ArcBest Corp (ARCB) 2008 Q4 法說會逐字稿

Good morning. My name is [Kalia], and I will be your conference operator today. At this time, I would like to welcome everyone to the Arkansas Best Corporation Fourth 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)

Thank you. Mr. Humphrey, you may begin your conference.

Welcome to Arkansas Best Corporation Fourth Quarter 2008 Earnings Conference Call. We will have a short discussion of the fourth 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, 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 risk. For a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section of the Company's earnings press release and the Company's most recent SEC public filings.

We will now begin with Ms. McReynolds.

Thank you for joining us this morning. Let me begin by saying that we're not pleased with these results, and we're working diligently to correct them.

Since ABF first experienced significant tonnage declines 28 months ago, we have executed extensive tactical measures to align our cost structure with current business levels while maintaining a high level of service for our customers. We've made significant reductions in December and January, and we're evaluating additional steps that can be taken in first quarter. We're also prepared to make further cuts where necessary if future business levels dictate them.

Later, Bob will give his thoughts and perspective on our recent performance and provide more specific details on the actions we've taken to respond to the current recessionary freight environment, but now I'd like to cover the details of our results for the fourth quarter and full year of 2008.

Our fourth quarter 2008 revenue was $391 million, representing a decrease of about 14% per day compared to last year.

Our net loss for the fourth quarter was $0.44 a share, compared to net income of $0.54 a share last year.

Our results for the quarter reflect further market losses on the cash surrender value of executive life insurance policies of $0.08 a share.

In addition, our quarterly results were reduced by $0.17 a share as a result of ABF's RPM initiative. The comparative figure for last year was $0.09 a share.

For the full year of 2008, Arkansas Best had revenues of $1.83 billion, which is slightly lower than 2007 revenues.

We earned $1.15 a share this year versus $2.26 a share in 2007. Our full-year results reflect cash surrender market losses of $0.14 a share, compared to market gains of $0.07 a share in 2007.

As a result of our RPM initiative, our full-year 2008 earnings-per-share figures were reduced by $0.54 a share, and our last year's EPS was reduced by $0.37 a share.

Our effective tax rate for 2008 was 41.6%, which is well above the 37.4% rate we had in 2007. The market losses on our life insurance policies had the effect of increasing our tax rate. Also, our 2007 tax rate was lower than a typical year because during that period, we had investments in tax-exempt auction rate securities. We exited those investments in January of 2008.

Our nonunion pension plan was impacted by the stock market declines during 2008. We were fortunate that going into 2008, our plan was over 90% funded on an ABO basis. On two different occasions during 2008, we made voluntarily tax-deductible contributions to our plan. These contributions totaled $25 million. Our plan suffered investment losses of approximately 41 million, which equates to 23% in losses for the year. Considering the impact of market losses and the offsetting impact of our contributions, at the end of 2008, our plan was 83% funded on an accumulated obligation benefit basis.

Arkansas Best's operating cash flow for 2008 were $105 million, including depreciation and amortization of $77 million.

Our net purchases of property and equipment totaled $42 million for the year.

We did not purchase any treasury stock during 2008, but we continued paying our dividends on common stock of $15 million.

The full details of our GAAP cash flow can be found attached to our press release.

We finished 2008 with a strong financial position. At year-end, our cash and short-term investments totaled $219 million, we had minimal debt, and our stockholders' equity was $625 million. Our cash and short-term investments currently reside in government securities funds and FDIC-insured certificates of deposit. In 2008, our total pretax return on these investments was 2.8%.

And now I'll move on to ABF results for the quarter. ABF reported fourth quarter revenues of $375 million, which is a decrease of about 14% per day compared to last year. ABF tonnage declined 11.5% per day during the quarter. ABF fourth quarter operating ratio was a very disappointing 104.0 compared to a 95.5 in the fourth quarter of last year. RPM added 1.8 points to our fourth quarter OR, and that compares to close to a point on the OR in last year's same quarter.

For the full year, ABF reported revenues of $1.76 billion, which is slightly less than 2007 revenue. ABF's total tonnage per day in 2008 decreased 4.2% versus last year. And ABF's full-year 2008 OR was at 97.2 compared to a 95.2 in 2007. RPM added 1.3 points to our 2008 operating ratio compared to the addition of about a point on the OR for 2007.

And now, I'll turn it over to Bob for his thoughts about our quarter.

Thank you, Judy, and good morning, everyone.

Our Company's poor fourth quarter results in the fourth quarter and the full year reflect the impact of the worst freight recession in my 37 years in this industry. Some of these declines accelerated throughout each month of the quarter, and this decline -- combined with the very competitive pricing environment, definitely hurt our results.

Every economic indicator I've seen points to a severe decline in almost every sector of our nation's economy -- the ISM Manufacturing Index is at a 26-year low; the Tonnage Weighted Industrial Production Index has been negative for the past two years, and it steadily declined throughout 2008; home sales are at their lowest point in at least 17 years; and the housing starts are the worst they've been since the government began maintaining the records 50 years ago. Consumer confidence is also at its lowest point since first recorded in '67.

