ArcBest Corp (ARCB) 2009 Q3 法說會逐字稿

Welcome, everyone, to the Arkansas Best Corp. third quarter 2009 conference call. (Operator Instructions). I would now like to turn the call over to Mr. Humphrey, Director of Investor Relations. Please begin, sir.

Welcome to the Arkansas Best Corp. third quarter 2009 earnings conference call. We will have a short discussion of third quarter results and then we'll open 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 Corp., Ms. Judy R. McReynolds, Sr. Vice President, Chief Financial Officer and Treasurer of Arkansas Best Corp. We thank you for joining us.

In order to help you better understand Arkansas Best Corp 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 uncertainties and risks. For a more complete discussion of factors that could affect the companies future results, please refer to the forward-looking statement section of the company's earnings press release in the company's most recent SEC public filings. I'll now turn the call over to Judy McReynolds.

Thank you for joining us this morning. As a result of the unprecedented weakness in the economy and its impact on our industry and our company, we are reporting weak third quarter results. We continue our resolve to prudently manage our cost structure and to seek to preserve our traditional emphasis on disciplined pricing and individual account profitability. We continue our resolve to prudently manage our cost structure and to seek to preserve our traditional emphasis on disciplined pricing and individual account profitability. Later, Bob will give his thoughts and perspective on our recent performance, but now, I'll cover the details of our results for the third quarter of 2009.

Our third quarter 2009 revenue was $399 million, representing a decrease of about 20% per day compared to last year. Our net loss for the third quarter was $0.23 a share, compared to net income of $0.60 a share last year. We continue to benefit from the improved market performance for the cash surrender value of executive life insurance policies. Compared to last year's third quarter, this benefited us by $0.11 a share. Our year-to-date effective tax rate was 39.7%, based on the full projected rate for the year. As we have discussed previously, the yearly costs associated with our non-union pension plan will have doubled in 2009, compared to 2008, primarily related to the 2008 stock market decline.

Due to a higher level of employee terminations and retirements in 2009, the full-year cash distributions from this plan play exceed the annual service and interest costs for the plan. As a result, we may have to recognize pension settlement extent during the fourth quarter of this year. Because of the many factors that will effect this, we don't currently have an accurate projection of this potential expense, but based on preliminary estimates, it could range from $6 to $8 million on a pretax basis. Because this plan was closed to now participants, there may be the potential for settlement expense in future years.

We ended the third quarter with cash and short-term investments of $190 million, essentially the same as we had at the end of the second quarter. As we look to the future of our company and in keeping with our strategic plan, we're looking at financing alternatives that are more flexible and that will increase our borrowing availability. We anticipate our review of financing alternatives will be completed before the end of this year. And now I would like to move on to ABF's results for the quarter.

ABF reported third quarter revenues of $370 million, a per-day decrease of 22% compared to last year. ABF tonnage declined 10% per day during the quarter. So far this month, our October tonnage is down a little less than 7% on a year-over-year basis. Beginning in July of last year, our monthly tonnage trends began to progressively worsen. As a result, this year's quarterly comparisons back to that period reflect percentages of declines less severe. ABF's third quarter operating ratio was 103.8%, compared to a 94.7% in the third quarter of 2008. First of the second quarter, ABF's third quarter operating ratio improved by 4 percentage points. You will recall that during last quarter's conference call, we described unusual cost increases in non-union healthcare and worker's comp and third party casualty clause. In this year's third quarter, these costs returned to a more normal level as we anticipated. Also, the additional revenue associated with sequential increases in tonnage helped us more fully cover fixed and semi variable costs in the third quarter. Now, I will turn it to Bob for his thoughts about our quarter.

Thank you, Judy and good morning, everyone. We're still experiencing a very challenging freight environment that continues to have an adverse effect on our profitability. This month, ABF began the fourth year of what has turned tout to be the most severe and longest-lasting recession in my 38 years with the company. We remain committed to closely monitoring ABF's cost by aligning them with available business; however, low freight levels combined with an aggressive pricing environment that intensified further caused a loss in the quarter.

ABF's third quarter tonnage declined 10% as Judy noted, compared to the same period last year. This lower percentage of decline does reflects the easier tonnage comparisons than we had earlier in the year, but in addition, our third quarter tonnage was helped by modest market share gains from new accounts that we secured from LTL competitors. In addition to these factors, throughout most of the third quarter, we seemed to have experienced the normal seasonal uptick in business that is expected during this time of the year. However, beginning with the last full week in September and continuing through last week, that sequential tonnage trend softened somewhat. Based upon external market signs, it's possible that this recent softness is temporary and that we'll begin experiencing further improvements during the remainder of the year.

