Yellow Corp (YELL) 2002 Q2 法說會逐字稿

Please standby for commencement of the Q2 2002 USFreightways earnings conference call. Good morning. My name is summer, I will be your conference facilitator today. Welcome to the USFreightways Corporation 2nd quarter earnings call. All lines have been placed mute to prevent background noise. After the speakers' remarks, there will be a question and answer period. To ask a question during this time, simply press star 1 on your telephone keypad. If you like to can withdraw your question, press the pound key. Thank you. Mr. Skinner, you may begin your conference.

Thank you, Summer. Good morning, ladies and gentlemen. Welcome to the 2nd quarter conference call of USFreightways. We have already placed on the wires and I'm sure all of you have in front of you our 2nd quarter press release which goes over the details and gives you a substantial amount of statistical information, I'm going to ask your Chief Financial Officer, Chris Ellis to review in summary the statistics for the 2nd quarter as well as the results. I have with me in the room Mr. Jared McArthur, who heads our Western Truck Group. Mr. Pete Neydon, who heads the Eastern Truck Group. And Mr. Tom Lily who heads the Logistics Organization. They're all present in the room will be available for questions as appropriate. We have also Mr. Steve Owen, our Vice president and controller, who is present with us today. At this point was I like to turn the call over to Chris Ellis, who will review for you in summary our 2nd quarter results.

Thank you, Sam. Before we get started, I'm going to read our normal disclosure statement here. The goal of this conference is to are an open discussion and dialogue on the Company's results and ongoing operations. We will be making some forward-looking statements concerning the Company's plans and expectations. We'll also be commenting on our expectations of revenue, demand for freight, the general economic environment, the pricing environment and projected costs and profits of the Company. To the extent that we make these forward-looking statements, we are availing ourselves to the safe harbor provisions of the private securities litigation reform act. We note that the actual results may differ materially from projections due to risks and uncertainties. So, for further details, we refer you to our filings with the SEC and our 10Ks and 10Qs for further details.

The first thing do today is to go through the income statement and a few of the balance sheet items. Then I will turn it back over to Sam. As in the past, our press release and the statistics, which are in shipment tons and revenues and those statistics for the LTL companies are posted on the website at www.usfc.com. There is an icon on the homepage for that. And also, these compare our 2nd quarter results this year to our 2nd quarter of last year.

So, let's go through the income statement and the other schedules that came with the press release. First of all, I'd like to say that for the first time in about a year and a half, both for the Company and for our trucking operations, that we're starting to see volumes, shipments and tonages overall are up slightly over the same quarter last year. However, we must remember that last year the economy was still contracting and this was especially the case of USFreightways and in the trucking industry in general. So, while we see our volumes up in any recovery that's in process at this point appears slight. On the other hand, as you probably saw in the press release our freight forwarding business at USF Worldwide has had a disappointing quarter. We will get into that. Overall, USFreightways had consolidated revenues for the quarter totaling $626.7 million. This is up 7/10 of a percent over the $622.5 million for the 2nd quarter last year. The earnings for the 2nd quarter were $10.5 million or 38 cents diluted earnings per share before special charges that we took at Worldwide which is our freight-forwarding business. This compares to $11.4 million in the 2nd quarter of 2001, which was equivalent to 43 cents diluted earnings per share. Now, the special charge at USF Worldwide in the U.S. arises from accounting rule SFAS 144, which is called Impairment of Long-lived Assets. Now,the 1st quarter this year, we also took a goodwill impairment charge, but this was under the accounting standard SFSA 142.

The 2nd quarter charge, which amounts to $7.8 million pre-tax, or 16 cents per share after tax, is shown in the income statement from operations in two places. It's in the freight-forwarding section of the income statement, has $6.1 million of this charge and the other $1.7 million is recorded in the intangibles amortization shown in the corporate and other sections -- when you look at the statement that we sent with the press release.

So, now let's go over each of our business segments and it how they performed in the quarter. First, the LTL trucking group. As mentioned in the press release, Good Friday fell in the 2nd quarter last year, since this is traditionally a light business day it skews operations a little bit or the comparisons a little bit, but it wasn't a completely closed day. So, total revenue for the LTL group was $475.2 million and this is approximately $10 million more or 2% more than the $465 million that we recorded in the 2nd quarter of 2001. However, fuel surcharges, which are included in revenue went down by about 1.1% as a percentage of revenue from last year's 2nd quarter to this year's 2nd quarter. So, before fuel surcharges, the LTL group's total revenue increased by about 3.2%, 2nd quarter over 2nd quarter.

