Yellow Corp (YELL) 2003 Q1 法說會逐字稿

Good afternoon. My name is Heather and I will be your conference facilitator today. At this time I would like to welcome everyone to the first quarter earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

This conference is the sole property of USFreightways Corporation and any rebroadcast or transcription of the event without prior written consent of the company is prohibited. If you do not agree to these terms, we ask that you disconnect now. By staying on line, you are accepting these terms. Thank you.

Mr. Skinner, you may begin.

Thank you very much, Heather. Good afternoon, ladies and gentlemen. Thank you for joining us this afternoon for our first quarter conference call.

The order of the day is going to be that I'm going to ask Chris Ellis, our Senior Vice President and Chief Financial Officer, to review some of the financial performances of the company. Then I will make a series of comments and then we'll be open for questions that you may have and various people in the room will answer questions and I'll direct the questions as I believe appropriate.

Again, I thank you for the attention that you've given us this afternoon and I'm going to ask Chris Ellis to review our financial results and then I'll back to you with some comments.

Thank you, Sam. First I'm going to read our Safe Harbor statement.

The goal of this conference call is to have an open discussion and dialogue with the company's results and ongoing operations. We'll be making forward-looking statements concerning the company's plans and expectations. We will be commenting on our expectations of revenue, demand for freight, the general economic environment, pricing environment and projected costs and profits of the company.

To the extent that we make these forward statements, we are availing ourselves to the Safe Harbor provisions of the Private Securities Litigation Reform Act. We note that actual results may differ materially from projections due to risks and uncertainties and for further results, we refer you to our filings with the SEC and our 10-Ks and 10-Qs for further details.

So, first, I'm going to give you a quick walk through the income statement and our statistics plus a couple of balance sheet items. And then I'm going to turn it back over to Sam. I hope that you all have a copy of the press release because I'll be referring to it and our operating statistics. For your information, both of these are posted on our Web site at www.usfc.com.

First, I want to give a quick explanation of our operating statistics. Those of you who have looked at it will notice it's in a new format and it's taken from our new data warehouse that we have formed with the company that gives a lot of details on shipments. We're confident that they show a clearer picture of our operating variables of the company than the past statistics that we used to supply.

So what's different about these statistics? The major item, if you recall that after Consolidated Freightways closed, we had a big increase in our longhaul PremierPlus business. And this product is handled by two of our regional carriers. So each carrier has been showing and continues to show its portion of the revenue and, back then, each recognized the shipment and the tonnage on that. So the revenue was not, is not and will not be double counted, but the shipments and the tonnage, because they were shown in both companies, would - one would argue that they were being double counted.

Now, what we've done is we've treated these PremierPlus shipments as one shipment for statistics purposes, which is really the truest economic way of looking at these statistics. So they also show the length of haul for each company including the PremierPlus portion in that business that we have in there. So after you review these statistics on an individual basis, if anyone wishes to discuss them, feel free to call me. I'd be more than happy to talk to you about it.

Now let's take a look at the P&L for the first quarter. The company recorded consolidated income from operations of $4.2 million or 16 cents per diluted earnings per share. This compares to last year's first quarter loss from continuing operations of $6.8 million or 25 cents diluted earnings per share. However, included in last year's number is a $12.8 million charge to our non-core freight forwarding business. Now, due to some accounting rules, this charge could not be put in discontinued operations, but it is a non-core activity. So if you back that out of that - out of our charges for last year, our earnings per share from core operations came in at 22 cents diluted earnings per share.

Our consolidated revenue was 593.7 million, up 14.1 percent over the $520 million that we recorded last year. Now, even though USFreightways has a calendar year as our fiscal year, our quarters are 13 weeks and they're supposed to be the 13 weeks closest to 65 working days that you can get. So in our first quarter, the way that the calendar lines up, our fiscal quarter ended on April 5 and, as a result, we wound up having 67 working days this year compared to last year, which had 62-and-a-half working days. Therefore, if you look at our revenue growth on a working-day basis, it had increased six-and-a-half percent over last year compared to our 14 percent increased I just mentioned earlier.

Just quickly, I'm going to mention the three areas that were in the press release that affected our results. Both Red Star and Dugan had severe weather in their areas, and even Holland and Reddaway were actually impacted, though to a lesser degree. And this impacted our earnings we estimate at about three cents per share, maybe a little more.