Nevertheless, the current operating environment is what it is, and no one around here is just blame the economy and accept these kind of results. We're committed to making the changes necessary to align the cost of ABF's freight-handling network with the available business levels and to making a profit on the business that we handle.

Shortly after ABF first experienced dramatic declines in business during the fourth quarter of '06, we began taking the necessary actions to directly respond to the ongoing recessionary business environment. During much of 2008, our long-haul business seemed to bottom out, and we were gaining traction in our regional markets. However, beginning in September and continuing through December, our freight levels took another plunge downward.

In response, we began to reduce expenses again while maintaining service to our customers. A portion of these actions took place late in the fourth quarter and throughout this January. The reduced costs associated with those changes are just beginning to positively impact our Company. I'd like to just briefly detail the steps that we've taken.

Since the fourth quarter of '06 through the fourth quarter of '08, there's been a cumulative 18% reduction in the number of ABF employees, including approximately 1,100 that occurred in the fourth quarter of '08.

For the first time since July of 1980, we reduced employee positions in the corporate office. Half of our overall employee reductions for the past two years occurred in the fourth quarter of '08. In addition, we reduced employee count by another 350 this month, in January of '09. We regret the impact of these reductions on our employees and their families; nevertheless, we know that we have an obligation, especially in these unprecedented times, to maintain the viability and competitiveness of our Company.

Our fleet reductions include a 14% decrease in road tractors and a 9% decrease in road trailers. We're planning on additional tractor and trailer reductions later this year.

Closure of facilities and consolidation of various service areas throughout the ABF network have improved efficiencies and lowered cost, and in most cases, these changes actually improve our transit times in smaller markets.

In January, we realigned the structure of ABF's field management organization to 10 nationwide regions, down from 12 regions, and we eliminated four field officer positions, other employee positions, and the associated overhead cost.

We've instituted health insurance premiums, and we've increased medical deductibles for our non-union employees; cost of living and merit pay increases for non-union employees have been eliminated, and obviously, we're eliminating pay increases and annual incentive payments to Company executives.

And, finally, Company-wide travel limitations and controls of other expenses have been initiated or extended.

Drilling down, ABF's fourth quarter results were impacted by several factors.

Just as we saw in the fourth quarter of '06, when our freight recession first began, our fourth quarter of '08 business levels fell rapidly.

October tonnage levels were worse than those that we experienced in the third quarter, and then the pace of November and December freight declines were approximately twice as severe.

As I described earlier, we've continued to reduce our cost structure in response to the rapid freight decline. However, each successive reduction in labor and system resources is more difficult and less effective, especially since we're committed to maintaining service levels.

In the fourth quarter, our increased operating ratio reflected the fact that we were unable or not willing due to service to reduce costs fast enough to keep up with the pace of declining revenue and freight levels.

Our fourth quarter results were also hurt by the yield effect of declining fuel surcharges and ABF's limited ability to obtain needed base rate increases. Our build rate per hundredweight in the fourth quarter decreased 3.6% compared to last year, and for the full year, it increased by 3.4% due to the high fuel surcharge levels from mid-March through September. The fuel surcharge peaked at 38.5% in mid-July of '08 and then began a dramatic and steady decline. Over time, lower fuel surcharge levels should improve ABF's ability to get base freight rate increases, but we've had limited success. We need broader and more effective results, obviously.

We did initiate a general rate increase on about 45% of our business on January 5, and the initial results are encouraging.

For the remainder of our business, including contracts, the base rate increases typically require individual discussions with the customers, and that takes time.

In addition, despite the automatic rapid and steady decline in fourth quarter fuel surcharge levels, the declining business levels and the competitive pricing environment continue to make it difficult to obtain the needed base rate increases.

During a severe freight environment like we're experiencing now, it's a struggle to fully cover annual cost increases with commensurate yield increases, and in the fourth quarter, we did not do so. Until the economy improves and industry pricing levels strenghthen, ABF will strive to maintain its traditional superior service and overall value doing so with fewer company resources. We'll continue to push for price increases to cover ongoing cost increases, and we'll probably have to walk away from some business that isn't good for ABF even in this downturn.

During this challenging time, ABF remains firmly committed to its RPM regional freight initiative. The abundant opportunities in the regional freight market remain the most important key to ABF's long-term growth, especially as the long-haul market weakens in a relative sense.

Regional shipments are important sources of new business in the current environment, and they're an important component of our full-service coverage in the future. Despite the adverse start-up effect the regional operation is having on our margins, we believe that our organic deliberate entry into this essential market benefits our customers, employees, and shareholders.

I always like to mention some positive things going on at ABF.

In 2008, ABF continued to excel in many of the value-added areas that have always distinguished us in the minds of customers across the country.

During the year, ABF further reduced its low cargo claims ratio below that of 2007, and you may remember that 2007 was the best level in over 25 years. We think the '08 level was the best level in the last 30 years.

ABF's ratio of road and city accidents per mile declined again this year. It actually dropped by 11.4%, which I think is remarkable.

Our costs associated with worker's compensation and third-party casualty claims were below historical levels, and we've had year-over-year reductions steadily in those.

ABF's Sales and Information Technology Group were externally recognized and awarded "Best in Class."

