ArcBest Corp (ARCB) 2008 Q3 法說會逐字稿

Good morning my name is [Sandrelle] and I will be your conference operator today. At this time I would like to welcome everyone to the Arkansas Best Corporation third quarter 2008 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 session. (OPERATOR INSTRUCTIONS)

And now, I would like to turn the call over to David Humphrey, Director of Investor Relations.

Welcome to Arkansas Best Corporation third quarter 2008 earnings conference call. We will have a short discussion of the third quarter results then we'll open it 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, 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 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. I will now begin the call with Ms. McReynolds.

Thank you for joining us this morning. I'll start with our companies third quarter results and then provide some comments related to the financial markets and then I'll turn it over to Bob for a further discussion of the quarter. Our third quarter 2008 revenues were $496 million, a slight daily increase over last year's figure of $486 million. Our diluted EPS for the quarter were $0.61per share, compared to $0.75 a share last year. There were three unusual items that impacted our third quarter results.

First, we had a very favorable Workers' Compensation experience this year. As we alerted you last quarter we're comparing back to a last year's third quarter which included unusually high Workers' Compensation costs compared to our longer term historical averages. This favorable comparison positively impacted our earnings this quarter by $0.14 a share. We've experienced some quarterly volatility in the results of this category this year. Nevertheless, the trend is excellent and we're very pleased with the lower level of Workers' Compensation expense that we have experienced through the first nine months of this year when you compare it to last year. Second, as we saw last quarter, we were once again impacted by the market performance and the investments associated with life insurance policies we maintain on certain company executives. A portion of the policies we own are invested much like pension plan assets and their returns have been affected by the downturn in the stock market. The negative earnings impact of this change and cash surrender values was nearly $0.07 a share versus last year. The returns on these policies have been a negative to us in the last couple of quarters but since their inception the average annual return on these policies has been nearly 10% inclusive of life insurance gain. As a reminder changes in cash surrender value of life insurance are shown below the operating line in other net expense. Finally, in last year's third quarter we received an alternative fuel tax credit for the first time. The amount of the credit taken in that quarter represented the YTD credit for ABS propane usage because the amount of the credit had just been determined. Since this year's third quarter tax rate reflects only one quarters worth of this tax credit the year over year comparison of our earnings declined by $0.02 a share.

And now let's move on to our cash flow information for the quarter. Arkansas Best best YTD operating cash flows were $104 million. Net purchases of property and equipment totaled $30 million and so far this year we paid common stock dividends of $11.5 million. We are projecting that our 2008 capital expenditures will be somewhat lower than we originally anticipated. We now expect the net CapEx range to be between $45 and $55 million. Our originally anticipated capital expenditures range from $60 to $70 million. We've continued to evaluate our capital needs relative to our declining business levels. We are following through on planned road tractor and trailer replacements but we're reducing our purchases of other equipment and we will also not spend as much on real estate expansions and improvements. We're considering a cash contribution of $10 to $20 million to our non-union pension plan before year end. The plan has suffered investment losses of approximately $20 million through the first nine months of 2008. This contribution is not a required contribution but we feel it is prudent to maintain appropriate funding levels for the plan. Our balance of cash and short term investments was $231 million at the end of September. We've not experienced any losses associated with our cash and short term investments as a result of the stock market turmoil. Our balances currently reside in US treasury funds, FDIC insured certificates of deposit and other government securities funds. Although our current average earnings rate is less than last quarter we've made the necessary changes to better preserve this capital. During a period of uncertainty in our economy and our financial markets, Arkansas Best is in a strong and stable financial position. We've emphasized this point many times but it has never been more important. We have virtually no debt and our significant cash balances put us in a position of flexibility. And now, I'll turn it over to Bob for his comments about ABF and our third quarter performance.

Thank you, Judy, and good morning everyone. ABF reported third quarter revenues of $476 million, that's the same on a per day basis as in last year's third quarter. ABFs third quarter operating ratio was $94.7, that's compared to a $93.9 during the same period last year. During the third quarter ABF experienced a deteriorating LTL freight environment as we saw progressively worse tonnage declines in each month of the quarter. We ended the third quarter with ABFs daily average tonnage down 5.1% compared to the same period last year. Based on the early part of the month it looks like October will be a point or two worse than the full third quarter. We reviewed the historical seasonal fourth quarter relationships between October and the months of November and December and based on that review and the current October tonnage levels, we expect a very tough fourth quarter tonnage wise. During the period of lower tonnage the ABF team continues to respond positively while providing efficient handling of our customers freight in a safe and cost-effective manner. Our folks always seem to find a way to work with and make the best of whatever the economy brings us. As a result, ABF was able to actually improve ROE operational productivity on both a weight and shipment basis during the third quarter as it had done during the first two quarters of the year. Our employees remain focused on upholding ABFs reputation for offering superior value to our customers and providing a comprehensive array of services at a fair price. ABF customers benefited from our continual emphasis on best in class cargo care. For example, ABFs third quarter cargo claims ratio was 0.63% of revenue. That's a figure consistent with the first half of this year and essentially better than last year's results which was ABFs best in over 25 years. ABFs cost management and value creation contributed to the third quarter operating ratio increase of only 80 basis points. Superior success in reducing Workers' Compensation costs dropped our ROE by 120 basis points from the third quarter of last year. On a YTD basis Workers' comp costs are well below our ten-year historical average and they are 60 basis points less than the same period last year. The reduction in the number and severity of claims will benefit our company for many years to come.