The scramble for business by various carriers continues to put increasing pressure on the industry of pricing. During the third quarter, ABF's total build revenue per hundred weight decreased by 13.6%, primarily due to the year-over-year reduction of the fuel surcharge that remains well below the peak that we saw in July of 2008. Even excluding the surcharge and the changes in freight mix and shipment profile, base rate pricing declined somewhat. This reduction in base rates adversely affects our margins because we're not able to cover normal cost increases and it also limits the amount of capital that's available for reinvestment in our company. Until the freight environment firms up and a more long-term pricing focus resumes throughout the industry, ABF will remain committed to our traditional practice of offering value in the marketplace and return for a level of compensatory pricing.

During the third quarter, there were great things happening at ABF that benefited our customers, our employees and shareholders. ABF's level of superior cargo care continued to set the standard in the LTL industry. Our third quarter cargo claims ratio as a percent of revenue was 0.66%, which is consistent with the first half of this year and lower than last year's figure, which, you may recall, was ABF's best in over 25 years. These best-in-class results illustrate the many benefits of ABF's continuing long-term focus on the quality process. In fact, in mid-September, we celebrated the 25th anniversary of the ABF quality process. The basic principles of doing things right the first time and meeting agreed upon customer requirements and eliminating the root causes of errors are cornerstones of quality and they are as important to ABF's success today as they were in 1984 when we first began to formally implement these concepts into our corporate culture. Every person at ABF understands these principles. Our belief in and practice of them has provided a strong foundation belief in and practice of them has provided a strong foundation for the continuous improvement that we have enjoyed over the years.

I am proud to note that in the third quarter, ABF continued to improve on its great record as one of the safest carriers on our nation's highways. ABF's city and road accident rate is measured by DOT recordable accidents per million miles, decreased by an impressive 19% from the third quarter of last year. ABF's third quarter 2009 and year year-to-date accident rates are well below the 5- and 10-year averages. We're very proud of the positive contributions of all of our employees in the critically important area of safety.

During the 2009 national truck driving championships, ABF driver Tony Sparrow won the national championship in the tank truck class. ABF has Tony as a city driver in the Stratford, Connecticut, service center and he was one of 20 ABF state champion drivers competing at this year's national competition. This was Tony's second truck driving championship, his first was in 2006.

In July, ABF was recognized by the American Trucking Association's Supply Chain Security and Loss Prevention Couple with the 2009 excellence and security award for superior security practices. Since this award was established in 2001, ABF has received it five of the nine years it's been given. We continue to take seriously the security of our employees and that of our customer's cargo.

In September, ABF's information technology team was recognized once again as ABF earned a spot on the 2009 Information Week 500. This list honors companies who are judged to be the most innovative users of business technology and this year's listing represents the fourth consecutive year that ABF's IT team has been recognized in this way and Information Week magazine. Almost all of our IT work is performed in-house by a group here in Fort Smith and we know they're the best in the business.

I often mention ABF's ongoing commitment to providing a high-level service for our customers each and every day and all of these positive recognition of ABF and its employees are tangible examples of what distinguishes and differentiates ABF in the marketplace. As we continue through these unprecedented times, we certainly hope that we begin to experience improving business trends in the day ahead. Though this difficult period has posed challenges, we haven't waivered from the core beliefs that have ABF successful in the past and will sustain us in the future. These include emphasis on strict cost control and efficient use of resources, pricing discipline and a focus on individual account profitability, and a practice of offering superior value in the marketplace, along with a high level of customer service.

In the midst of a difficult operating environment, Arkansas Best remains a stable, financially secure company. We possess the resources and the resolve to succeed through both good times and bad times. The experience and dedication of ABF's management team is second to none. Every employee throughout ABF's North American network of 281 service centers works hard every day to ensure that we maintain our reputation as the best LTL carrier in the industry.

Finally, let me add on a personal note, that I have advised our board of directors of my intention to retire at the end of the year. That's my 62nd birthday and I have completed almost 38 years with this great company. As with most ABC and ABF employees, my tenure has been an absolute joy. I will always be profoundly grateful to Robert Young for giving me the opportunity to lead the greatest company in the trucking industry, and indeed, the finest public institution of any kind I have ever known. My only regret is that I will not be at the helm as ABF and Arkansas Best complete an exciting story of expansion and diversification. Fortunately, those will now be the responsibility of Judy McReynolds, who will succeed me as President and CEO of Arkansas Best Corp. and as a member of the board of directors. Judy has an incredible combination of integrity, intelligence, energy, judgement, vision, and leadership skills. Judy and I have worked closely together in her role as CFO and we share a common vision and excitement for the growth and prosperity of Arkansas Best Corp. She appreciates and has immersed herself in the wonderful culture that makes our company unique. Our employees and our shareholders can expect consistency and progress toward an exciting future.