Now, this revenue increase was coupled with volume increases, also in both tonage and shipments. LTL tons were up 3.5% in the quarter over last year and the LTL shipments were up 4%. Overall, the rates held pretty well for this current economic conditions when the discounting is so prevalent in the economy. Including the fuel surcharges, the revenue per 100-weight dropped 1.2%. If you back out the fuel surcharge, the LTL rates were flat to down by a tenth a percent. Overall revenue per shipment declined 1.7% including the fuel surcharge and down only 6/10 of a percent before fuel surcharge and the weight per shipment, LTL shipment, also declined 6/10 of a percent. So, as a group, the USF LTL team continued their disciplines in the holding rates. The LTL group reported an operating profit of $28 million in the 2nd quarter, slightly lower than the $28.7 million from the last year's 2nd quarter.

Now let's look quickly at each of the regional trucking companies. At USF Holland, here the revenue increased by 1.7% from $240 million -- excuse me, $241 million last year to $245.1 million in the 2nd quarter this year. If you back out the fuel surcharges, Holland's revenue increased by 2.5%. Holland's operating ratio for the quarter came in at 92.1 and this is compared to a 91.7 last year. Continued efforts at Holland to control costs has helped them especially considering the tough environment that they operate in, in the midwest, which is so heavily related to the automotive and manufacturing industries. Holland had a gain of -- which was also mentioned in the press release of about $600,000 from the sale of a property and this is equivalent about 2/10 to 3b 10 of a percent. So, it is little effect on the or.

At USF Bestway, while Bestway's revenue of $37.9 million declined 2.9% this year from last year, their operating profit actually improved and their OR came in at a 93.8 compared to a 96.4% last year. And this improvement results from emphasis on the Bestways claim costs, which were very high last year and significantly improved throughout the year so far.

Moving over to Red Star, as many of you already recall, one of Red Star's competitors in the highly competitive northeast market closed back in February and the extra revenue gained by this event contributed to Red Star's results. As a result, Red Star's revenue of $69.6 million was 6.3% above last year's 2nd quarter and their operating ratio at Red Star of 1.8 is virtually the same as last year's quarter. This is opposed to the 1st quarter this year, Red Star's revenue was tracking 6.7% below the prior year and the OR was over 3 points higher than the prior year. The OR is starting to contain.

At USF Redway, revenue went up by 1.5% and their operating income actually improved by 6% as Redway's or improved from an 89.9 last year down to an 89.4 in this year's 2nd quarter. This is achieved by continuing strong cost controls while maintaining their strong service levels. Redway had a 3.2% increase in LTL tonage and 2.1% more LTL shipments than in last year's quarter.

At USF Dugan, revenue is 3.5% above last year and both their LTL tonage and shipments grew at 5.6% and 4.7%, excuse me, respectively. Dugan's operating ratio on the other hand deteriorated from -- to a 98.4 from a 96.8 in last year's quarter as management maintains their commitment to invest in the Duggan System and this is so they can continue to deliver their high-quality of service as they are continuing to seek more profitable revenue.

In our truckload operation, USF Glenmore more, both revenue and profits improved. Revenue grew to $28.5 million this year, that's an 11.4% increase while the operating profit of a million and a half dollars was 73% above last year's operating profit. Glenmore has been aggressively working on diversifying and upgrading revenue base and increased truckload revenue per mile and June it was 3.4% higher than unions June of last year.

At our logistics segment, this consists of the traditional contract carriage operations, our contract warehousing, we have a distribution and consolidation group and it also includes our reverse logistics company, USF Processors. For the quarter, the group's revenue increased 4% over last year's 2nd quarter, this is up to $69.6 billion but their operating profit was decreased slightly to $2.1 million from $2.2 million last year. Within the logistics group, the traditional USF logistics revenue increased by over 10%. Over last year. And this is because they opened four new warehousing operations that began operations. But their profits suffered slightly with extra costs that were involved in the new business. And also their profits were slightly effected by some of the softness we're seeing in the retail industry sector of the economy. At USF Processors, revenue was off in the mid-teens and this is due to a large volume customer that we had last year that turned out to really not be profitable. So, the profits at USF Processors are in line with the numbers they had last year.