Secondly, our logistics business segment had to provide a little over $2.3 million reserve, against their receivable that they have with the Fleming companies who filed for Chapter 11 bankruptcy. This amounted to a little bit over four cents a share. And then third, there's a restructuring ongoing at Red Star, add an additional four to five cents.

And this restructuring process involves the elimination, as we said earlier, of about $30 million of annual revenue from what was Red Star's biggest customer.

So since we were obligated to maintain certain operating standards with this customer during the phasing out process, there's a lag in bringing the cost reductions down and this affected our earnings.

Now let's go quickly through the different business segments that we have. First, we'll take a look at the LTL Group. Despite the continuing sluggish economy, the revenue in the LTL Group increased in the first quarter by $13.6 million over last year's quarter, and on a daily average basis, it was up six percent. Now with the higher fuel cost this year against last year, the fuel surcharges, which are included in the revenue increased as a percentage of revenue by about 3.8 percent. So the revenue for the quarter of the LTL Group grew about 9.8 percent before the surcharges.

Also the company continued to grow the PremierPlus longhaul service during the quarter. This service grew at a rate of about 46 percent over last year's first quarter, and this represents, now before the quarter, 12.7 percent of the LTL Group's total revenue, and that's compared to about 9.8 percent last year.

As for profits, the LTL Group reported operating profit of 16.8 million, which is almost flat with last year's $16.9 million and as we mentioned before the primary cause for this is the increased loss at Red Star, whose losses increased almost $3 million.

Now rates held steady during the quarter. We talked a little bit about them, especially when you include the fuel surcharges, the billed LTL revenue for 100 weight increased 6.7 percent. Now part of this increase comes from the fuel surcharge as I said, and part comes from the increased length of haul, and you can see in the statistics it shows the evolution of the length of haul. And that overall increased during the year of 5.4 percent. And as I mentioned earlier, it went up a little bit, fuel surcharge, a little over three-and-a-half percent as a percentage of the total revenue.

Moving over to the truckload business, our USF Glen Moore saw its revenue grow by about 25.4 percent to $31.7 million in the quarter. And this increase was about 17 percent increase on a daily revenue basis, average revenue per day.

Now included in Glen Moore is an acquisition of a little carrier called System 81 in Tennessee, and it contributed about $1.3 million of revenue during the quarter, or about five percent of the 25.4 percent revenue increase.

Glen Moore's profits were heavily impacted by fuel more so than the LTL Group, because they are not able to put in fuel surcharges to the same extent that you can in the LTL area. And we believe that that added about two points to their OR, which came in at about a 98.3.

In our Logistics business segment, revenue of $75.7 million was up 13.8 percent over last year's first quarter; however their profits were severely impacted as we said before, by the $2 million charge against Fleming, who filed for Chapter 11. So before this charge, their profits were somewhere in the neighborhood of $2.6 million. Nevertheless, Logistics Group did see some softness, especially in their cross dock business from, due to the sluggishness in the retail sector.

Going down and looking at the corporate and other area, the net expenses there decreased from $6 million last year down to approximately 5.2 million in this year's quarter. And this reduction was primarily due to the lower IT costs and also to improved insurance experience, almost equal between the two.

Our insurance claims that, these are the claims that are absorbed at the corporate level, went down compared to last year, and this is for those large claims that are above the risk retention level at each of our operating companies. So we had better experience on these large claims than we did last year.

And in the IT costs, well when I say that, that's the net expenses that hit the P&L, also decreased from last year. This is really the result of moving in our, into the development phases of our projects that we're putting into place with our heavy investment in IT. Under accounting regulation, SOP 98-1, you have to expense certain phases; then you capitalize other phases. So we are now in the capitalization phase of several of these major projects we're working on.

Now we see that, as we said in earlier calls that, conference calls that we expect that our cost to max out this year, and be kind of steady and taper off towards the end of 2003, as these projects finish and rollout into production.

This is still our overall general plan. So we could see a little bumps here and there in the cost during the next couple of quarters, but we don't believe you'll see any significant increase over the level that you saw in the first quarter.