In the third quarter ABFs city and road rate of DOT recordable accidents per mile decreased 9% from the third quarter of last year. We're delighted with the impact on the health of our employees and the safety of the general public. These positive results also highlight the experience of ABFs professional driving team and they also improve the reliability of the services that we offer to customers. ABFs build revenue per 100 rate in the third quarter increased by 5.8% over the same period last year. Although the fuel surcharge steadily declined throughout the quarter it was still at a much higher level than last year's third quarter and it was the biggest factor in this nominal price increase. Changes in freight profile and customer mix continued to impact ABFs price in comparisons. ABF handled a larger percentage of regional shipments and that resulted in a 3.1% reduction in the third quarter length of haul. In addition, the total average weight per shipment increased by 3.4%, we continue to handle more spot priced truckload shipments in order to use our available system capacity and as you may remember higher shipment weights are across correlated with shorter length of haul. In addition LTLs shipment density also increased and all of these factors reduced nominal revenue for [underweight].

As it has been for some time, the LTL marketplace remains very competitive and the recent step down in freight level hasn't helped any. In addition higher fuel surcharge levels have dampened our ability to secure core rate increases. ABF customers understand the fuel surcharge mechanism and they've generally been supportive of paying it when fuel costs were at record levels. Now they're enjoying the benefits of consistent fuel surcharge reductions that are associated with the diesel fuel price reductions that we're seeing. From the mid of July through the end of the third quarter the fuel surcharge percentage has declined over eight percentage points. I've said before that the fuel surcharge effects the overall yield we get from customers especially when it was at the record levels we saw in June and early July. Now that our customers have received much needed relief from high fuel surcharges it's important that ABF secure base rate increases in order to cover our increased cost of labor, equipment and other items in our network.

In mid-September ABF began to market the service improvements that resulted from additional enhancements to ABFs regional infrastructure that's currently in place in the eastern 0.6 of the United States. Since its beginning ABFs regional initiative has cut at least a day of transit time and nearly 23,000 new second day lanes and over 7,400 new next day lanes throughout the network. Overall ABFs regional initiative has reduced transit times in over 33,000 total station-to-station lanes, that more than 40% of ABFs overall North American network. ABFs regional service offering in the eastern two thirds of the United States is now fully developed and operational. Within a single carrier platform ABF now provides comprehensive regional and national LTL service and at the same time offering the impeccable cargo protection, the personalized customer service, the unmatched web visibility and the strong safety record that has made ABF unique. Based on our experience so far in the recent market we're excited about the additional opportunities that will result from these enhancements.

Arkansas Best is a stable, financially secure company. We have essentially no debt. We have an abundance of available cash on the balance sheet and we've got the opportunity to access further capital through our existing credit agreement making our situation rare or even unique in the current financial environment especially in the transportation sector. As we develop our strategic alternatives, we'll continue to evaluate our external options carefully and deliberately in order to take advantage of opportunities that can benefit customers but especially to maximize the returns that we generate for our shareholders. Looking out into ABFs near term future, we don't anticipate an improved freight environment for some time. However, we believe that ABF is positioned internally for significant growth in a way that it's never been before. I think we're ready to take some questions now.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Edward Wolfe with Wolfe Research.

Good morning, Ed.

Hey, I'm sorry, I just joined, I'm sorry, I was on another call and got off.

Would you like to us just repeat it from the start?

Yes, could you do that? No, I've got a lot of questions, so what I'll do is I'll jump on the back of the list and I'll learn from that what you said and what you didn't and I'll let others get at it, and don't forget me on the end though, please.

Talk to you later.

Thanks.

Your next question is from Justin Yagerman with Wachovia.

Hey, guys.

Good morning, Justin.

Hey, Justin.

I've been listening for a little bit.

Can you fill Ed in then?

Ed -- he'll do all right. When I'm looking at the pricing that you guys commented on in the press release, at 2.4% on the average increase on contract and deferred pricing that you got, is that net or gross of fuel?