And, finally, I'm proud to say that earlier this month, two of ABF's finest drivers were named as captains of the 2009/2010 America's Road Team by the American Trucking Associations. [Paul Gadden], an ABF city driver from Benton, Arkansas, and [Ben Sides], an ABF road driver from [Istanzia], New Mexico, were the latest ABF drivers to receive this important industry distinction. These were a few examples of important things that differentiate ABF during this difficult period.

There are also tangible evidence that ABF continues to exhibit commercial excellence and perform to a high standard even in a period of business declines.

Finally, I'd like to mention the fact that we have engaged the services of an advisory firm to help us conduct the strategic planning review in order to identify potential acquisition candidates for investment outside of ABF. Economic times like these often present opportunities for companies like ours with strong and stable financial positions and available cash resources. Our traditional approach to new marketplace opportunities and strategic initiatives is to be diligent and deliberate in identifying and executing on our best available options, and this current process will be no different. We expect it to result in investments that strengthen our value proposition, enhance our solid financial foundation, and maximize overall shareholder value.

Now, I'd like to let Judy finish up with some additional financial information.

I'll wrap things up with a few areas that have an impact on our 2009 results and cash flow.

We anticipate our 2009 net capital expenditures to be within a range of about 45 to $50 million, including road and city equipment replacements of about $40 million.

We expect our 2009 depreciation and amortization to be about $75 million.

With respect to our nonunion pension plan, we're currently considering additional voluntary and tax-deductible contributions of up to $15 million in the first quarter.

As a result of the investment losses I mentioned before, our non-union pension plan expense for 2009 could be twice as much as the 2008 pretax expense of $10 million. Just as a reminder, this plan was closed to new participants beginning on January 1, 2006. At that point, we began providing benefits to new participants under a defined contribution plan.

The last item on the agenda is our 2009 effective tax rate. We anticipate it will be at least 42% and perhaps higher depending on the pretax income levels we experience in 2009.

And now, I think we're ready to take some questions.

Kalia, I think we're ready to take in some questions. I just wanted to mention that we've had some recent issues with getting everybody in, so we're going to try to kind of limit everybody to about five minutes, no more than five minutes, but Kalia, I think we're ready for that.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Jason Seidl.

Let me go to one of your comments on the acquisitions. I mean you guys talked about it for a little bit, but this is the first time I think you've announced that you've engaged somebody. Are you strictly looking at LTL assets, or might you go beyond the LTL universe and look at brokerage operations and whatnot?

We're looking at the broad field of transportation, distribution and logistics. We're going to try to stay in industries with some adjacency, something where we can add value, but we have a wide net at this point, Jason.

Okay. That's fair enough. And I apologize because I missed the beginning of your call because another one ran overlapping. Can you give us an update on the tonnage trends through the quarter and also what you're seeing in January?

Jason, we -- our comments indicated that in October, when we first saw the drop, it was about a 7% drop, and then November, there was an additional drop, and December was weaker than November. And what we're seeing so far in January, I think we would characterize as slightly weaker than what we saw in December.

Slightly weaker than December, okay. The offset between weather impacts and also probably easier comps in January, does that make it about equal to December then?

Certainly, there have been some weather impacts in January, but it's really too soon to see how much. I don't expect them to be actually a material difference in what they were in January of last year. In the fourth quarter, weather really didn't affect us much. It was about the same as it was the previous year.

So you think, net-net, January is underlying just a little bit worse than December?

Certainly, the tonnage levels are a little worse, may be affected by weather, but it's really too soon to tell.

Okay, no, that's fair enough.

Also, on the pricing side, have you gotten a pulse on the market that pricing has deteriorated as we move throughout the quarter, especially given the tonnage declines that you're seeing?

I think it's fair to say that it did deteriorate some during the quarter. There were some positive signs. We were able to get 2.5% in the full quarter on a substantial number of expiring contracts and deferred pricing agreements, and as I indicated earlier, the general rate increase that affects about 45% of our business went into effect on January 5, and the initial results are good.

But outside of those, it's a competitive pricing environment. And another factor that did affect us and will affect the yield that you look at in addition to the following fuel surcharge is the fact that our length of haul fell again, and our wiper shipment also increased, and we also had a substantial involvement in the spot quote market at some prices that were pretty aggressive.

So all of those affected the color of our yield. But just on a qualitative basis, I certainly would agree with the idea that the pricing environment ended the year more competitive than it started.

Okay. And on the length of haul, could you -- are there any reasons for it falling off, because we've seen that in a few other carriers, as well?

Well, the reason for us is that, two things. First of all, I think, as I indicated, the long-haul markets are relatively weaker and the regional markets, particularly you see imports falling off. I think more than that you see the fact that we made a substantial investment in the regional market. We've dropped a day of transit time in about 40% of our lanes, most recently in the two-day markets, and that's starting to have a little bit of traction, and so we're -- certainly, we're gaining share in that regional market, and that's causing our length of haul to decline, as it's done every quarter since we started the process.

Makes sense. Well, listen, I appreciate the time, as always.

You're welcome, Jason.

Your next question comes from the line of Tom Wadewitz.