I want to take this opportunity to congratulate Bob on his retirement and to say how much he's meant to our company over his 38 years of service. Bob is a key contributor to the company's success, and he has been a part of establishing this wonderful corporate culture that we have today. We will miss you, Bob, and we wish you and your family all the best. Now I think we're ready to take some questions.

Yes, Melissa, I think we're ready. I want to remind everyone to limit questions to five minutes per person.

(Operator Instructions). The first question comes from the line of Justin Yagerman with Deutsche Bank.

First of all, congrats both Bob and Judy.

Thank you.

Thank you.

Well-deserved promotion. Nice to see both things happening as you would like them to and so congrats. I guess I want to dig in a little bit on the industry dynamic and figure out what is going on here. Do you guys have a sense of what tonnage would have looked like x market share gains in the quarter? Your pricing didn't move that much sequentially, I thank is testament to your pricing standards. So, I would be curious it hear about what kind of pricing that new tonnage is coming on at as well.

You never know in the abstract and hypothetical, but I think the tonnage that moves on the margin on price is certainly not as compensatory, it's much worse than the average business you have. I don't know if that is responsive to your question.

So you're saying that the marketshare gains are probably what would have attributed to any sequential core pricing decline?

Perhaps.

Yes.

I will make the point that it is our intention for every account that comes on board to make a contribution to the company and we don't let an account get away until it's at the point where it's no longer making a contribution.

Okay. So, if I am reading you right, then you guys probably aren't being pricey -- I guess what I'm trying to find out is are you aggressively courting any marketshare in the marketplace and seeing some of that come, or are you kind of letting the more service-sensitive freight that might be diverting away from other carriers and come your way and that's what you're willing to pick up in the market?

You know we have always been success in attracting business on non-price grounds.

Yes.

And the things we do in terms of shipment, visibility, the cargo claims record that we have and the personal relationships we have out there attracts business. We will defend our turf with price but it's usually a losing strategy to try to bring it on in price.

If you look at the network and get a sense, obviously with tonnage still down 10%, there is over-capacity. If YRC doesn't go out of business, how much over-capacity do you currently have relative to what you think the market dynamic would dictate here?

I think you have to look at not just a 10% decline, but that's 10% off of a pretty steep decline as well.

Sure.

A good benchmark would be to take all of us LTL carriers and look back at say the third quarter of 2006 and I think all the carriers have taken steps to reduce some of their costs. A lot of that, particularly for us, could be brought back quickly. We have a number of great employees on furlough. We've sidelined equipment. Some other things we could reverse fairly quickly but that whole is certain out there and my guess is that as long as that whole is not plugged by some major event in the industry or a general economic recovery, you will still continue to face instances where carriers try to bring home a business on the margin with price.

It makes sense. I would love to hear your thoughts on why LTL, aside from the obvious overcapacity issue, you have had overcapacity in the trucking market and feels like things are tightening there. Why is LTL not feeling the inventory restocking like truckload? Is it a matter of the magnitude of overcapacity? Or is there something going on with customers moving back towards higher inventories and maybe slightly slower replenishment cycles? Are we seeing a reversion from that smaller shipment, faster replenishment that we had seen throughout the majority of the downturn?

Justin, it's a good question and I am not sure I have a lot of visibility into it. I think I will observe that the LTL industry traditionally recovers after the truckload industry.

Sure.

It may be that we have a Christmas present in the pipeline becoming. That is about all the -- .

Do you think it's about a six-month lag with LTL versus truckload and that nothing has shifted in that dynamic?

I always thought four to six months but I will point out these are unprecedented times and the old rules may not apply.

Justin, I appreciate it.

Yes.

Thank you, Justin.

Thanks.

Your next question comes from the line of Edward Wolfe with Wolfe Research.

Good morning, Ed.

Good morning. Congratulations, Bob. Well-deserved. Congratulations. Judy, well-deserved.

Thank you, Ed.

Thank you, Ed.

A couple of different things. First, you can take us through the tonnage trends by the months in the quarter? You gave us October which was down 7%. Can you tell us how the third quarter went?

I will take that. July was down year-over-year about 13%. August down about 10%, September down 6.8%.

And October you said down about a 7%?

Yes, a little less than 7%, so not much different from what we saw in September.

Okay. I noticed there are a bunch of other revenue that I believe is related to your logistics acquisition. It went from $19 million to $29 million, there is also a couple million of operating income under service and other, or at least that seems to not be from the LTL, can you talk about what that is?