Well, it includes the impact at the bottom line so it would be gross of fuel. In other words, if we had gained a price increase but given up something on the fuel surcharge it would have reduced that number. So, it's an all in number.

It was 3.8% a quarter ago and I'm just trying to get at how materially the environment has deteriorated sequentially here. How much of that is fuel, do we go from 3.8% to 2.4% and how much of that is actual base rate that you guys may be losing in this current environment?

I wouldn't draw a whole lot of conclusions by the difference between those numbers. That number will fluctuate back and forth. I will say that directionally the pricing environment is tough out there and you wouldn't expect anything otherwise when you see another step down in tonnage on top of the downturn at the beginning of October of '06. But I think there's still an opportunity for a company like ABF to demonstrate that it's different, to differentiate itself and to continue to extract yield for the value that we provide.

When you think about that and that's always been you guys' philosophy, do you feel like you're sacrificing market share in the current environment or do you feel like with the RPM product out there that you're actually maybe picking up some accounts versus kind of what the general LTL pool is doing?

I'm not sure we've got a great deal of visibility in that. When you look at the fact that our length of haul decreased 3.1% and that's consistent with what you've seen in the last couple of quarters it certainly looks like -- that we're showing some separation in our regional business compared to the long haul business but I don't know how the numbers would shake out overall. I think we can look at -- after everybody reports and get some color visibility on that.

Five years down the road yellow and roadway sound like they may be actually merging. Are you guys seeing any fallout of freight from what's going on here? Are you guys getting calls from customers? I know you guys trade freight back and forth on a regular basis but is there anything that sticks out to you in terms of behavior of customers around yellow and roadway right now?

I've not seen anything different in the last month that was different from all year long. And you're correct, we do trade freight back and forth. I think we will probably continue to do that.

Okay. Bob, you made a quick comment about tonnage in October it's down 1% to 2% sequentially. What is that year over year so far month to date? Did you give that?

I think my comment was that the third quarter was down 5.1% and that each month during the quarter was progressively worse. And the comment about October, and keep in mind it's a really thin sample size, is that it might be a point or two worse than the 5.1 we saw in the third quarter.

Okay. That makes more sense. Judy, you made a couple comments around pension stuff. Obviously with the markets being the way that they are that's something on everybody's mind right now, can you talk a little bit to what's included in your contract on the union side? I think it's $1 per hour per year that steps up and if there's additional contributions to the pension then that comes out of that $1 before it comes out of your pocket. But is it possible for that to exceed that dollar per hour in terms of what you're paying to your employees? And then on the non-union side, you guys are making potentially a discretionary payment, it says to me that obviously, and as you said that there's a potential funding issue. Or you are just trying to sure things up, I guess is a better way to say it. But, you know, as you look at planned assumptions at the end of the year and going into the end of the year, do you expect '09 to be a heavy pension year? I know it's a long and convoluted question but maybe we can take it in parts.

Let me start with where you are at the end, when you say a heavy pension year what do you mean?

Well, I mean if indications in terms of returns on pension plans come in you may have funding that steps up.

Well, I think that's absolutely the case. Whenever you see what's happened to the investments in our non-union pension fund that's the simplest and best example. We've experienced YTD about a $20 million investment loss in that fund and so what we're planning to do is put approximately that amount back in. And I think that companies that didn't have a 90% plus funded level before that are going to have a much worse problem. And so that will be a topic I think for a lot of companies in the latter part of 2008 into 2009. Switching over to the multi-employer plans that we participate in, I think you said it well in that we have contractual arrangements that goes through March of 2013, that includes what we'll pay on an hourly basis for our pension contributions for health, welfare and pension we have a dollar an hour increase for each year that were in the contract and that occurs on August 1 each year. We do have a provision in the agreement that says that any surcharges that result from a fund being in critical status and not having a rehabilitation plan if there was a surcharge that comes from that event that would come out of the increase that we're already paying. I wouldn't want to comment on all of the possibilities of underfunding because we don't have any control over those funds and don't have access to all the information that's there but we do feel confident that for the five-year period that's coming up we know what our costs are going to be and we continue to participate in those plans and make the contributions on an hourly basis.

Could you go over that $1, I mean, if there is an excess of that? I guess that's what I was trying to figure out.