What -- I guess you talk a lot about cost actions. It seems like you're being aggressive, and it seems pretty appropriate given the circumstance, but I'm wondering if you can give us a little bit of perspective for how to think about the run rate impact of that because it sounds like some of it's spread over the last two years, and also, kind of what that -- you know, how much that is, how sufficient that is in offsetting the operating ratio pressure that's obviously happening from the weak tonnage and pricing.

Sure, Tom. I think you heard me say that about half of the reductions we made took place in the fourth quarter, and I think it's important to note they didn't start at the beginning of the fourth quarter; they took place during the quarter. So we did not in the fourth quarter see the full impact of some pretty substantial changes that we made, and then we also had made some further changes in January.

I think it's also important to note that the fourth quarter includes some severance payments, which muted the impact in the fourth quarter, but we'll start to get the full impact in the first quarter and going forward.

And I think you know it's generally our style not to roll those up as special charges and exclude them from our results. It's just kind of like we do with substantial costs that we're incurring in our regional market. They're just part of our operation, and we're -- they're in our results. Suppose that we could've posted some better looking numbers by excluding the regional expense, by excluding our restructuring charges, by what we did to reduce our number of regions. But at the end of the day, it kind of is what it is, and we've made some substantial changes in response to a deteriorating environment, and I honestly expect the first quarter to be a tough quarter. We told you last time on the call that the fourth quarter was going to be a tough quarter, and it was. I think the first quarter is going to be a tough quarter, also, but we're also going to see some traction from substantial changes we've made.

Can you give us a -- kind of directionally what that severance number was?

I don't have a way to quantify it, and I'm not sure it's very meaningful. I could just tell you that you'll see more of an impact in the first quarter than you saw in the fourth quarter for all the reasons that I articulated.

But you don't want to say whether that was a million or a couple million in terms of the severance in force?

I guess what we could've done is rolled them up as special charges and excluded them, but we didn't, and I don't have a number for you.

Okay, okay, fair enough.

Then if you look at the pace of expense reduction, and I'm going to look at this just excluding the supplies and expenses line because I know that's just -- a lot of that's fuel, but if we exclude that line, it looks like your expenses were down almost 7%, operating expenses in fourth quarter. If you look at that in first quarter, and let's just say that the tonnage ends up kind of similar year over year in first as it was in fourth, do you think that number will be down a lot more? I mean is that -- operating expense ex fuel -- is that down 10% or 12%? I just am still not sure how to look at that given the cost reductions you're talking about.

You know, Tom, we're always cautious about those kinds of details whenever you've got a changing environment, and in addition to that, we really don't give guidance, and we think particularly in this kind of an environment, that would be really dangerous to do.

So what I would commit to you is we've looked at the cost structure changes that we've needed to make so far, and it's a moving target. We could have further deterioration, or we could have improvement in business levels, and we would have to adjust. And so it wouldn't be meaningful even if we tried to estimate that now because things would change.

But I mean is it fair to think that some of these cost items came in later in the quarter so your base of cost reduction should accelerate from what you saw?

Absolutely, absolutely. That's the point I think Bob was trying to make with -- you know, many of the headcount reductions were really weighted toward the second half of the fourth quarter and -- because that's when we saw the additional drop in business and we had to react to it. And then in January, there's even more. So if you had the same base and you were looking at in the future, sure, it would come down more.

Right.

Tom, I'm going to cut you off here so we can move on.

That sounds good. Thanks for the time. Thanks.

Thanks.

Thanks, Tom.

Your next question comes from the line of John Langenfeld.

On the facility side, you made the comment about taking some of the facilities down and consolidating those. Can you just let me know how many we're looking at there?

It was less than 10, and typically what you're doing is you're combining facilities in smaller markets. You reduce some overhead costs, but also what you do is you're actually able to give better service. You have a little longer [stem] time on your pickup and delivery, and that's not something we've done in response to this environment. Those sort of changes go on all the time.

Okay.

But there were something less than 10 during the quarter.

What does it take for you to have to meaningfully reduce your capacity? I mean if we're in an environment that drags out for another six months or 12 months or two years, I mean at some point do you look at it and say we have too much capacity, we can't get an acceptable return at these levels for the foreseeable future, so let's reduce our capacity footprint? I mean are those conversations or thoughts that you have internally?

Well, obviously, we have reduced capacity in the sense that we've reduced our labor resources. We're reducing our fleet size. In terms of terminal capacity, that's really not a meaningful portion of our total cost, and those are the sort of resources that you want to maintain for the long term.

So I think the answer to you, John, is, yes, we've reduced -- we've made a lot of our fixed expenses variable, and we've drawn our capacity down. But at the same time, we have substantial flexibility to ramp up if conditions warrant it.

And if we're at kind of this new paradigm of -- the tonnage levels we're at here and the economy's bad for a couple years, I mean can you get the business to the point where you can make a fair return if we're in this environment for multiple years?

Well, I think that we're well on our way to doing that in terms of rationalizing. I would point back to when this started, in the fourth quarter of '06, and we were surprised when business fell off and stayed off, and as you'll recall during the fourth quarter of '06, we made some pretty aggressive steps during the quarter -- not at the beginning of the quarter but during the quarter -- to rationalize cost. And if you look back at the first quarter of '07, you saw that those things had some traction.