Now let's look below the operating line on our P&L, interest expense came in at 5.3 million, slightly above what we had last year at 5.1. This reflects higher cost that we incur on our letters of credit for our self-insurance program. Our new credit facility we just put in at the end of last year is priced actually very competitively for the general banking market that's in existence today. But it's a bit higher than what we had with our previous facility we had put in over five years ago. It's an entirely different market.

Looking at our tax rate for the quarter, you can see it came in about 42 percent compared to 34.1 percent last year. Now last year's rate, you have to compute that on the earnings before the $12.8 million loss that we showed that we incurred on our exiting Asia. Because this could not be tax effected, since it was a capital loss. So the low rate last year calculating was due to credits that we received from some state tax refunds.

This year, going forward, we expect that this tax rate is to lower down later on during the year and succeeding quarters to, we believe around 40 percent, maybe a little bit less than 40 percent.

Taking a quick look at our capital expenditures and balance sheet items. This year the Capex's came in at 37 million and this compared to 26 million last year. The major reason for this increase is in our IT area, which we just talked about, which is up from two million dollars last year to $10 million this year and this is that what we talked about as the both the hardware and the software development expenditures that are mostly occurring at the corporate head office.

So for the total year, we're still sticking with the projections we had made earlier, somewhere in the neighborhood of 120 to $150 million. And this is really obviously depending on how the economy shakes out as the year progresses.

At the end of the quarter we had cash on hand of about $47 million and this compared to about, I think it's 52 million at the end of the year. We expect the cash level, naturally, to go down during the year because of the seasonal working capital requirements that come through but we don't foresee having any material bank debt given our current experience that we have so far during the year.

Our ratios, financial ratios, still look pretty impressive. Our debt to total cap is 29.1 percent at the end of the quarter. Virtually the same as it was in December. And the net debt to total cap is 25 percent.

With that, I'm going to turn it back over to Sam and make other comments.

Thank you, Chris.

As I indicated, we're very proud to report that USFreightways had a very solid quarter in spite of a very difficult economic environment that we faced.

Our two biggest business units, USF Holland and USF Reddaway, each posted revenue increases of 15 percent over last year's first quarter and increased their profits by 15, over 15 percent and 52 percent, respectively.

In addition, we've made significant progress in the restructuring of USF Red Star under the leadership of our new CEO there, Steve Caddy and his plan to return it to profitability is well underway.

We also expanded our LTL PremierPlus service offering in the national longhaul market and grew that business by 46 percent over last year's first quarter.

We continue to increase productivity and decrease costs through the implementation of corporate wide purchasing initiatives in the area of revenue equipment, real estate, fuel and lubricants, telecommunications, tires, and suppliers. These initiatives are already saving the corporation millions of dollars. We will continue to place emphasis on these efforts and they will continue to pay benefits in the foreseeable future.

We also continued the consolidation of our multi health care system and we put those systems under one core dated health care system, which will allow us to control our health care costs significantly.

And finally we negotiated a new five-year Master Freight Agreement with the International Brotherhood of Teamsters without any interruption of our daily operations.

We continue to improve our information technology capabilities. We made numerous improvements to USF Net, our Web based system, and the consolidation of our eight regional data centers into one world class facility is well underway.

We also continued our efforts to put all of our LTL companies on one high quality freight management system. I'm delighted to inform you that this effort is on budget and basically on schedule. The implementation of this new system will continue through 2003 and will be completed in 2004. We anticipate that when fully deployed, this new freight management system will result in very significant cost savings and productivity improvements. As Chris has mentioned to you, we did all this while maintaining a very strong financial position with cash on hand of 47 million and a 29.1 debt to capital ratio.

All these efforts have allowed us to again be recognized as one of our industry's most admired companies by Fortune Magazine. Even more importantly, our companies continue to be recognized by our customers as the very best of the best. Even in these difficult times, our employees continue to be highly motivated to provide the very best service possible while aggressively marketing our services to new customers on a daily basis. And of course, it goes without saying, but I do want to say it anyway. These employees - these over 22,000 employees nationwide, these extraordinary people who work day in and day out to make this company what it is today are the ones that really are responsible for the outstanding reputation and the accomplishments that this company has made.

With that in mind, I'd be more than delighted to take any questions and I'll direct them as appropriate to other people who are in the room.