Moving over to Worldwide, our freight-forwarding segment, we previously mentioned the impairment charge that totaled $7.8 million, again, $6.1 million of which is included in the roughly $9.1 million loss from operations that you see on the statement we sent out. So, before the impairments, Worldwide's losses amounted to approximately $3 million. Worldwide's revenue is off 16% from last year's 2nd quarter as this forwarding sector, you might say, of the transportation industry continues to suffer and this decrease in revenue is -- is a primary driver of the -- of the increased operating losses.

One additional small mention that you see on the -- on the income statement, in the revenue you're going see now an inner company elimination of $2.1 million for the quarter and $4 million year to date. What this represents is a -- intercompany business between USF Glenmore operation and the business they do with our trucking companies. This has no effect on profits. It is just that Glenmore's revenue to Holland and Bestway and Redway and Dugan and Red Star, which totals $2 million, and this is shown as refund in Glenmore's books and purchase transportation in the other company's books. Last year, this amount was too small to include, but now as we continue to build our partnership business, which we now call Premiere Quest, product, this intercompany activity will continue to grow and become important to the company as we go along.

At the corporate and other line you see we have a cost of $8.9 million expense in the quarter and this is as it compares to $4.7 million last year. This $4.2 million increase comes from the following area, 1.7 is the accelerated intangible amortization, we talked about it previously from the impairment charge. We also have a $3.2 million increase in I.T. There is a $1.6 million lower normal amortization because this year -- you know, beginning this year we no longer amortizated goodwill. And another roughly $900,000 increase in all the corporate and other -- and some of this is due to increases in our insurance costs. So, the increase in I.T., which was mentioned, is the Company's commitment to invest and upgrade in our corporate wide I.T. functions. It is both for new systems we're putting in and also for infrastructure. I previously mentioned all of this in -- in the earlier earnings release this year.

So, now let's look below the line at non-operating cost. Interest expense is roughly $5.2 million, which is slightly below last year's $5.4 million. This actually represents the interest on our $250 million of bonds that we have outstanding plus related charges. Interest income, on the other hand, is up to $1.1 million compared to $254,000 last year and this increase represents interest that we earned on some tax refunds, both in state and federal refunds and this is for amounts that we paid in that we challenged and -- and we recovered from the tax authorities. Finally, our effective tax rate of 39% results from the normally lower tax rate than we used to run around 42% and there's an added extra benefit interest this gain on sale at Holland we talked about earlier, which is a capital gain item. We believe that our tax rate moving forward will still stay in the 40 to 41% range.

Finally, we will look at the non-P&L items, our capital expenditures for the quarter amounted to $27 million, half of which is roughly half of which is for revenue equipment and the remainder is for terminal facilities and I.T. And our year to date Cap-Xes come in at $54 million. Now, we continue to project that our total year Cap-X will be around $750 million, this includes approximately $38 million advanced purchase of tractors that we're making in the advance of the October 1 EPA deadline on Intellect's emissions and so this $38 million we're buying in this year is really in advance of next year, so, our acquisition of tractors will be much lower, we expect next year. So, in the second half, we're staying at the $150 million, if some extraordinary opportunities come along with the tracor returns, we might look at them, but -- so, this could increase it, but the 150 is staying.

At USFreightways we continued to have a strong cash flow, resulting in us having still 5 to $60 million ongoing in cash and short-term investments. Our financial ratios remain strong, we have a debt to total cap of 29.1%, not including the cash that we have on the balance sheet. And if you are -- took that cash and reduced the net debt, our debt to total cap ratio would come in at 23.9%. So, I'm finished and I think we will turn back over to Sam.