Sure. As you know, that area is a catch-all category. One thing it includes is loss at the corporate headquarters and because we don't add any value here at the corporate headquarters, we try to get that account as close to zero as we can and push some of the costs back down. Also, we have done a pretty descent job here at the headquarters of cutting cost as the operating subs are done. That line also includes a roll up of FleetNet America which is our third party maintenance company, it's small but they're certainly making a contribution to our results. It's kind of like AAA for trucks and they also do preventive maintenance and a couple of other expanding business lines and we don't talk much about it but it's there and adding a positive contribution. We did acquire a small logistics company and this is not the culmination of the strategic plan we've talked about, but it was a good little company, it was available and we have a majority but not whole interest in that company. And finally, that area includes our IT group and they have done a pretty good job of scaling back costs as well. That line you see there is a combination of good use from a lot of areas.

Did logistics add about $10 million in revenue in the quarter? Is that a fair assessment of that?

It's probably close to that.

And is it profitable?

These are little. We have a number of little pilot projects going on that, which is really the way we approach business expansion. We have a full container, import service coming in from Asia. We have a brokerage outfit. We have a number of other little business areas and the logistics area that we're doing is rather specialized and part of that general way of doing things.

Okay. DNA is coming down, depreciation and amortization, Judy, what is a good way to look at that? You're not spending a lot of Cap Ex. How is that trend as we go forward?

Our Cap Ex for this year, we anticipate at $45 million which, is the number we put out there all year long and that is certainly less from what we were experiencing back when you look at 2006-2007, so we have kind of continued to scale that back and there will be, I think, a reduction in that number over time. We don't have our plans for 2010 completely formalized yet, but I can tell you that based on the environment and what we have been dealing with, that we're not going have a big increase in the number that we had for 2009 unless we have some industry event causing us to do that and so it's going to trend down typically when we give the 2010 estimated capital expenditures, we'll give you an estimate of depreciation but typically that is in January after our board reviewed our plans and we're out there ready to announce them.

Ed, I'd like to make a point that the lower Cap Ex that you're seeing and perhaps we'll see next year, does not represent the disinvestment in the company. We typically have a three-year trade cycle on our road power and we're trending more toward four-year but as you can imagine, we're running that equipment fewer miles and so it works out to be about the same and the other factor you that see is that with the implementation of our parallel line haul network to serve the regional market, we're able to use city equipment in lieu of road equipment in a number of ways that it's basically equipment that would have been parked against the fence at night but now runs over the road at night. The combination of those allows us to use a little of our altitude with the road Cap Ex.

Makes sense.

I will let you come back around if you want more questions.

Okay, will do.

Thanks, Ed.

Your next question comes from the line of Alex Brand with Stephens Inc.

Good morning, Alex.

Good morning, Alex.

Good morning, guys. A couple of things here. Judy, can you give us length of haul and weight of shipment for the quarter?

Sure thing. Let's start with weight for shipment. It was 1,343, and then length to haul 1,103.

Okay. I guess I have to ask if you have any update you care to share on wage concession discussions with the teamsters?

We're continuing to have an ongoing dialogue with the teamsters. We don't have any news to report, but the process is continuing. The teamsters are astute and they see the environment. They read the same newspapers you and I read and they're aware of the cost differential that we have not only with non-union carriers but even the other union carriers. We share the same vision and the same goal with the teamsters in terms of growing our business and adding jobs because for us, jobs mean revenue, so that process is continuing.

Okay, and just one more, Judy, the tax rate was a little different from where it was tracking. How should we think about that going forward?

I think what you're seeing for year-to-date for 2009 is indicative of where we'll end up the year. One of the things that helped us was the life insurance, the executive life insurance gains, those are helpful in the tax rate and we experienced that in the quarter and that helped us to have a little bit better number there. When you look at it on a 9-month basis, you nearly look at the end of the year. I don't expect it to move around a lot.

Great, thanks for the time.

No problem.

Thanks, Alex.

Your next question comes from the line of Thomas Wadewitz with JP Morgan.

Morning, Tom.

Good morning, Tom.

Yes, Good morning and congratulations to both of you.

Thank you.

Thank you.

Let's see. I wanted to see if, Judy, if you could give a sense, I know there are a number of moving parts on the comp and benefits line in this quarter and you mentioned, I think, $6 to $8 million for fourth quarter, do you have any sense on absolute terms how we would think about comp and benefits for fourth quarter? Is it down or does it end up being a similar level to what you saw on third?

Obviously, we can't forecast numbers. We don't give that kind of guidance but whenever you look at what we experience in the third quarter, particularly relative to the second quarter, we did have more stabilization in our worker's comp and our healthcare numbers and that was what we anticipated and that is good. And, obviously, we can't predict the future, but we have all the right activities in place to keep the costs where they should be, unless we have some unusual events, which that does happen from time to time.

We also, if we have this non-union pension settlement in the fourth quarter, if that does end up being a part of our cost, we'll clearly set that out and you'll be able to see it, a part from the other line-items on that cost because that is something that's unusual because we have a frozen plan and because of all the activity that we have had to have this year on reduced head count and that sort of thing. We've had more retirements than normal. You get in a plan like that a little upside down on the retirements versus the added service and interest cost. So, again, that is a little unusual. If it happens in the fourth quarter, we'll set it out for you to see it.

