuing to expand. We have not found a way to haul much service. So in the manufacturing sector, you see declining employment, and I don't know when it turns around. I don't have the ability to predict that.

Is weight per shipment in January still down?

Probably. I don't have that number of front of me, but I would guess it's probably down about 5%, like it was for the fourth quarter.

Thanks for the time, I appreciate it very much.

Brannon Cook, JP Morgan.

You guys talked about some of the measures you took in the fourth quarter to adjust cost to a slower demand environment. If volumes remain down high-single digits looking out for a few quarters here, are there some additional cost levers you guys can pull to try to adjust costs to a slower demand environment? In the release you talked about potentially selling some revenue equipment. At what point do you decide to do that?

Sitting here in January, we are probably pretty close to where we need to be in terms of productivity. And, again, keep in mind that you don't make it entirely variable, but we have gone a long way towards rationalizing our cost. We will reach a decision point on equipment probably somewhere in the second quarter. We have some good options. As you know, we did a little bit of a pre-buy with 125 road tractors in the fourth quarter and with '06 engines in them. So we have some different things that we can do. We will make those decisions coming into the middle of the year.

If you look at things like real estate and look at equipment, they are just not a huge portion of our total expenses. So those decisions are not as critical as labor.

Okay. And when we think about fourth quarter, you talked about it took a little longer than you would've liked to flex your cost to slower demand environment. Is there anyway to think about the order of magnitude that that hurt your margins in the fourth quarter waiting to flex the cost?

I don't know how to quantify it, other than the fact that our operating ratio increased 580 basis points, and that's more than you ought to have expected with tonnage declines. Part of that was RPM, but part of that it was a decline in productivity that was associated with that failure to rationalize the labor.

So I guess, as we look to the first quarter, now that your costs are better flexed, it would be reasonable to expect the margin deterioration to be smaller?

That was certainly our aim. I'm not in a position to give guidance or direction on that, but you can tell from my qualitative comments that we certainly believe that we've been successful.

Okay, thanks for the time.

Jordan Alliger, Deutsche Bank.

On the regional business, how do you measure the success? I know that profitability is a drag, but how do you know you're doing what you want to do for the customer and that they're accepting it and they're happy with it? I don't know if there's any sort of metrics on the service side you're looking at to gauge how are you actually doing.

The first way we would evaluate is by how much tonnage we put on board, and in a lot of respects, it's fairly easy to measure because there's such a low level.

Right, so from that sort of tonnage standpoint I guess, are you meeting the expectations that you've sort of set out as you've opened up these regions and expanded the program, etc.?

Keep in mind that we just started marketing the bulk of our RPM the first of January. So I think it's pretty early to take a measure on that.

Alright. Next question is, in terms of -- I don't know if you've touched on this already; if you did, I apologize -- but you mentioned that you would have liked to have perhaps been quicker on the reaction to the drop-off in volumes. I guess if you start to see volumes perk up again, how do you look at the other side of the equation? How do you -- will you need to flex up quite a bit, given what you have done now, and do you risk sort of being caught the other way?

I think we can react quickly if that happy event occurs, Jordan. Keep in mind that we have reduced our rail expense and we can ramp up rail. We have a lot of room in rail to soak up some road miles. We have equipment, we have access to rental equipment. We have some employees on layoff, and I regret that, but if tonnage declines, we will be able to call those people back to work. So I think we're in pretty good shape. You recall that in 2004, we had a pretty significant increase in tonnage and we were able to react very quickly in that.

And then just a final question. Just thinking about the price versus volume decision, and obviously you sort of made the emphasis on price to protect the margins somewhat, and obviously the pricing was good, but the margins were still pretty hard. So I guess my question is, would it actually be better in some cases looking at a little bit more volume terms of protecting margin, because even excluding the RPM rollout, it was a pretty hefty hit, despite pricing staying pretty supported. So how [are] you sort of looking at that price-volume trade-off right now?

I think we will know more when we see how the industry comes in with tonnage changes, and we will see, at least on a relative basis, whether our numbers were lower than expected or higher than expected. But I think at the end of the day, you will see that we did a pretty good job on a relative basis in having not as much of a tonnage decline as some had predicted, having also better yield numbers than some had predicted. I don't think we had a business versus price trade-off issue. I think we had a cost issue, which we have addressed.

Great, thanks very much.

Tom Albrecht, Stephens Inc.