I think you have a similar situation here. It looked like to us that around the middle of the year that business had bottomed out and we were gaining share in both the long-haul and the regional business, and then we had this September/October/November/December slide. We're reacting to that, and it's not going to be rosy in the first quarter. It's going to be a tough quarter, but we're taking substantial steps to address the environment, and I'm satisfied with the pace of what we're doing.

And would you -- and, again, I'm not thinking about the near term here. I'm just thinking about over a multi-year period. Is that something that you would look to intensify these moves? Are there other levers, I guess, that you'd be able to pull here if you became convinced that this was a multi-year issue?

You know, John, I like the thought of the long-term multi-year view because, as you know, that's the way we look at things, and while we're going to take some steps to rationalize our cost, we're also going to continue to maintain service because this, too, shall pass, and this environment will improve, and we're going to be there. We'll have -- we want to have a customer reputation for good service, low claims, and we're going to maintain the infrastructure to do that.

We think that there's a lot of things that we could do in the short run to make fixed expenses variable, but we're also going to maintain service in our important regional market, for instance, regardless of the freight that's available.

Thanks, Bob.

Okay, thanks, John.

Your next question comes from the line of Edward Wolfe.

Given the worsening demand and pricing and the weaker first quarter seasonally offset by all the measures you're taking, when you look at first quarter OR versus the 104 in fourth quarter, directionally, should this be better or same, worse? How do we kind of weigh these things off?

Ed, that looks suspiciously like guidance, and we honestly don't have the visibility to be confident in giving you an answer.

Okay, but I mean directionally if -- without taking these measures and assuming December and January, as you and everybody else have been saying, they're worse than October and November and fewer operating days and weather and all that -- we would be worse than 104 if you did nothing. That's a fair statement?

I'm not sure that's true. I think you can look at historical first quarters versus fourth quarters, but I'd just say that the first quarter of '09 would've been worse had we not taken the steps that were -- that we have taken and are taking.

Understood, but I mean did you just say that first quarters seasonally should be as good as fourth quarters? Because I mean I just look at first quarters over the last 10 years, and the first quarters have ranged from, I don't know, $0.14 to $0.41, and fourth quarters during that period have ranged from $0.36 to $0.90, $1.15. So I mean it just seems like -- am I thinking about that wrong?

Ed, you know, I appreciate the question, but even carriers that used to give guidance are suspending guidance because of their lack of visibility, and we share that view of the future. We don't know what it's going to look like. All we're going to do is take the steps we're taking to mitigate the impacts of -- off a weak trade environment. I just -- you know, I'm not in the position to be able to provide you even qualitative guidance.

Fair enough. Can you talk a little bit about -- you mentioned in the release the non-union pension. Where are we in the union pension in relation to contingent potential liability and withdrawal cost relative to the $825 million a year ago?

Ed, what we know is that just from some information that was released during the year is that central states did have significant market losses, lost a significant amount of assets. We don't have the end-of-the-year information from them yet, and it will be some time before we have it.

But the important thing to remember is that this has no impact on the hourly rate that we contribute to the fund or any of the multi-employer funds. And there was some legislation that was passed at the end of the year that froze their status, for instance, central states' red zone status and the associated rehabilitation plan that they have, for a year, and so it remains to be seen what actions would be taken after that.

But during our contract period through 2013, we know what we're going to contribute on an hourly basis, we don't plan to withdraw, so the withdrawal liability issue's really irrelevant, and the problem is in the hands of the trustees, as it has been for all this time, for them to solve the funding issues they have. And I think back in 2002, they had to take some steps, and they'll probably take similar steps, but certainly, we don't know what's in their minds and can't promise anything, but I think they know their responsibility there.

Should we get it when you file the K?

No, it wouldn't -- I don't think it'd be available to us because we'll probably our K at the end of February. So they don't have even a responsibility to report to you till sometime at the end of March.

Okay. But under the contract, it's not your responsibility, but it's the Teamster employees of your responsibility, so they would lose -- they would have to pay the -- if there was increased pension out of their wages and healthcare, but you're saying that's been suspended here?

No, I'm not. I'm saying there's a plan that the trustees have to work out of their funding issue, and that plan stays in place, and that included the increases that we pay in our hourly contributions for the period of the contract and other changes that they made. But what I'm saying is those stay frozen in time because of this legislation.

Okay, one last one. I'll let someone have at it. It seems like up until fourth quarter, you guys were taking quite a bit of share from your big long-haul competitor who's not feeling as well financially. This quarter, that's changed a bit, and obviously, demand's gotten worse. Are they -- I mean, obviously, something must have changed that. Are they getting more aggressive on pricing? Is that the natural takeaway?

Ed, the numbers are murky, but we've got reason to believe we gain share, at least sequentially, both in long haul and regional.

Thanks, Ed, for the time. Appreciate it.

Our next question from the line of Justin Yagerman.

Just following up on Ed's question on market share. You know, you've got a lot of bids out there from everything that we've heard. I was curious how much you're participating in there, and then I guess if you've got any early indications as shippers may be less willing to do business with a financially riskier player, that maybe you see some market share wins in a bigger way in the first half of this year as people look to a more stable financial player to service their freight?