So, you want us to kind of think about that as a non-recurring type of thing that might come in and not necessarily model it in the forecast?

It should be, I see it that way. Again, you obviously can't predict the future. If we would continue to have an acceleration of retirements because of people making that decision, you can have that situation again so I don't want to tell you couldn't but it is relatively unusual. The reason it's as sizeable as it is is because of the 2008 market losses that you're effectively having to write off a portion of.

Right.

And I think you can see that the 2009 gains and perhaps the impact of that.

We have actually had on our pension plan some good returns, our non-union pension plan has had really good returns in the mid-double digits and that will help us a lot with having reduced costs for next year.

Okay. Great. Let's see, two other ones and I'll pass it along. The teamster, you were asked about it, are you optimistic, Bob, that you guys are close on getting wage concessions or benefit concessions with the teamsters? I had some sense that you would be able to talk about it and with the third quarter report but, obviously, that hasn't happened. Do you think you're close on getting something or is it tough to tell whether you get that and then the other one, I would just, in terms of the type of customers that you're winning, whether it's industry type or regional versus long haul?

First of all, for obvious reasons, I can't comment on the ongoing discussion or really characterize those in a way I would like to do, I would like to characterize them. As far as the accounts we're bringing on, I don't notice an industry bias, although we do seem to be stronger in the mid-atlantic area for some reason, kind of stands out. Maybe it's still weaker off to the West Coast.

What about national versus regional type of business you're bringing in?

If you look at long-haul versus short-haul, a reasonable business that we continue to benefit from the improved transit times in the regional. As you recall, we cut at least a day of service in 40% of our lines and that gives us some relative benefit, but that is probably balanced by increased market share and long-haul line. Overall, it's a mix and I don't think the length of haul changed a lot.

Tom, I appreciate it.

Okay, thank you. Thank you.

Thanks, Tom.

Your next question comes from the line of Jon Langenfeld with Robert W. Baird & Company.

Hi, good morning.

Hi, Jon.

Good morning, Jon.

When you think about the market share potentially pulling in line or better than the market, why do you think that is happening new kind of if I track your trends over the last several quarters, that has probably been the opposite and so anything specific you can point to of why that might be happening now versus earlier?

The changes that we made not only in the line-haul network not only to support the original operation, but we implemented a major network change for the line-haul network, has got to have some benefit and also, there is at least one carrier out there that is suffering a lot of business loss and that business has to go somewhere. As a final step, even in the midst of other costs or rationalizations that we have done, we have added a number of sales people and I think that has been a good move in a downturn. It's having some impact.

Are those sales people primarily from the industry?

Yes, they are.

Okay, good and on the union potential concessions there, does anything that comes out of that, does it need to have the approval of the union meeting? Does it need to be put to a vote?

Yes, I would expect that after we reach agreement with the national, it would be put to a vote of our employees and I've observed that our employees are also pretty bright people and they understand the environment and we have a reservoir of goodwill with our employees. We've got great relationships, our employees respect management, and we respect our employees, and I think that once we went to a vote and that happens, I would expect a favorable result.

Okay, great. The last question, first congratulations on the retirement, Bob, and promotion, Judy.

Thank you.

Thank you.

On that note, are there any expenses down the line here for vesting of retirement stock, things like that?

We will have those and I tell what we will be do is, we have a couple of times that we will be speaking publicly in November and as we accumulate that information, we'll get it out there for you.

Is that a fourth quarter or a first quarter issue?

I think it's partially going to be a fourth quarter issue and partially a first quarter issue and perhaps later in the year.

Okay. But the $6 to $8 million you lined out, that is separate?

That is actually related to our non-union regular pension plan, not our supplemental benefit plan.

Okay. Great. Thank you very much.

Thank you.

Your next question comes from the line of Jason Seidl with Dahlman Rose.

Hi. Congratulations to both.

Your line is open.

Yes, hello? Can you guys hear me?

One moment.

Can you guys hear me now?

Jason, your line is open.

Can you guys hear me now?

Yes.

Perfect, Judy, Bob, congratulations.

Thanks.

I'll get right to it, though. Judy you said $0.11 in the quarter from life insurance. What does that bring you to to year-to-date basis, you can remind me? Yes, if you will give me a second.

Yes, if you will give me a second, I will get that. On a year-to-date basis, it's $0.15 a share.

Okay, that is helpful, thank you. Bob, you talked about October tonnage trends reversing a little bit here but that you expected that to revert to the more sort of July to September line you were on. Can you talk about why you think it's going revert?