A lot of my questions have been answered, but I did want to go back, a year ago, I remember that your company discussed the increase in the weight per shipment, and you felt that let some of the shift in larger, heavier shipments was going to be more permanent, whether you were calling those truckload shipments or heavier LTL shipments. Obviously, that has not played out exactly that way. How much of your fourth-quarter disappointment was just due to the absence of that heavier freight that in hindsight was really more of a onetime influence?

Well, I certainly agree with the premise of your question. Our weight per shipment is almost back to the '03 level before we had the (indiscernible) service issue and before we had some of the migration of the freight from the truckload sector into our sector. And I think that most obvious conclusion is, a lot of it is stop-off freight. Some of our spot volume business, for instance, has migrated back to the truckload sector, and that has been a factor. In terms of its relative importance, I would put it third and fourth on the list.

Okay. And then, I just wanted to confirm, Judy, the numbers you're showing in today's release are different than a year ago. I assume that just means that you have pro forma'ed everything to take Clipper out?

Yes, that is exactly right. We discontinued operations, it's going to be removed from the numbers, and that's why they would be different, slightly different. But we can provide that detail to you if you need it.

No, we still have last years', we were just quickly trying to reconcile it.

Absolutely, that would have an effect.

Okay. And then, lastly, on that net reduction in stockholders equity for the pension issues, should we expect the same amount in '07 -- $34 million, $35 million?

What happens to you there is that as -- what you're really doing is recognizing through stockholders equity previously -- you have the unrecognized losses under the pension rules that amortize out over time. So the $34 million represents those, and it's on a net of tax basis, and that would actually amortize out over a period of about 10 years. And so it will actually reduce over time kind of from the base that we start with in '06. But what happens to you is you measure those unrecognized losses and/or gains every year, and so you will have the effect of whatever that has changed in any given year as well.

So it's kind of a once a year mark-to-market going back to the original I guess $34 million?

It is. For instance, if you have -- and we had this happen this year -- if you have a good year in the stock market, you're going to actually have an actuarial gain if that exceeds your 7.9% investment return assumption. So what that would do is serve to reduce that number. And like you say, that is something that you would true up really at the end of the year when you do your measurements. But, otherwise, the amounts amortize off over a 10-year period.

Alright, and so the annual impact through the income statement would be $3 million, or is there any impact? This is just purely a stockholders equity?

It comes through -- the income statement expense that we've always had for pension, for instance in '06, it was about $11 million. That's always included. I think it's probably about $4 million of actuarial loss amortization. And so what happens to you is you still have that included in your pension expense, and then it also comes off of your equity number. So it would actually reduce your equity number and you would have to tax-effect it.

Okay, that helps.

So it becomes -- if you didn't have any future measurement, it would become smaller over time, over a 10-year period of time.

Okay, good, thanks for the clarification.

John Barnes, BB&T Capital Markets.

If you look at your regional rollout, given a little bit of softness in volumes, and I think just in response to an earlier question about modeling that 100 basis points of operating ratio as a result of this regional rollout, I guess my question is -- with the weaker volumes that we saw, is it going to take longer for that rollout to be profitable than you had originally thought? I guess I'm probably answering the question.

We don't know. Since we have been marketing it for about 21 days, we don't know what the impact is going to be. As I indicated earlier, it's probably not the best time to be rolling out a new initiative, but the sooner you start, the sooner you reach your goals. So we're looking at this like a huge investment that we could have made, but without the integration risks and without all of the heartaches and headaches that come from a large acquisition. And we are comfortable going forward. We think that the investment that we're making in terms of the impact on the OR, and even in CapEx dollars, is modest and (indiscernible) side is huge. I honestly don't know at what point this thing is going to reach those goals, but we're certainly comfortable with the process.

You made the statement, now may not be the right time, but I guess I would take the opposite approach. Do you feel like you can train your people a little bit better with a little less volume in the system, or does that matter at all? Would you just prefer to have more volume?

The primary point people on this are the sales and marketing people, and I can tell you, they are busier in a downturn than they are when tonnage is up.

Alright. And then, obviously, we have not seen all of your competitor numbers yet for earnings season, but do you get the feeling at all, are you hearing from your people internally at all, that you all are losing a little bit of share? I know you've made the comment that don't not see a retail price war or anything out there, but are you getting the feeling that half of your volume decline was the economy and half your volume decline was market share loss that somebody's undercutting? Or, do you feel like it was predominantly just a softer economy?

TO the extent that we know, we think we actually gained a little share during the quarter.