At this time, if you would like to ask a question, you may press star, then the number one on your telephone keypad. Your first question comes from Justin Yagerman with Bear Stearns.

Hi. It's Peter Nesvold with Justin for Ed Wolfe. I guess the first thing we want to ask about is Red Star. In the release, you talked a little bit about some of the improvements you're making there. We're hoping maybe you can give us a little bit of a roadmap for the margin improvement during the year. When do you expect to turn profitable in that division and how soon can you get there?

Well, obviously, it's a very complicated restructuring. We aggressively shed approximately $30 million of unprofitable business and are replacing it with approximately $30 million of business that we acquired through the acquisition of Plymouth Rock's book of business. That will continue through the entire year and we estimate that and anticipate that will be a breakeven by the fourth quarter. We've taken a number of the costs related to the Home Depot business out of the system. That required a separate delivery system and we've taken a lot of those costs out. We have additional costs that we'll be taking out as we withdraw from the Carolinas and consolidate our terminals in the Boston area.

Those two actions require notification to the Teamsters, which was made and a hearing, which was made and held yesterday. We anticipate that those costs will start coming out the end of the month. In addition, in April in the second quarter, we began to take on the business from - and Plymouth Rock and we're continuing to execute, I think, in a very excellent way, we're getting good comments from our customers and it's our desire and our hope and belief and that we'll retain a good portion of that business on a very profitable basis.

So our plan is basically on plan and on schedule and we anticipate, by the fourth quarter, to be at a breakeven situation.

OK. The second question - at Holland, the revenue was up substantially year over year, but the OR was relatively flat. Do you attribute that entirely to weather? Do you, you know, normally, we would expect to see - I think you've talked about 15 plus percent incremental margins on each additional shipment. Is that how we should continue thinking about it going forward?

Well, Pete Neydon, the President of Holland and President of our Eastern Truck Group is in the room and I'll just ask him to answer that. I would point out that even with that improvement, the revenue improvement was significant and they did make a 15.2 percent increase in profit over the first quarter of last year. Pete, do you want follow up on that question?

Well, certainly, we were impacted by the weather, but I can tell you that we have weather every year, and we don't think a lot about it. We're impacted by a tough operating climate, but all in all, I think it was a pretty solid quarter. If you look at that operating ratio, which matched last year, I think it compares pretty favorably with some others out there.

I guess the last question and I'll hand it off, can you just talk a little bit about the pricing environment, where you're seeing pockets of strength and where you're seeing pockets of weakness just in the market in general, not necessarily just in your company?

Well I've, we anticipated that question, so I have both Mr. McArthur, who runs the Western Truck Group and Mr. Neydon, who runs the Eastern Truck Group and Doug Waggoner who runs our National Marketing Effort and I'm going to ask them to express it each in their own way.

Pete, do you want to go first?

Well as I said before, it's tough in terms of the pricing climate. It's very competitive. I don't know necessarily that it, in Holland's area or Red Star's area that it's any tougher in one region than another. I think it's just generally very competitive.

Jared.

Thanks Sam. I, the Western United States continues to go like it has probably the last year, there is still capacity out there, so the, there's a lot of people who bottom feeder, so to speak, that are low-balling the prices and we walked away from some of that business. I think another area of the United States that really is been pretty hard hit, has been the southeast. There's a lot of wonderful carriers working the southeast, and everyone has a little capacity. So they're putting a lot of pressure on price.

And Doug Waggoner will answer. He handles our expedited products in our PremierPlus, which goes into the national longhaul market.

Looking at the data, at the 30,000 foot level, I really don't see anything that indicates regional differences. It seems to be pretty consistent across the board.

OK, so you're not seeing Northeast in particular, being really difficult, relative?

Well Northeast is always difficult, but I think the rest of the country's caught up with them.

OK, thanks for the time.

Your next question comes from Max Gardner with Deutsche Bank.

Hey guys, how are you doing?

Good.

I don't know if I missed it, but can you break out what LTL revenue per 100 weight was excluding the fuel surcharge impact? And then can you just mention what portion of that, I know you mentioned the increased length of haul, if you strip out fuel surcharge and you strip out the length of haul, what percentage of the yield improvement is coming from core pricing improvements?