Thank you, Chris. As you can see overall, the 2nd quarter of 2002 is the best that we've seen in some time. We experienced increases in both tonage and shipment volumes for the 2nd quarter as compared to the 1st quarter of this year and also as compared to the 2nd quarter of 2001. These results are encouraging and while our recovery has begun, the economy is still soft and it is a very slow, gradual recovery. With this in mind, we are keeping all of our cost controls in place and maintaining a close watch on capital expenditures. As Chris mentioned, the one exception to this policy as I mentioned in the 1st quarter conference call; that we have decided to accelerate the purchase of 614 tractors that we would normally buy in the year 2003 and accelerate them in to 2002 before October 1, when the new emissions requirements go in to place. We believe the payback on this accelerated expenditure is appropriate given the predicted increase cost of the tractors, the increased maintenance costs that we expect with the new engines as well as the reduced fuel efficiency that we think the new engines will produce. And when you compare those returns to what we'd be getting in the market, we think it's an appropriate decision and these are all accelerations of tractors we would purchase as part of a normal replacement program rather than an expansion program. This is an effective way to make use of our cash.

I think you can assume that going forward after October 1 and through most of the year 2003, we will be making very few tractor purchases until we're convinced that the new engines are functioning correctly and make economic sense. Otherwise, as Chris has indicated, our economic policies created a very positive cash flow. We're keeping the cash reserve in tact and will make decisions on the employment of the resources as the economy recovers and competitive conditions warrant.

The exceptance obviously, to the results of the 2nd quarter are at USF Worldwide, where the results of the U.S. operations were disappointed. As stated in earlier conference calls, that usf worldwide, especially after September 11th, has faced significant challenges. In the 1st quarter, I outlined some of the challenges faces is Worldwide and indicated that they had and are cutting costs as much as possible, but obviously just cutting costs cannot solve the situation. And that would increase our sales and revenue volumes as well and that the economy had to continue in that area. Unfortunately, this growth is not occurred not only at USF Worldwide, but also in the industry in general and the volume of freight-forwarding, especially expediting in the air forwarding continues to lag behind what increases we see in the economy.

Therefore, after reviewing the results of the 1st and 2nd quarter as well as the updated forecast we have in hand for the 3rd and 4th quarters it appears our financial objectives for USF Worldwide that the board set out at the beginning of the year are not going to be met. After evaluating the entire USF Worldwide situation, including the economy as well as the challenges that we've talked about earlier, USFreightways decided that the frustrate-forwarding service no longer fits into the core corporate strategy. We have advise advised Worldwide of our decision and they have retained Morgan Stanley to advise them on the strategic alternatives, including the possible sale of the Company. They've advised us that a number of parties have already discussed a preliminary interest in the Company. We hope that this process will be completed by the end of 3rd quarter. The quality of the service and the people at USF Worldwide is not reflected in the decision. It is a top-notch group of people that continue to be ranked at the highest level in customer service. The problem is simply volume and size. John Gallahan and his team are doing an outstanding job under extraordinarily different circumstances. The world is a tolly different place than it was when USF officered the freight-forwarding business. September 11th, the continuing recession in Japan, which is now multi-years in length, significantly lower air freight volumes and the transfer of freight from air to ocean as well as surface transportation, is produced a very challenging freight-forwarding environment. Therefore, we have made this decision.

Chris has commented about the progress, I will just say that obviously our operation at USF Red Star continues to face challenges. We are aggressively pursuing alternatives in rationalizing that business as well as cutting costs whenever appropriate and their OR for the 2nd quarter was the same as it was last year and is significantly down from their unacceptable OR in the 1st quarter. We continue to keep pressure on that business. With that in mind, I will now take some questions from the calls.

At this time, I'd like to remind everyone in order to ask a question, please press star 1 on your telephone keypad. Your first question is from Jordan Elliger of Goldman Sachs.

Yes, hi. Question, with, you know, the volumes year-over-year looking positive in the 2nd quarter, you know, we're not too far off, I guess, sort of levels we started to see prior to the slowdown in the economy from the aggregate volume standpoint. When do you see or when should we envision sort of operating margin on the LTL side moving closer to sort of those pre-recession types of margin. You know, what will help trigger it? We saw sequential improvement, but what will get us the next step? Is there anything aside from volumes that may be acting as a drag, including insurance claims, et cetera?