I'm looking at some of the metrics like PMI and ISI indices that appear to be turning around and some of those indices, like everyone else, we run correlations. I think it's PMI with an 86% correlation against our tonnage, against a four-month lag, so I don't have anymore visibility in it than you do, but we're encouraged by an obvious bottoming of a lot of of the charts that correlate with our business and a pretty clear upturn in most of them.

Okay, that is helpful. I apologize if I missed the answer to this. Is the new logistic startup company, is that the one you purchased, was that a profitable contributor? I know you said about $10 million revenues. But did they turn a profit in the quarter?

They did. FleetNet did and we had -- .

The rest were cost reductions.

The rest were cost reductions.

Okay.

Pretty much every line in there was a positive story.

Fantastic, I appreciate the time, guys.

No problem.

Thanks, Jason.

Thank you, your next question comes from the line of John Barnes with RBC Capital Markets.

Good morning, John.

Hi, John.

Good morning, congratulations.

Thank you.

Bob, real quick, as you look out, your comments about encouraged about a bottoming and that kind of thing. The changes in the employee base and anything you've have done from an equipment and terminal standpoint, volume-related-type cost. If you're beginning to see that bottoming now, and you would believe that the volumes are going begin to kind of uptick here a bit. How quickly are you going to pull the trigger and get people back in? When do you start to bring furloughed employees back and that type of thing or is this a scenario where maybe you let things like over time pay creep up a bit to make sure it's real. Can you talk about how you balance that with the uncertainty versus some confidence that we have seen a bottom?

The great thing about our business, is that you get to add your costs after the freight is on trucks. If you have a manufacturing plant, you build the plant and hope they come. With our business, we can maintain a lean cost structure until the business comes on board and as you suggested, we can increase over time. We have other leverage we can pull and I can assure you we won't add costs back in this company until we have the business to support it.

Okay. So this is not a scenario where you think you see some upturn quicker than you're able to respond to it from a resource perspective?

I think you can look back at 2004 as at least a surrogate for what might happen. You recall the changes and the hours of service. The things improved in the truckload sector and a lot of business got pushed into the LTL sector. We handled every pound of it.

Okay.

It was good for us.

Okay, all right, very good. A little bit on the market share. You can talk about how you approached it, I'm kind of the opinion that maybe there is not enough marketshare, again, leaving weaker competitor that you almost trip over some of it versus actually having to be out and pursuing it. Can you talk about how you address the marketshare opportunities. Are you actively engaged in trying to take business away or is this more of a business that is kind of showing up at your doorstep and looking for a new home?

Well, there has never been a time when we weren't actively out looking for business, and in our business, the sales cycle tends to be fairly long. You don't make a sales and new account and get the order that day. It's a relationship business you build out over time and we're always doing that. I will say that this year we have had, first of all, we have a number of new sales representatives with us and they bring relationships and that has opened some doors and think some difficulty with carriers who cut cost and starting to damage freight and miss pickups have allowed us entry into some accounts we're interested for years and they're not willing to talk to us. So, there is a lot of stories out there in the big city. Those are a couple of them.

Okay. Thanks for your time, guys. Again, congratulations.

Thank you.

Thank you, John.

Your next question comes from the line of Ken Hoexter with Bank of America.

Good morning, Ken.

Good morning.

Great working with you, Bob. Congrats, Jude.

wonderful working with you, Ken.

I want to follow up on the discussion on the base rate. You mentioned base rates were still down, but what happened sequentially on the base rate side?

It was worse than it was in the second quarter. I think maybe in the last call, we gave you a hint that was going happen because we've seen a worsening trend. The pricing in our industry is more intense than it was earlier in the year.

You have seen that get more aggressive recently? Expectations of large carriers out there increasing that pace of the decline.

Yes, it's been increasingly severe.

To wrap up on John's prior question there, are you being more aggressive on the base rate side? To take that business?

No, but we're responding to incidents in defending our turf.

Okay, that is the first time I heard you directly kind of highlight the competitor wins there. My last question, just on the volumes throughout the quarter, you gave them throughout the recent quarter. How about a year ago, for the quarter it was down 11.5%. You have given, I think, October was down 6% or 7%. You can walk us through how the fourth quarter walked through here a year ago?

Ken, October was year-over-year down 7%. November down 13% and December down 14.5%.

All right. Great. Thank you for the time.

No problem.

Thank you, Ken.

The next question comes from the line of Thomas Albrecht with Stephens Inc.

HI, Tom.

HI, Tom.

Judy and Bob, I guess not only congratulations to Bob, but condolences to you, Judy. [Laughter]

Let's hope that we can see a brighter future from a business level standpoint fairly soon. This has been unprecedented in its length and we have to be prepared for that to continue continue for awhile, I guess.

That and Oklahoma football.

That's right, an unprecedented year for that, too.