Well, you know, I'm not aware so far, you know, I know for instance, Central States is a good example. They are on a rehabilitation plan and the amounts that we're paying into the fund comply with that plan. There are also several other issues involved there. I mean they have a default plan that includes benefit modifications, when they faced situations like this in the past they've gone for legislative relief. There was an act in 2004 and the pension protection act in 2006. They've got to the government for relief and gotten an extensions for the amortization period that they've fund losses over. There's a number of levers that they have and back in 2002 they had to use sort of all of the above. And one of those was they had to reduce the 25 and 30 and out benefits and reduce the benefit accrual in that plan. So, the trustees or fiduciaries under aretha law and they're compelled to improve the funding situation under the pension protection act and they are compelled to have a fair result for both employees and employers. And so we stay as close to that as we can and we get the information as soon as we can but we can't really control all the specific actions that they would take.

Okay, I have one more question and then I'll turn it over, I've asked a lot here. In terms of -- you know, your shipments are down considerably, weight per shipment is up. Bob, are you guys seeing a material difference in the way that your shippers are aggregating the freight that they give to you? I mean, typically weight per shipment would be an economic indicator. I don't think that anyone could draw that conclusion right now in a big way. Are you getting three pallets instead of two or how is that working when your wait per shipments up like that but your shipments are down?

I'd -- I exactly believe that you're correct, this weight per shipment, I do not believe, is a harbinger or spring. I think that it represents a willingness of shippers to hold freight a little longer in order to reduce their transportation costs per pound. And again I also believe that it cross correlates with our shorter length of haul. So, I think you are seeing in the longer haul, perhaps a little bit of modal shift and I think you're seeing a little more willingness of customers to ship twice a week rather than every day.

Is it cheaper for a shipper as their weight goes up if the class of the freight's not changing?

Sure, if you -- 5,000 pounds has a lower cost per pound than 1,000 pounds does.

Alright, so it makes sense. Alright, guys, thanks a lot. I appreciate all the time.

Okay.

Thank you Justin.

Thank you, your next question, John Langenfield with Robert W. Baird.

Good morning.

Hello, John.

Good morning John.

Can you just tell us what your monthly volume trends were?

We have disclosed that the overall was 5.1 and it was progressively worse and that's all the color that we're going to give.

Okay, and then can you talk about the Workers' Compensation claims? I know you've done well on that this year but how did you do in the fourth quarter last year just so we understand how the comparisons play out?

That's a good question and we're having someone give us the number here.

Okay . How about I come back to

John we actually don't have that in front of us so we'll have to get back with you on in.

I'll follow up on that, thats fine. Thank you. And then back on the -- not to beat a dead horse here, but back on the pension side, it looks to us like the liability for the teamsters has, the unfunded liability has increased by 50% hear this year. Any updated number in terms of what your portion of that liability would be?

John, we don't have an updated number but I want to point out that we are no longer in the mode of trying to negotiate through our contract to withdraw from the fund. And so the share or portioning out of that into withdrawal liabilities, really is only relevant and only matters if you're making an attempt to withdraw. Otherwise the funding issues for the fund, whether they be from market losses or from carriers that have gone out of business and been unable to pay their liabilities, it really doesn't matter what the underfunding has been caused by. But you kind of go back to the same levers that I talked about before, that the trustees have at their hands to try to address this problem and to deal with it. And we feel like the past history, when you look back to 2002 and they had a similar market situation and they kind of stepped through the process with legislation and government help and also with addressing the benefit accruals, that those are all approaches that are available to them and actually under the rehabilitation plan that are cause to have to address those issues. And so we don't have control over that, they're activities but we feel like under law that they're compelled to address those issues in a timely fashion.

Okay, it makes sense.

John, going back to the workers' comp question you asked, in the fourth quarter of last year it was 1.66% of revenue. That's slightly better than the five-year and ten-year averages. This year YTD that number is 1.39%. These are real cost reductions and we're pretty proud of them. I think they represent not just money that we found laying on the ground but they represent a core change in the company. It's one of those things that goes back to lower accident rates and lower jury rates and lower loss and damage claims rates. They show that fundamentally even in the downturn the company is operating pretty well.

Good, yes, I know, it looks like that from that perspective. And then the last question I had for you was with regards to, kind of, union work rules and adjustments needed to be made for the regional performance side. And we've come cross some things with your larger competitor that has said they've gone back to the union for additional flexibility, their concessions on work rules with the teamsters and they've not been allowed thus far. Are there any additional items of flexibility you've been looking for outside of the terms you had negotiated as part of the contract?

Well, I'm sure that there are always elements of worker flexibility that we would have but I'll just simply say that we feel like that we have enough flexibility to operate a robust regional operation and we put that in place. We didn't just discover this year that we wanted to be in the regional business. There were some constraints on our company under the prior contract that -- which presented us from effectively entering, especially the two-day market the contract that we have in place beginning April 1, largely removes those constraints and we've moved forward to enter that market. And we believe that we have the tools to succeed at this point.

Okay, good to here. Thank you.

Thank you, John.

Thank you, your next question comes from the line of Tom Wadewitz with JP Morgan.