Well, we have increased expenses going into the year 2002, but I think we've done an excellent job in containing our -- our expenses -- our insurance expense. We've had an increase of insurance expense. We've had additional retention, but overall I think our insurance team has done an excellent job in a very, very difficult market. I don't think I can say that that is a -- will have a significant negative impact. We obviously have certain labor obligations in the agreements of our labor contracts with certain of our carriers that will have to neat will have some impact. And, of course, for 2003, we will be -- USF Holland will be negotiating their labor contract comes up in March of 2003. But what we really need is a more vigorous recovery, Jordan, in the economy, than we've seen. This can come -- the in fact this economy has not bounced back like we thought it would in the 3rd quarter to the level that we have is obviously delayed some of the recovery and some of the impact or results -- positive results from the recovery. We hope, assuming we don't get a double dip and we see no signs of that, that we will make gradual progression towards your goal, but it probably will be late this year or early next year before we see that in any kind of definitive manner.

Thank you.

Your next question comes from Ken Hawkser of Merrill Lynch.

Sam and Chris, just on the Red Star, you can talked about picking up traffic from ATA. Was that traffic profitable? And how is the pricing going on in the east, kuxtly, there should be less desperate pricing with the bankruptcies?

Well, there is still substantial capacity in the east and still substantial capacity of the APA -- the volume that results from the APA shut down is obviously enhanced it, but in addition it's because of the security restrictions in New York and other things, it is more costly to operate in the northeast than any other part in the region. The price pressures continue. We do not see at this point any significant abatement of the pressures that have been going on not only in the northeast, but in other parts of the country. We're hopeful that as more volume comes on-line that this capacity issue will allow us -- there will be less capacity available and allow less power. Right now it is still very competitive. I don't think you probably can say that this is intense and hasn't intesified anymore, but it's not to undermine how intense it was in the beginning.

Was the business you picked up then accretive?

Yes, some of it was accretive. Some of it -- some of that business we declined. So, we didn't take all the APA business that we could get. They had -- they were a low mark in the market, but we were able to get proper pricing, one of the things we continue to do is monitor very carefully in the northeast our yield on our customers and if we can't get acceptable yield and make profit on that business we're not only not taking it, but overtime will be decreasing that business.

Great, and one quick follow-up with Chris, the tax recovery. Chris, can you give us a bit of background on that?

With the -- well, what happens is you have a normal taxes and provide for the taxes, but when you have a capital gain, it is a much lower tax rate. So, the -- the mix of all that together winds up showing a roughly 39% tax rate for the quarter barring any capital gains that we would have from time to time. These -- the tax rates would normally run around 40, 41%.

I understand the move back to the 40% normalized range. You said there was a recovery on the tax side. What was it?

Oh, oh, oh, you're talking about on the interest line! Yes, there was roughly an 8 or $900,000. I'm sorry, I didn't understand the question. On the interest line there is interest on the tax recovery. We had -- part of this goes back a couple of years ago. We had taken a tax stance on -- on some of our expenses and the dededuction of our expenses. The I.R.S. challenged that, so we went ahead and paid the money in protest and we actually wound up going to litigation on it and won the litigation. We got the money back with interest.

Okay, thanks.

That's what it is.

Okay.

Your next question is from Jeff Koffman of Omega Advisors.

Hello?

Hello.

Hi, Jeff, how you doing?

Hey, guys, how you doing? Sam, I want to go beyond the short-term concerns and look out longer term strategically here, you mentioned, Chris, that the debt levels were pretty low, you were happy, you don't really have any material debt maturitying comes up for a couple of years. Let's say that Morgan Stanley is able to disassociate USF Worldwide, I assume there is cash coming to the Company there. You're looking to generate free cash flow depending on earnings there. And Chris, you already said you think the dividend is high enough as it is. What are the plans to -- to do with the cash in '03 and '04, are there strategic businesses you're not in that make sense for the Company to be in? Or have we said it doesn't make any sense, if we're going to make a strategic position, it will be in the current core business. It doesn't make sense to sit on the cash for a year or two.

I agree. I think that as I've said that -- that we continue to be examine -- we examine opportunities every month an we will continue to do so, I think it is -- it is clear to us that being strong in cash, if we can get some increase currency on our stock, we will be in a position to look at strategic acquisitions. Primarily in the core areas of the business that we're in now. As I've said, I don't think we're going to go too far from our core confidencey with we excell and we're looking for opportunities do so. This is -- it's not quite yet appropriate to begin that.