Absolutely. Well, a couple of housekeeping items and I have a question on pensions in general. What percentage of your business is under 800 miles? It had been 45%, 46%, but with all the opportunities in the market, I wonder if that changed much?

Tom, when we rolled out our new second day improved service offerings back in September of last year, we really moved that statistic to reporting it on a less than a thousand mile basis and that is 58% of our business, both this year and last year.

Okay.

And David can give you the history on that on a thousand mile or less basis to give you an update there.

Okay.

Offline. That will be fine. In terms of pension reform. Several questions related to this. What is your understanding of any meaningful bills moving through congress, what is the timing? Is it your understanding that it would essentially take all orphan costs related to those companies involved and in MEPA plans? Any color you can shed on bigger issue will be helpful.

I think you recognize in Washington all the oxygen is being sucked out with healthcare.

Right.

But as that process is comes to a conclusion one way or the other, you will start to see attention on a number of issues, including pension reform, both single employer and multi employer, and they will be combined in one consideration by congress and I think there is increasing recognition of the fact that it's fundamentally unfair to have companies like ABF responsible for the retirement benefits for employees that never worked for us. That message resonates so I think we're looking for changes sooner rather than later.

Do you have a sense if there is a good signature bill right now or that remains to be seen if such a bill has been submitted?

There are bills under consideration but to my knowledge, nothing has been dropped in the hopper yet.

Okay. Sooner rather than later still doesn't -- .

months rather than years. How about that.

Okay. And on the logistics, was that a domestic or international opportunity?

It's domestic. We're playing around with concepts but this one is close to home, a domestic and we also have LCL forwarding operation, mainly for exports and we do have a full container import operation but those are modest.

Right. And when you say domestic, does that mean brokerage or does that mean related to these capabilities you just described?

We actually have a great freight brokerage operation running as well. But these, again, these are not part of the strategic plan that we have talked about they're one of a dozen or so laboratories where we test things out. You may recall that when we began the very significant venture into the regional market, we didn't roll it out in one day with one idea but started with a couple of customer service facilities on the East Coast and came down and came across the country and we like to pilot things and these are just pilots. Albeit, successful pilots. That is the best kind to have.

And lastly, clarifying on that EBIT contribution, coming out of the other revenue line-item. You made a couple of comments there. I am confused still whether we should think about that now having the ability to have a run rate of at least a million dollars or whether it's still less than that but maybe greater than the old $300,000 a quarter?

I don't think we can predict it. I think I made the comment that it included a lot of lines and they all went in the right direction.

Yes.

And we certainly hope they continue to be contributors. Frankly, I'm looking forward to the time when this company talks about FleetNet America as a separate business entity and it's significant enough, I think perhaps we'll see the time in the not-too-distant future where it reaches that kind of success, but in the meantime, I am not sure you can count on the current run rate going forward.

Tom, appreciate it.

Thank you very much.

Tom, thank you.

Thank you, Tom.

The next comes from the line of (inaudible) with BB&T

Hey, Judy and Bob, congratulations.

Thanks.

A couple of follow-on questions. Most of mine have been covered by the other guys. I guess first question, the main question. What percentage of your freight was shipped on the rails this quarter versus a year ago?

We had 12.8% in this quarter and 11.8% in last year's.

Okay. And was RPM still about 100 basis point drag on the overall OR or where did that fall?

It s but, again, it's imbedded in our cost year-over-year. It's not additive and we consider that as a part of our service offering and a part of our cost structure at this point.

It it does give us operating leverage going forward but that is not a year-over-year drag but a cumulous number, Judy said.

Okay, perfect. That is all I have. Appreciate it.

Thanks, Neal.

Thank you, Neal.

The next question comes from the line of Arthur Hatfield with Morgan Keegan & Company.

Morning.

Hi, Art.

Congratulations on your new lives that are ahead of you.

Thank you.

Thank you, Art.

A couple of quick questions. On the pension settlement expense, Judy.

Yes.

My understanding would be that is just an accrual or an accounting true-up. There is no real cash involved in the $68 million?

You're right about that.

Okay.

Because of the contributions, we give you the cash items separately. That is exactly right.

Okay. And secondly and finally, actually, last year was an unusual year in volume changes between fourth quarter and third quarter. What have you looked at historically and what have you seen kind of volume changes in fourth quarter relative to third quarter kind of what that normal seasonality is?

I don't think I have it in front of me what our, quantitatively what that is. I think we observed if you look at a typical year, we were seeing normal seasonal trends this year sequentially maybe a little better until you got into September when it softened a little bit. Quantitatively, I don't recall what fourth quarter to third quarter or year-to-date have been.

We did discuss one aspect of that and that is that if the new normal is the last three years instead of six years what, we're seeing in terms of October levels is relatively normal when you compare to December, but that's assuming that this falloff that we started seeing in the fourth quarter of 2006 is the new normal.