Oh, I think there's at least two things going on. One of them is that we're actually in consideration on more bids because of our regional capability. We honestly have now 50-state coverage, and that makes us attractive to those shippers who have substantial regional business.

And I think it's fair to say that there's a move among some companies, particularly larger companies, to diversify their carrier base. I've seen several indications of longstanding carrier/shipper relationships that have come under review, and there's a desire from shippers to prudently spread their freight across more carriers, and we're benefiting some from that.

I think that, clearly, when people look at these times of uncertainty and they see our substantial balance sheet, and frankly, our reputation for stability and our ability and willingness to maintain service even in a down time, I think that's attractive to the -- a large cross-section of the shipper community. I honestly expect to benefit from it. If I didn't, I wouldn't keep maintaining service, but I think it's [inaudible] positive for us.

Bob, it sounded like you said that you've got 50-state coverage in RPM, and maybe I missed it earlier on in the call. Where are you guys in the rollout of that network? And I guess, relative to that, when you talked about the increased drag on operating ratio in the quarter, how much of that would you attribute to the operating leverage in the business versus how much is it -- incremental because you were maybe expanding the footprint of RPM in the quarter?

Across the eastern two-thirds of the United States, our RPM is fully mature. We have in place the techniques and facilities, and we're running the runs, and while the process is heuristic, we may tweak it from time to time, we pretty much have it in place. We do have like 168 lanes in the West Coast, where we've deferred action until we see a little firmer environment, but in the scheme of things, that's not really material to the overall process. So when I talk about the fact that within one company we now have not only long-haul but medium-haul and short-haul capability, that's really in place.

Got it, and so I guess alongside of that, the deterioration in the -- well, the increased drag from RPM is more attributable to the operating leverage of the business than to the expansion of it in this --

Well, this and the fact that we're still running those lanes. Why -- Judy has a dollar amount --

Well, what I would say is we outlined in the release that we had 1.8 point effect in the fourth quarter '08 versus about 0.8 in last year. That increase is really a couple things, but mostly one, and that is the rollout of the second phase of the regional operation, the two-day service enhancements that we made that really began September 15.

And then the other thing is when you have weaker revenue levels, it's going to have more of an effect, but that's a minor impact relative to the phase 3 -- what we call phase 3.5, which is our two-day enhanced service.

We're actually seeing a little bit better load factor in those regional lanes as we move through the year, which is nothing -- certainly not at what our aspiration level is on load factor, but we're making progress.

Okay.

I think [inaudible] decrease from the Teamsters. You guys noted that you'd frozen wages and actually gotten rid of some people in the non-union side of your business, but I would imagine you were reluctant to take the kind of steps that your competitor had to in order to secure that wage decrease.

Has your thought process on that changed at all? Is that something that you may look to address if we have a continuation of the current environment, or do you think that that's just something that you don't want to go back and start renegotiating on?

Well, Justin, you're correct. The YRC IBT agreement's not appropriate for our Company, and we will not be asking our contractual employees to approve it. Nevertheless, the agreement leaves us with higher costs than our principal competitor in the midst of the worst freight environment in my lifetime, so we're discussing our common concerns with the IBT, and we're searching for ways to preserve jobs and grow, rather than shrink, our business, but it will not be within the context of the agreement that YRC signed.

Fair enough. And I guess --

Justin, that's it. Thanks.

All right. Thanks.

Okay.

Bye.

Your next question comes from the line of Ken Hoexter.

On the -- I just want to delve into this advisory firm concept just a little bit more. I just want to understand what your aim is. I know you talked a little bit about it, what you might look for, but is this kind of a use of cash being opportunistic? Would this be something that you'd look to sell potentially? Or is this -- I just want to make sure we're not going to get into another, I guess, Carolina example, where we end up losing a lot of freight, or, I guess, intermodal, like the [Clipper], where you ended up selling out of it a couple years later. Just want to see what your thought process is through that.

Well, I guess even the fact that we've hired the advisory firm indicates our willingness to do this process carefully and deliberately and with a lot of thought, and Ken, you know our company and you know that we approach things in a careful manner. I'd just point to our entry into the regional business again, where we've done it organically and it's cost us 50 or $60 million for something that's absolutely critical to our future, and it's not something that's going to put our company at risk.

This current initiative, strategic initiative, and review is completely outside of ABF. We're looking -- honestly, we had resources assembled in order to address the multi-employer pension issues. In our contract negotiations, we were unsuccessful in doing that.

But it leaves us, frankly, with a very enviable financial position in this environment. We're in no hurry to take steps to use that money. The money is not burning a hole in our pocket. But at the same time, it is not the optimum use of our shareholders' resources. We think we can invest those funds in businesses where we can add value, and we're going to take a very careful and deliberate approach in examining those alternatives.

That's great, great, good to hear.

The CapEx is going up, but you talked about the potential for fleet reductions later in '09. Can you maybe just wrap up on what your thoughts are on driving up CapEx?

Well, you know, it's actually not much of a change from what we have for 2008, and we always like to give a range in the event that we have a real estate opportunity that we want to take advantage of. But it's just, I think, a reflection of really not an increased level of unit count; it's more about the continuing price increases that you have to pay for your road tractors and your road trailers, and actually, in some cases, we're buying fewer units than the last year, but they're just a little bit more expensive.