Uh-huh.

But if the right one came along, we will be positioned to take advantage of it. We still -- we are a significant player in the market and our marketplace. We still have plenty of market that we can capture with our service product as well as our new expedited service products as well as our logistics offerings to gather market share from others and growing market share. And no company in our industry has a dominant position in the market we represent. So, there is plenty of opportunity there. And whether you do it organically or through strategic acquisitions, I think that's the phase we will be going into going forward.

Okay, a follow you that, Chris, am I correct in assuming that your debt is pretty low-cost and it would probably cost you no refinance it early, that dividends probably don't make any sense. Does a share buyback with the stock coming down to these levels anything that the board might entertain or is that something that you'd rather focus more on strategic.

Well, Jeff, we do have a certain amount of shares that I think are roughly at half a million shares available for share buyback. We -- we look at the -- the price gets to an attractive level as an investment, we -- we will make buybacks of shares. It is strictly an investment decision and board, I will defer to Sam on that, but I would suspect the board would entertain these if the levels were attractive.

Thank you.

Thank you, Jeff.

Hello? We lost her? Hello? Hello? Hang with us, there seems to be an issue with the telephone.

Summer? Hello? Who's on the line.

This is Greg Barns.

Okay, Greg, go ahead, Greg.

Okay. I had a couple of quick questions, just to follow up. On the -- on the comment on the press -- I'm sorry, the price increase, you said the LTL is increasing prices 5.5% on the last week. What's your expectation on that, non-contractual customers, as to how much of that will stick?

Well, I think it -- people understand we don't have contractual obligations, people understand that it may be appropriate and we think that it basically has been accepted by our customers. That's our assumption, I think.

That's correct, Greg. We've probably about half of the 5.9 is non-contractual and you can expect to retain 2 to 3%.

So, we can see revenue per 100-weight sequentially up roughly 3% from where it was in the 2nd quarter?

That's probably through, but the other thing that happens is the pricing pressures in the market right now because of capacity. People are shopping pretty hard. You know, whether we retain that 2 to 3% or show the growth in the revenue per 100 is still up in the air.

But the contract yooil prices are locked in, right?

Right.

So, if you -- okay eso you don't -- so, you're saying you're trying to get the 5.9% on 50% of the business, but probably won't get 100%.

That's right. We take exception to certain customers not under contract.

All right. And Sam, getting out of the business, given the results makes a lot of sense. How about processors? It seems like that division struggled. I'm curious whether you would consider selling that or feel it is -- it's strategic assets.

Yeah, Greg, thanks for the question, I should have mentioned it in my remarks. As you know, we've had a management change down at USF Processors and we had -- the board received a report this week, we are extremely pleased with the work Dennis Rialry has done since taking over leadership of the organizations. We have turned a corner. We had very positive reports. We think that is -- we think our technology is superior to any in the marketplace. We now have got a -- we've converted almost all of our customers, we had over 50 customers to convert to the new technology. That's complete, almost complete. We're now in the business of acquiring new customers with the new technology. It is being received very well. I think while we did have a -- you know, challenges in the 1st and 2nd quarter, there is nothing but positive coming out of Processors in the 3rd and 4th quarters. We think that's part of our ligistics offerings and we have no intention to sell that.

Okay. Makes a lot of sense. Just on the -- maybe a question for Pete on red star and help me understand, you had a nice tonage gain, but still operating at 101 or, albeit an improvement from the 4th quarter. Do you have so much capacity now at red star that you have to take business even if prices aren't that great? Because otherwise wouldn't it make sense to grow tonage only 2% and essentially raise rates? It just seems inconsistent that you're growing the tonage pretty strong and yet you're still not happy with the rates. Why not just raise prizes in the division with slower growth?

That's what we're doing. We're taking a look at all of our accounts and we are adjusting the rates that customers are not up to the standards or levels that we feel we need to be profitable we have made a decision to back away from certain business and we have negotiated rate increases with other customers. And I'm pleased with the progress that they are making and think we will see the results in the remainder of the year.