Good morning, Tom.

Hello, Tom.

Hi, Judy, hi, Bob. Lets see, I had just -- I guess a short follow up on one of Johns questions. You mentioned the workers' comp as a percent of revenue I believe for fourth quarter '07 and then the YTD '08. What was it actually in third quarter '08 and the prior year quarter?

The third quarter '08 it was 1.1%.

Okay.

What did you say the prior third quarter?

Yes, third quarter year ago, I guess you said it was -- .

It was 2.3%

2.3%?

Yes.

You may remember last quarter we warned you that we were going to have a favorable comp there and we did.

And again that's workers' compensation cost as a percent of total revenue?

Yes.

Yes, I might point out that BIPD expense is separate from that but the trends are also good there as well.

Okay, so, it that -- that 1.1%, obviously you're happy about that performs, that's good performance. Is that a reasonable target that you can look for as you go to 2009 or as you go to fourth quarter recognizing that there obviously can be volatility?

I don't think so, Tom, but as Judy pointed out there is some volatility here, but you've got to look at the overall trend and the overall trend here is excellent. I wouldn't project what it will be in the fourth quarter because every quarter we true this up based on our claims experience and loss development factors and a number of other things. But just looking and managing this the trend though over an extended period of time is excellent here. It's excellent in BIPD. It's excellent in loss and damaged claims and a lot of other of these quality related issues. I spoke the last couple of quarters about the quality process and what it's done for our company and how that it may not be the most popular topic in the business world. But certainly means a lot to us and we see real results from our quality process and these are three good examples.

Right, right, well certainly it's good to see the results of the hard work there. Can you run through, in terms of if you look at the cost side, where do you have opportunity to further scale down costs and in terms of headcount, is that the type of thing that you can scale down at a pace approaching the decline in tonnage or how much flexibility do you have on the cost side as you know, like you said, it doesn't look like freight is going to get better for perhaps quite awhile?

Sure, Tom. We do have considerable flexibility to scale labor costs and I think we've shown that by actually increasing productivity so far this year. Nevertheless with another step down in tonnage it gets a little more difficult to scale labor as you have another step down in tonnage but I will make this observation that the earlier, that you recall that we have a multi-tier wage system in the company where newer employees are paid less and as those employees were laid off -- as employees were laid off it tends to be those employees that are on the lower wage scale. So, cuts that we make at this point tend to be higher wage employees which we regret doing that. We certainly don't think that it's anything that anyone enjoys doing but we have to scale the company for the available tonnage and we'll continue to do that. The real opportunity for unit cost reduction is in filling in the lanes with our regional operation. Even in this environment we have put in place a network, we've spent money to build out another line haul transportation network within our company to serve the regional market. We're running those loads light because we're serious about being in this market and even in the downturn we're going to continue to provide the service that we promised the customers. As we fill in those lanes, we expect a natural cost reduction associated with that and that's our biggest opportunity for reducing cost.

If you look at FTEs in the quarter, or hours worked or some metric of labor, what would that look like in the third quarter '08 versus the prior year quarter?

Well, on a full time equivalent basis our employees were down about 6% quarter over quarter.

That's down 6% versus third quarter '07 or versus second quarter?

Versus third quarter '07.

Okay.

Then if you look back to the fourth quarter of 2006 when we first started to see tonnage declines we're down somewhere close to 10% in our work force on a full time equivalent basis.

And I think it's fair to say --

I'm sorry, go ahead. But it sounds like you actually did better with headcount reduction in terms of 6% year over year relative to the 5% tonnage decline.

Yes, I mean always we're trying to do that. I think it increases your difficult when you see continual drop off in tonnage or more difficult environments come quickly. And but we do adjust as quickly as we can. We try to be sure that we're providing good service levels to our customers and so we're always balancing that with this decision, I think what's interesting also with that number is that we had that higher headcount reduction compared to tonnage even in light of the fact that we reduced our rail percentage and reduced we reduced our outside cartage expense as well so the numbers are really even better than the FTE reduction shows.

Right. Right, okay. Well, great, nice job on the cost side and I appreciate the time.

Thanks, Tom.

Thank you.

Thank you, your next question comes from the line of Tom Albrecht with Stephens Inc.

Good morning, Tom.

Good morning.

Hey, good morning, sorry about that. Just a couple of fact keeping numbers first. Judy, what length of haul and what was it versus? And then the rail percentage and what it was versus?

Average haul was 1,129 versus 1,165 last year. And rail percentage was 11.8 versus 13.6.

Okay. Then I know you've been undertaking a bigger strategic review for some time. Are there any indications that you might be done with that by year end or any sort of timetable that you could share with us?

We don't have a timetable but I would be surprised if we would announce anything in the fourth quarter.