Okay. So you feel like you picked up a little share, but the economy, just the weakness in freight volumes was too much to overcome?

Right.

Alright, very good. Thanks for your time.

Ken Hoexter, Merrill Lynch.

Can you -- I'm not sure if I caught this yet, but I think you mentioned that January volumes were down 6% year-over-year. Did you mention by month what October through December were? (MULTIPLE SPEAKERS) can you?

October and November were down 7.5%, December was down 6%.

So now that you saw kind of similar levels in October, November and December, and then January with the same levels, I know Ed asked before about what your outlook for '07, you said it was too far out. What are you feeling right now? Are you feeling like we've hit an inflection point and you're starting to see those volumes I guess a deceleration slow a bit, or are you thinking we could see reacceleration with a slowing economy?

Well, we saw a little bit of relative uptick obviously in December and January, but we are not high-fiving over (indiscernible) [million] decline. We honestly don't know how to predict the economy.

Okay. To follow up before on some of the fuel surcharges, you said you can't break it out for competitive reasons, but I just wanted to understand, still too the customers, they still see a separate line that defines what is their fuel surcharge bill, correct?

On most markets. There are a few markets where the fuel surcharge is calculated and bundled in a one client price, but most of the business, it is separated out. And it still continues to have very great acceptance among the shipping public precisely because, as the cost of diesel comes down, they see a fairly significant decline in their overall freight bill. So I think that explains why it still has a market acceptance.

Okay. And then within that, in your 10-K last year, you noted that expected declines in oil could -- or in your fuel surcharge could impact operating income as well. Now that we have seen about a $15 per barrel of oil decline, can you quantify what level of impact we can expect to see on profits from the decline in fuel?

The biggest cost of fuel is in obviously the diesel (inaudible), but it is so embedded in our other costs -- the cost of rail, the cost of cartage, the cost of utilities, the cost of car allowances that it provides to our salespeople -- it's just fragmented out, and we don't have a number for you.

I think you're talking more on the cost side. It sounded like from what you were stating in your filing that you were -- that there was some profit on the fuel surcharge. So as fuel came down, profit levels could be impacted because of that.

Ken, what we referred to in the filing is that the fuel surcharge revenues can exceed what happens with the direct diesel fuel costs, which Bob's mentioning that there are a number of other costs that need to be considered whenever you make a -- if you were to try to make an operating profit effect of this. And so we do have those comments in there. One other point that I think Bob made earlier is that, what happens to you when fuel prices come down, you do -- your customers do see a benefit and perhaps you have a better ability to increase price in other areas. And I think that's also a factor in this. It makes it all very difficult to measure the effect.

That's helpful Judy, but I guess you don't want to break out that because you're saying, when you going into those pricing discussions, you're talking in terms of total price to the customer -- that why you don't want to break out the surcharge amount anymore?

I think that's certainly true in some parts of our business, but I think what we are saying is the total price is what is viewed as what they're dealing with if you're a customer. And it's difficult from a standpoint of looking at what happens with our price or yield effects to really consider it separately.

Okay, great. Thanks for the time.

David Ross, Stifel Nicolaus.

Just to go over the operating leverage comparison again, you guys referred to the 2001 to 2001 time frame being a similar negative impact on the margin. Back then, you said tonnage was down about 8% and the OR increased about 350 basis points. I find tonnage was down about 7% and the OR went up 580 basis points. And if you exclude the adjustments for the RPM rollout, the workers comp comparison, it was 430 basis points versus a 350 basis point decline. So I guess my question is, what was different this time? Because back then, the pricing was even more aggressive, so I would have thought that the margin would have held up a little bit better this time. Is that the labor, is that the fuel?

One simple comparison is that now we're talking quarter to quarter, and the earlier period was the year-to-year when we had time to adjust to labor. So maybe that's some indication of the fact that the number is bigger now because we were a little late in adjusting those expenses.

In other words, we may have, over that period of a year, had time to react with the right-sizing the Company to the business levels. And the steep decline we saw from September to October was so unusual, and we admittedly did not react as quickly as we should have.

So you all were essentially expecting a delayed peak, but it never came?

Exactly.

The last question I have, the Teamster negotiations, contract expires next year now. Do you plan on getting into that in the near future, more close to the year-end? What is your strategy?

We're having internal discussions, and we're also speaking similarly affected carriers. But we have had no discussions with the Teamsters.

Okay, thank you very much.

At this time, there are no further questions.

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

This concludes today's conference call. You may now disconnect.