And on -- on that -- on the APA -- I think Chris indicated, maybe we talked about it, he thought there would be a filtering in effect without seeing the full benefit right away. Obviously now you're starting to see a benefit. Are you sure that the ripple effect isn't fully in the numbers and you will see further improvement? Or is the 2nd quarter really going to emcompass the benefits going away?

I think we've pretty much seen it. We could get a few accounts here and there, but pretty much felt the effect of APA.

Great. Thanks a lot.

Take it easy, Greg.

Again, to ask a question, press star 1 on your telephone keypad. You have a question from James Valentine of Morgan Stanley.

In the -- just a follow-up question here on the competitive landscape and what might be causing yields to -- better than the last recession, but they're still -- some are weak across the industry. Talk maybe about the competitive pressures, are you seeing any -- seeing it more on the regional front, maybe because Conway is trying to offer a new service? Fed-ex is doing rebranding of American freightways and Viking or is it more from some other place in the market, other regional companies they're not discussing, I don't envision it to be the long haul guys?

As you know, Jim, our LTL companies are basically in the next-day business as well as the two-day business and there's been a lot of announcements lately extended new services, but when we look at the services some of our competitors offer and compare it to what we're providing and have been providing for the last 10 years, we've already done it. We have -- if you look at the match-up the five-digit zip codes throughout the United States, and match that up with our companies, we have over 200 million lane payers that are next day and another 254 that are second day. Of course, we do that with one driver. So, we're delighted to see the competition come out with these new services and we probably haven't done as good a job as we should in marketing it and letting our customers know it, but the customer is aware we've been doing it for 10 years.

Great. And you're right, from our perspective, you have the highest next day delivery of the LTLS we follow. The second question was --

On time and undamaged, I might add.

That's right. And the second question, a run rate for your core expenses. Given the I.T. cost in the quarters, wondering; there a particular project that's under way that will go away or should we expect this in the future?

Well, yeah, Jim, how are you?

Good, thanks, thanks.

I mentioned this last quarter and this is something that we said that we're going be investing in in I.T. and this will be going for several years. The run rate could change as you go along, depending upon what phase of a project you're in. When you do a lot of I.T. work, you have phases that you capitalize and other phases you don't. And there could be some fluctuation, but I think the general level of the I.T. Expenditures and run rate we have is going to stay where they are.

We have several new projects. The major one, Jim, the new replatforming of freight management system, I talked about it for the ltl companies. That's a major project. It is under way. It will continue for the next couple of years and it's probably the most significant -- I know it is the most significant I.T. program that we've undertaken and it will bring major benefits to us, we will be able to have greater interface with our customers. We'll be able to eliminate the risk of what I call an old generation platform at least one of our companies. And those expenditures, as you know -- those efforts are not inexpensive. In addition to that, we continue to build -- to teflon strength our I.T. Infrastructure. As well as our disaster recovery. One thing that we've learned after 9-11 is that everybody has to pay attention to diaster recovery and have a bulletproof system and, of course, cyber -- you know, cyber efforts in was I call cyber espionage is a clear threat to the American companies today, especially to the internet so a lot of efforts are going on in that area to be sure we're not subject of terrorism.

Great, great. And the last question is regarding next spring in terms of -- hopefully before next spring, your negotiations with the teamsters. I believe last round you guys were negotiating your own, but prior to that, you were part of the larger collective group, the freight carriers association, I don't remember if that's the term that, was eight years ago. Can you walk us through whether you plan to go with the industry or the rest of the industry?

I will ask Mr. Neydon who has that responsibility to answer that question.

We've made the decision at holland to join the group at the association and just begun meeting with them. In the case of bret star, we're keeping our options open.

Why would you do that? Just curious?

I don't know -- I think we've -- you know, our labor strategy is probably appropriate --.

I hear you. Thank, guys, appreciate it.

Okay. Jim.

Operator: At this time, there are no further questions.

All right, thank you, everybody. For your time and your effort and we look forward talking to you as we go forward. Thank you.

Operator: Thank you for participating in today's USFreightways Corporation conference call. This call will be available for replay beginning at 2:30 p.m. eastern standard time today through 11:59 p.m. Eastern standard time on July 26th, 2002. The conference I.D. Number for the replay is 408303. Again, the conference I.D. Number for the replay is 0908303. The number to dial for the replay is 1-800-6421687. Thank you. You may now disconnect.