Okay. Is there anything that you can disclose that you've eliminated from you've studied even if you can't share what is on the table going forward?

I don't think we are going to provide public visibility into our internal planning process. But if we by anything we'll tell you.

Alright. And I just want to make sure, on the fuel tax credit, those are all done now, right?

Well, we're continuing to have that credit. I believe it goes all the way through the end of 2009. Okay, when you look at -- If you look, for instance at YTD numbers not quarterly numbers but YTD numbers, we're going to be on the same comparative basis now going forward.

Okay. So, we should look for fourth quarter tax rate solidly under 40% then because I think you were at I think -- .

I wouldn't say that. What we had said earlier this year was we would be between 39% and 40% and we are right now we're right at 40%. That's probably a better indicator of where we'll be for year end since that's nine months of activity already. We're being affected there obviously by these life insurance policies that are -- the movements in them are on an after tax basis and also the fact that last year we had the tax-exempt auction rate security investments that we don't now. And so both of those work against us in the tax rate.

So, for modeling purposes for '09 if the tax credit goes away at the end of this year --

No, it goes away at the end of '09.

Oh, okay. But what is the benefit, if everything is sort of squared away between the option rate stuff and the cash surrender issues on the life insurance, is it 100 basis, 200 basis points, I'm just trying to, given the volatility --

Well, you know, I really can't give you a hard fast rule there because I know that there is an effect but what you've got is the market activity either positive or negative in each quarter. But it's not going to be -- going forward, much of an issue if you start with a 39% to 40% rate. That's going to be our ballpark range for tax rate in 2009.

Okay. Then I'm just curious, Bob, not to be a pain but you guys have always given the monthly tonnage forever and yet you seem a little bit hesitant to want to share September. I don't think there's anything dark about that but just curious why you wouldn't want to share that?

I think we are doing it for competitive reasons. I think we're dealing with competitors -- some competitors don't even share total revenue, wait or operating ratios. So, you know, we've provided color in terms of the number and direction and some incite into October. I think that's, for competitive reasons what we're willing to share.

Okay, yes and obviously during the quarter you had provided a couple updates so we can back in that number.

Yes.

Okay. I think that's all I had. Thank you very much. Thanks, Tom. Thank you Tom.

Thank you.

Thank you, your next question comes from the line of David Ross with Stifel Nicolaus.

Good morning, gentlemen and Judy.

Hi, David.

Hi, David.

The first question I have is, again on the tonnage I don't need a specific number, but one of your competitors said that really for the first time since they've been keeping track, September, on an absolute tonnage basis is lower than August, which is something we've never seen in freight. Is that something that you saw at ABF as well with September actually weaker than August or sequentially how did that play out.

I think that was true. I don't have the exact -- the number in front of me but I think that resonates.

Okay, and you know, with the rail usage coming down almost a couple 100 basis points I assume that was to better utilize your trucks in a weak freight environment but is there any issues with rail service there?

It's more an issue of rail cost, rail service has become more expensive particularly with respect to fuel surcharge and what we do is we evaluate those lanes compared to moving it ourselves in terms of the service and cost and we make those decisions on a lane by lane basis. I think the change that you see is -- certainly we try to keep our drivers working and any close call goes in favor of using our own drivers. But I think the effect of the rail usage is more a factor of cost rather than service at this point.

Okay, and on the RPM initiative you said that it was now fully developed and operational leased in 0.6 of the US. I guess I had been under the impression that is was fully developed and operational a little bit earlier this year. Is there something that -- a final tweak in the third quarter to get to you fully operational?

Well, we put it in place operationally early in the third quarter and then we began marketing it after we were comfortable that we were doing what we said we were going to be doing. So, what you may be thinking about is the fact that we actually started running the loads before we told customers about it.

Okay.

And, Dave, I'm going to just say this just to make sure we're clear you may also be thinking of the next day service that we had versus the two-day. We rolled out the next day service to our customers in early 2007. And so what we're talking about here in mid-September from an operational standpoint, a little bit earlier, but in mid-September we began marketing to our customers improvements in two-day service. And it's a dramatic improvement.

Okay. That's very helpful. And as for the RPM initiative continuing out west -- in the western third, is there any update on the timetable, and any drag that bringing that up to speed might have on the next couple of quarters?

We are looking at probably now early in the first quarter of '09 to put in place service initiatives on the west coast. While that's important in the west in terms of the scale of what we are doing, its considerably less than what we've done in the east.

Okay.

It affects I think 400 station-to-station lanes compared to 33,000 that we've done so far.