And so -- and then, also, we always like to be realistic upfront with what we anticipate getting on the used equipment sales that we have. Typically, we do better than that.

But I think the way I see our '09 expenditure level is very comparative to 2008, and actually, from historical comparisons, much lower than we have had in the past, but we feel that that's warranted because of our business levels and just being conservative and prudent. And we're able to do some things that don't increase the total ownership costs of the Company but are the right thing to do in this kind of environment.

Yes, Ken, I think we've seen every year in my history where our actual CapEx at the end of the year has been less -- has been at the low end of the range of what we projected, and that's typically because of real estate opportunities. We're always looking for -- to improve real estate, and believe it or not, not everyone wants a trucking terminal in their community, so we -- we're always open to buy things at the right price, but typically, we don't get everything we want.

Great. One more, Dave, if I may. Last thing is, Bob, I don't know if you mentioned it before, but did you break out the percent of regional versus long-haul moves?

We've actually -- we used to be talking in terms of 800 miles, but now because of our new expanded regional capability, we're now breaking that out as 1,000 miles, and in the fourth quarter of '08, 57.1% of our tonnage was less than 1,000 miles. A year ago in the fourth quarter of '07, that was 56.2.

Great. Thanks so much for the time.

Thank you, Ken.

Thanks.

Your next question comes from the line of Tom Albrecht.

You know, on the headcount changes and that, did any of that apply to the RPM, or is that all on more the traditional business?

Well, the RPM is really kind of folded into the whole organization.

Right.

You know, as I told you a couple of quarters ago, [we're] really getting to the point where it's just LTL, and part of the beauty of the things we're doing is that operation is becoming completely integrated and fungible with the rest of our operation, so I will say that our -- we're achieving productivity increases in both the long-haul and the regional areas, as well. So it's just kind of across the board.

Okay. I didn't know if you separated it because you were able to give us some RPM P&L profitability for a change, so that's why I asked the question.

We will probably never do that because, again, we don't view the regional as a separate market; we view it as a filling out of our nationwide LTL service offering.

Will the 10-K have any details on sort of the breakdown between severance costs and other restructuring costs because I think we all feel like we're still guessing, particularly as we look at the first quarter, the possibility of a loss exists, but partly because of some of these extraordinary cost items?

Tom, we -- the severance costs, Bob mentions it because there were some dollars there. They really weren't material, so there probably is not going to be much of a discussion or a breakout of those --

Okay.

-- as we don't have here, that we don't have in the 10-K, but I think more the point that was being made is the full effect of the wages and fringe benefits associated with those people really wasn't fully reflected in the fourth quarter and will be reflected in the first quarter, as well as the additional headcount reductions that were made in January.

You know, we feel like that we need to outline for you the actions that we've taken. We feel that they're appropriate and in line with the business level, but we're also hesitant to try to put a number on that because it's changing and will change as we go through the first quarter. And so we don't want to really position it as something that is unusual or one-time because it's an ongoing effort to try to address our business level.

And I know you don't give guidance, but do you have an ability to at least tell us, "Guys, you need to be modeling a modest loss?" or, "We'll be back in the black"? I mean this is a big target to be shooting at here.

Yes, Tom, I'll just say again those carriers that used to give you guidance have stopped doing it, and there's a reason for that. This is an environment that's shifting, and we just -- we would be just extremely reluctant to even give you directional guidance on that.

Okay. Then last question, in light of the fleet reduction, what were your thoughts as you went through that process because you know there's some vulnerable capacity out there, and it's not just located in Kansas City, but there's others? You know, if freight were to remain bad enough long enough, all of a sudden, you might finally have a supply story in the [less than truckload] arena, and yet you've taken out supply and might miss the opportunity to take advantage of that. What were the discussions you had internally that led you to, okay, we are going to shrink supply?

Well, first of all, we have the ability to react quickly. Some of our fleet reductions are held for sale, where it's parked and available, and we will -- it's available for sale during the year. So we have the ability to react quickly.

I'd point back to 2004, when things changed in the truckload business and pushed a lot of freight our way, and you saw us react really quickly to absorb that business, and we have -- we've got a lot of levers to pull and increasing capacity, and I can tell you, it's a whole lot easier to increase capacity than it is to decrease it. So we're confident that we can take advantage of the environment if something significant were to happen, and it's also true that our rail usage is running about 10% of our total miles. We could add -- we could go up to 26% of our total miles in a heartbeat, so we've just got so many ways to deal with capacity, and we'll -- we think it's prudent to take the steps we're taking now, knowing that we do have that rubberband capability.

Thanks, Tom.

Okay. Thank you, guys.

Your next question comes from the line of David Ross.

First of all, I guess it must be nice to be able to operate for a [104] OR over the next couple of years and not have to borrow any money from the bank, but I know that's not the goal there.

Well, I mean this is not -- I would certainly never use the word "nice" in the same sentence as a 104. It's -- I just want to say it's a tough environment, and we're taking this really seriously, but our financial stability and our experience of our employee team means that we can do so without panic, but we're deliberate, and we're serious about it.