Judy brings up a great point. Are we going to have Christmas season like we use to see in the 1990s? It's hard to know. It certainly is possible that this influx of freight that you see in October and November, perhaps it's fundamentally changed.

The new normal you're referring to, Judy s more of a flattening in fourth quarter opposed to front-loaded?

Well, yes but also a more, I think a more severe dropoff in the fourth quarter compared to the third quarter, for instance. Just in total.

Okay.

I think that is what we just don't know. If that is going to be like we said, the new normal.

Right.

When you get to the point of it being the fourth fourth quarter, you start to think about it that way.

That is helpful. Thank you very much.

Thank you.

Your next question comes from the line of Justin Yagerman with Deutsche Banc.

Hey, guys, most of my questions were asked and answered but i quickly wanted to get a sense of this non-controlling interest from the acquisition is on going on look like on a pay-out basis. Should we kind of be modeling that straight line going forward?

I think we're not going get a lot of guidance on that. It's going to be an immaterial number. It's reflective of the fact that we have a minority owner of a portion of that logistic business.

Could you remind me how much of the quarter you have this business for?

The whole quarter.

The whole quarter.

Yes. But we bought this business at the beginning of June, so when you look back to second quarter, it's was there for a month.

Okay. I think that is all I got. Can I take the rest offline. Thank you guys.

Okay, thank you, Justin.

Your next question comes from the line of Edward Wolfe with Wolfe Research.

Thanks. A couple of followups. On the proposed legislation, Bob, if that is going to eliminate orphan liabilities, how much of the contingent withdrawal liability do you think is related to that? I know it's not exact, but is that half of what the issue it is as you see it? Is it greater than that? What do you think of that?

Since the language is hypothetical and we don't know what bill is going to be proposed, much less enacted, it's not a question they're going to respond to. When we get a firm legislation, we'll be all over it with you, Ed.

Okay. But I mean we can make a scenario and just think about those scenarios. For instance, a scenario where the government achieves the goal which, I think is a fair and necessary goal of reducing the pension liabilities from all these orphans, in that scenario where you take a pension fund and goes from being underfunded to lets say hypothetically no longer underfunded, I'm guessing that really is a positive impact to you longer-term and certainly in terms of what your liability on the balance sheet potentially or not on the balance sheet, but your potential liability looks like. That wouldn't impact what is to pay in, you have a fine defined contribution plan. I am guessing you couldn't go back into that plan until the contract comes up in April of 2013. Am I thinking about that right from an earnings standpoint?

First of all, Ed, you're correct in that if the recognition of these orphan retirees were removed from our liability, that would be a positive event for us. I would say that the underfundedness of the plans is related both to this and the market losses, but, I think a combination of the recognition of this liability by the PBGC and normal market gains would be a substantially positive event for the funds and you're also correct that the contributions that we make for pensions are fixed in our contract until 2013, but those are conditions upon a situation which presumably would no longer exist.

So you think you can open up the contract at that point and renegotiate it?

I didn't say that. I think at looking at the longer-term, clearly there couldn't be the need for the current level of contributions.

Once that contract comes up, you would be able to reduce that after 2013?

Clearly.

Okay. One last clarification. Somebody asked a question about with Bob's retirement and other things, is there going to be pay outs and think Judy said some in fourth, some in first and some after that. I was confused whether that was just related to kind of Bob's retirement or also the greater executive life insurance issue and if you could talk about how those two break out going forward?

The comments are not related to the executive life insurance at all. Those are just policies that we have on the officer group that we talk about them because a portion of those is invested much like you would invest pension plan assets. That is one thing.

The reason I said what I said is because we have another officer that is retiring in the fourth quarter and that is in our sales area and so we will have some costs associated with that and depending on the timing of some of these payouts, we could have a portion of Bob's in the fourth quarter or the first quarter and then the way these rules work as far as having to defer a portion of the payouts for six months, we'll have something six months later. So, what I would like to do is give you an update on that whole picture whenever we have a better estimate of the timing and we have better estimates of the numbers and as I mentioned, we're going to speak publicly a couple of times in November and what I will try to do is give you an update on those at that point.

That is great. Thank you so much for all of it time and again, congratulations to both of you.

No problem.

Okay. Thank you.

Melissa, I think we're going to end the Q&A. I think Bob's got something he wanted to conclude with.

I wanted to say a final word to the investment community and Judy and I will be at a couple of conferences in November. I don't know if I will see all of you, so I just wanted to say that my experience with all of you has been remarkable. I think all of you are highly intelligent, you really have the ability to know our industry and I think more important than that, I have seen a real fairness in the way you have treated our company and a high level of integrity in the way that you carry about what is a very tough and grueling business for you. I want you all to know that it's been a remarkable association with you and I wish all of you the very best going forward. Thank you very much.