And then last question is just on cash -- Bob, you've commented on the acquisitions that you've been looking at as kind of the primary use of cash is still in the, I guess the evaluation phase. You didn't raise your dividend when you declared that earlier this week and you haven't bought any shares back YTD. Could we see an increased share buy-back before anything is announced with acquisition related?

Well we still have authorization from our board for some number of shares which were made outstanding. And we'll, as always, pursue that on an opportunistic basis. And we all will -- we will always evaluate any strategic alternative against the lens of returning money to the shareholders if we can't make more money than they can make with the same volumes.

Thank you very much.

Thank you .

Thanks Dave.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Edward Wolfe with Wolfe Research.

Welcome back, Ed.

Thank you.

Hello, Ed.

I think I got the flavor and then some. How determined are you to roll-out the west coast initiatives? We've heard you talk about it now for awhile. Is this going to happen first quarter or it's not definitely -- the timing is still not sure?

Well, we have and we've got the operational plan in place. In fact, we've already leased a key facility that we didn't have in the portfolio in order to make it work. But, again, it's not done until it's done, but it's something we're definitely going to do and we know what we want to do -- we know how we want to do it.

Yellow and Roadway are selling terminals, or at least talking about selling terminals. Have you seen of those come to market and is there anything there you might want?

We're in dialogue with yellow/roadway, just as we are in constant communication with the real estate departments of all of our competitors and as you probably know we tend to swap facilities and trade facilities in this industry as our various needs change. And that's true of yellow/roadway as well.

Is there needs because of the roll-out for many terminals or is it -- are you -- pretty much have what you need now in that one in the west?

I -- one of the beauties of what have we've done with our regional initiative is we've added 22 high velocity exchange points. 17 of those co-exist with our existing facilities. We're essentially using the doors at night when they otherwise would have been idle. We have secured five additional facilities plus the one facility in the west. But in the scheme of things that's pretty modest. And it's like the runs that we're making using city equipment that otherwise would be parked against the fence at night we are able to use that over the road. So, this initiative has not been capital intensive. We've been able to use a lot of the same infrastructure and rolling stock.

Judy, can you give an update on what the drag was from the roll-out of the regional this quarter and what the OR impact or EBIT impact was?

Well, it's close to a point on the OR still. I mean, we have done a lot to change that with the roll-out of the second day service. It doesn't add a lot of cost like, for instance, you know initially we spent $20 to $25 million we've made some progress on that. But it's still about a point on the OR and we expect that in the fourth quarter that could be as much as an additional $2 million more in costs for the full development of the second day service.

And as you go into '09, does that $2 million extra run rate or how do we think about that?

Well, you know, it doesn't take a lot of freight edition to overcome that but, you know, until we get the same growth in those markets and we overcome those costs we'll have the emphasis on service and we'll continue to provide service in those lanes and we'll have those costs in our infrastructure. But certainly we're hopeful that we'll have the growth and be able to overcome those because we've dramatically improved service for our customers.

This is the most important initiative in this company in years if not decades and we're so committed to the idea of being able to offer 50 state coverage to our customers and even in the freight downturn we consider this absolutely essential. We're fortunate enough to have the resources to be able to pursue it and we have the program in place and we're just excited about the prospects.

What's the revenue base now?

It's -- on a tonnage basis, it's about 46% of our tonnage.

That's less than 800 miles.

Yes, but, again, that wouldn't have -- it wouldn't reflect this two-day service enhancement because we just rolled that out to customers in mid-September.

Sure, do you have a revenue number that goes with that?

No, I don't.

Okay, fair enough. Bob, you've been through a lot of these dow turns and obviously the company is in the best shape its ever been historically but you've got a very large competitor who is hurting right now. And in past down turns we've seen particularly in first quarter's where you can get a little weather and things can take another turn, things get pretty competitive and tough. Do you believe at this point that a loss in a quarter, an operating loss without some special charge, you know, just a pure operating loss because of difficult pricing and demand is out of the question at this point or is that still something that's possible in a downturn?

Are you speaking, I guess I don't understand your question, Ed.

If I go back and look back in 2001 you never got down to 100 OR where you had been in past cycles. And you've talked a lot about how the business is better than past cycles. And I guess my question to you is, we're in a very deep cycle plus you have a wounded competitor, do you think it's possible that you could go back to 100 OR in this environment as bad as it's getting or --

That sounds suspiciously like guidance to me, Ed, and I think you know that we're loathed to try to project an OR in the future. And I'll tell you that you know, last quarter I talked about how our tonnage had been rocking along the bottom for two years and no better, no worse, and then during this quarter we saw another step down in tonnage and we're reacting to that environment just like we reacted to the original step down in tonnage. And we're going to operate the company based on what available tonnage we have. I'm confident that we can make some significant scaling but at the end of the day we'll see what it is at the end of the quarter.