And I know that you retained their advisory firm, but is share buyback still on the table or increased dividends as a use of the cash balance in the near term, or is the cash going to kind of stay where it is until there's some strategic option side [effect]?

David, we -- I think part of the process that you go through whenever you fully analyze your alternative includes the opportunity to buy back shares or to adjust your dividend levels, increase your dividend levels, and those are certainly points that you evaluate against any other alternative that you have.

Okay.

And we would continue to do that, as we have been.

And then you mentioned that the eastern two-thirds of the RPM is mature now. Even though it was a tough environment, because it's still a relatively small piece of the company, was tonnage up year over year in the eastern two-thirds, or was it down?

We think we gained share both in the long haul and the regional, but I think you can look at our overall tonnage declines and see that -- when you look at the statistic I gave you about freight under 1,000 miles, I can say that we had losses throughout the country, but on a relative sense, the regional was stronger.

Okay, so down but better than the market, I guess. Can you talk a little bit about the average age of the road fleet and the P&D fleet now, where the trailers stand?

David, you know, our road tractor fleet is about 22 months old, and our trailers are about, on average, seven years. And so those are in good shape, really in pretty good shape as far as what we try to target.

I'll mention to you that we've said before our trade cycle for road power can move between three and four years without much of an effect on total ownership costs, and so we can have that lever to use, and we do use it, and we're actually -- we currently are looking at maybe a slight increase in the average age, but again, it doesn't increase our total ownership cost to the Company, and we feel like our trailer fleet is in good shape.

You know one thing that we would point out, too, is that we've reduced our total miles, and so while the average age is increasing, what's more important on that equipment is the total miles, and it's not accruing the miles per month, as it would've been two years ago.

Okay, that's helpful. Also, the length of haul you said was down year over year, but could you give us a number of length of haul in 4Q '08 versus 4Q '07?

Sure.

It was 1,124 miles average haul versus 1,149 last year, a 2.2% decline.

And you mentioned the GRI went into effect January 5.

Yes.

Was that at 5.5%, or what was the--?

It was 5.79%.

All right. And last question I had is when you look at 2008 on the income statement, what was -- how much was, I guess, the gross non-union pension expense versus the gross union pension expense?

Did you say gross, or did you say growth?

Yes, just the total.

The total. Well, for our non-union pension expense, we had a total of about 10 million for 2008.

David, are you there?

Yes, I am. You [knew] a few hundred million?

Well, it would -- our union pension is going to be, I'm going to guess, in the $120 million range, but we'll have that fully disclosed on our 10-K.

Okay. Thank you very much.

Thanks.

Our next question comes from the line of Art Hatfield.

Hey, just one quick question, and you may have addressed this. I had to step out for a sec. But, Bob, if you look at all the cost initiatives that you put in place in Q4 and into January, if you had had those in place, say, October 1 of Q4 '08, can you give us kind of an estimate of what that -- how that would've helped out the operating ratio in Q4?

No. I'm sorry, Art, I --

No, I--

Art, I don't have a way to model that for you. I could -- you know, what we've tried to do is to share with you that we've made some pretty substantial changes, but I don't have a way to quantify that for you.

Okay. I guess the reason for asking the question in that way is to gauge a sense of whether or not the cost cuts that you've put in place are based on an assumption that you think things get progressively worse or stabilize here in the next couple months or next couple quarters.

Art, it's a fair question. We have -- we've taken the steps in response to the current environment not in anticipation of further declines. If we have further declines for some reason in the first quarter, we will take further steps.

Great. Thank you. That's all I've got.

Thank you, Art.

Thank you, Art.

Kalia, I don't know if there's anymore, but we'll take one more if there is.

Okay, you do have a follow-up question from the line of Edward Wolfe.

Just trying to quantify some of these costs. When we look at the 1,400 people that you've taken out, what kinds of people -- you know, what makes up the buckets of those 1,450 people in the fourth and first quarter?

Ed, the vast majority of those are going to be our dockworkers and drivers.

And what's a good number for a wage and benefit for somebody in those categories?

Well, you know, the wage on an hourly basis is going to be about $23 an hour, if I'm remembering it right, and the fringes are about $13 an hour.

So these were union employees?

The vast majority, but that's the vast majority of our employees in the company. Whenever we have a reduction, it's going to be relative to the groups involved, and those are 70 -- upper -- almost 80% of our employees.

But, you know, there have also been other reductions in non-union. You know, I mentioned that four officer positions, for instance, so there's a cross --

And we've had some IT positions.

Right. It's a cross-section.

Okay, and is there going to need to be a write-down for some of the equipment at some point?

You know, I'm not anticipating that. We still have relatively good markets for selling our equipment. I mean it's a little softer than it was at the beginning of the year, but we posted gains in the fourth quarter, and I don't anticipate any different results going forward.

Well, conversely, should we see some better gains and some cash flow coming in?

Well, I don't -- I'm not expecting really material changes in our experience there.

Okay.

We did a pretty good job of setting salvage values on those.

Thanks, Ed.

Yes, thank you.

Appreciate it.

Bye, Ed.

Well, that ends our call. We thank you for joining us this morning, and we appreciate your interest in Arkansas Best Corporation. Thanks a lot.

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