Well, I have no doubt in you and your teams' ability to do that very quickly. Is the pricing different than the last step down, is that something that's a bigger issue today with this extra step down and some of the things FedEx is doing in a wounded big competitor and all of those kinds of things or does that not feel much different?

Its been pretty tough all year. Since the step down is occurring kind of concurrently here perhaps we haven't really seen what will happen particularly in the winter environment. And I think there are some carriers that would tend to be more aggressive in a seasonal slow time in addition to the overall systemic decline that we've had. But honestly it's been a fairly tough environment since all of '07 and all of '08.

So, you don't see that getting worse. It's just been kind of -- is it kind of flat where it's been or its been just slowly getting worse in that the acceleration isn't changing from a pricing perspective?

I think that you've seen a unusual event with the higher fuel surcharge which has suppressed our ability to gain core price increases. As that goes down and as I've told you before we're going to fight to try to convert some of that into core yield. Honestly, given the tonnage environment, it's going to be challenging to do that but we've got people that are trained to do that and we've got the value that we're providing that gives us a legitimate plausible reason to be able to ask for price increases. It's hard to really evaluate how it's going to come out overall because we're dealing with not only a macro economic environment but a tonnage environment that's outside of the realm of our experience and I don't think there's anything -- you know we talk a lot about the ABF people with their long tenure and we've seen a lot of downturns. Nobody's really seen a downturn that's like this one. And we're just kind of managing it as we go along.

How do you say that when, if I look at the tonnage even in the '01, it was down more than it is now. You're talking about September relative to July and August kind of things or?

We're seeing -- yes, we're seeing that and also we're seeing the length of the downturn. We've been in this environment since October of '06 which is, which sitting here seems like a long, long time ago.

Would you read from that that maybe the people like me who are assuming a recovery at some point at the end of '09 and 2010 for the general economy maybe freight will recover but maybe the general economy is going to be lagging, is that your history.

I think you know that we have almost no visibility into those -- into the macro environment in the future. We don't try to predict and we just don't know.

Fair enough. Just a couple of small things. Judy, you had a -- almost 700,000 other network against you in the quarter. What was that?

Well it -- I mentioned on the beginning of the call that it's market losses on some life insurance policies that we have invested, like pension plan assets would be. Also, in addition to the 700,000 or so that we had in losses, last year we're comparing to $1 million in income on that same line item. And so that's where the $0.07 a share comes from that I mentioned.

Okay, is that ongoing or is that kind of a one time?

Well, it's, as a result of the severe market declines that have been experienced. So, no, I wouldn't say it's ongoing. But also we can't predict it.

Was that AIG related or something else?

Oh, no, it's -- all it is, is that you've got a life insurance policies that are not related to AIG, but they're just invested 60% in equities, 40% in fixed income and you mark them to market every quarter. And we're comparing back to a period last year where we had good results and this year we've had losses. But it's only on about $17 million in policies. So, you know, it's an item that certainly most of the time fall -- you know, it flies under the radar screen, but also since we entered into these policies back in 2003, we've had about a 10% after tax return including life insurance gains. So, you know, life to date, they've been good for us but certainly created some volatility these last two quarters.

Sure. And fourth quarter, do I view that line as a positive, a negative, a flat, what's the way to think about it?

You tell me what the market's going to do and I'll tell was the line will do. I honestly don't know.

But assuming no change in the market. I mean, in other words, is it mark-to-market now and that goes forward?

Yes, assuming no change in the market you would have nothing on that line item.

Okay. That's what I was asking.

Yes, yes.

And then one last thing, gains on sales of equipment, continue to be a little bit better for everybody than we've expected including you guys and up from second quarter. Are you seeing some used vehicles sell again after a period where nobody was buying them? What are you seeing?

I think we've seen some -- I would say consistent, pretty positive results all year long. I think I've mentioned on previous calls that we've had access to some overseas markets. And that's been good for us. But I think if you look at our numbers on a YTD basis they're really similar to last year.

Yes. Is it your sense that pricing is flat, down, up -- year-over-year on the used equipment?

I don't know on a year-over-year basis but we are selling equipment that is in line or maybe slightly in excess of our salvage value and so we're confident and comfortable with where we are.

And were the overseas markets still open in September or have those slowed down?

I think theres -- we asked that question because we thought honestly that we might get it. We've sold some equipment or some tractors in South America and it looks like those markets are still fine. It looks like that the Russian market is a little less active than it was earlier this year. That gets you a little color.

No, that's terrific. Thank you, both of you, this is great I appreciate it.

No problem.

[Sandrelle], I think that's enough. We've been on this an hour.

Okay and thank you, ladies and gentlemen, this does conclude today's conference call. You may now disconnect.