Well Max, this is Chris. I don't know if you've had a chance to get the statistics sheet, but we do show the effect of the fuel surcharge for the total revenue, and its effect on the revenue.

Right.

And we haven't split it out by different operating companies, but it's fairly the same, across the board, so you would just take that percentage off of each one of those.

OK.

OK? What was the second part of your question?

In terms of what you view as being core pricing improvements, after you strip out you know, increased length of haul, and the fuel surcharge impact?

You know, if you look at, for those that, the people that don't have the operating statistics in front of them, I'll try and walk you through it. But the, for the overall company, the average length of haul for the group went up by 5.4 percent over the last year. And the revenue per 100-weight went up, and that includes fuel surcharge, went up 6.7 percent. Now everybody knows as the length of haul goes up your revenue per 100-weight goes up. It's not a one-for-one ratio, but if the fuel surcharge went up roughly three-and-a-half percent during the year, you take that off the revenue per 100 weight increase of 6.7, you come down to about a 3.2 percent. So that, and that's, how much of that's real pricing, and how much of it is other, I can only conjecture.

The fuel costs is going to be about a little more than half of that, and the rest of it's going to attributed to length of haul on pricing and mix.

OK, and just to follow up then on the discussion of pricing in certain regions. Let me ask about volumes in different regions. I know, can you talk about if you're seeing any sort of economic strength or weakness in particular areas in terms of tonnage not necessarily on the pricing front.

And then also what you're seeing breaking out retail versus manufacturing, if you're seeing any specific trends there?

Yes, I think the general is it's kind of basically just as its been. We see no significant improvements and both sectors are pretty weak or pretty strong depending upon how you look at it. But I'll ask, as long as they're here, I'll ask Pete to talk about the East and Jared to talk about the West.

Generally the economy is flat the way we see it both in the Northeast and in the Midwest, Southeast. I can't really speak to a great difference in terms of this year compared to last year, in regard to manufacturing or retail.

This is Jared, I kind of echo what Pete said, I think the other thing that's, you asked the question about whether it'd be soft goods versus manufacturing, I think what we see is all the way across the board. I mean our hopes are by the end of the year, we'll come out of this and you know, hopefully we'll be there.

OK, thanks, and just one more quick follow-up. In terms of Fleming, is the four-cent negative impact, is that your best guess as to what the final impact is going to be, or is there still, are negotiations still going on to get the money back.

Well we reserved for most of the, in fact, almost all of the pre-bankruptcy receivables. So therefore, that's been reserved. As you know, Fleming went into bankruptcy and they're going through a restructuring effort. We continue to be a preferred supplier to Fleming and continue to work for them, and get paid on a regular basis, basically you know, on a, almost on an accelerated payment scale and we stay on top of that.

We anticipate that Fleming will come out of restructuring and we'll continue to be a supplier of them, but obviously in any such restructuring, there's a lot of work to be done before those decisions and you can make that final conclusion.

OK, thanks guys.

Your next question comes from Gary Yablon with CSFB.

Hi guys, how are you?

Fine Gary, how are you?

Good. Can I just go back to the Holland question for a second. I just want to make sure I understand you know, Holland had a ...

Gary, could you get a little closer to the microphone. We're having a little trouble hearing you.

Yes, Holland had about ...

Thank you.

I don't know, about a $30 million increase in revenue or so. But I guess I wasn't fully understanding why the operating ratio wouldn't get a little bit better. I'm just not getting that. Could you help me a little bit there?

Pete you want to take that?

Well as I said earlier Gary, I think that we've got a very competitive pricing climate, and that accounts for probably most of it.

OK, fair enough. If I could jump over and just talk for a minute about Dugan, I was a little bit curious, the operating ratio deteriorated a little bit at Dugan. Is it, you know, when I look at these new statistics, you've put out and I want to make sure I'm understanding them, their relationship with each other directly as Chris said, they're not exactly linear. Is Dugan out there pricing business a little bit to fill up density or what's going on there 'cause it seems like that operating ratio should actually be improving so maybe I'm missing something I don't - or reading these numbers the wrong way.

Well, Gary, let me key back again and take this. First of all, one of our goals is to raise the quality of all of our companies to the highest level. In other words, we want to have a constant offering across the country of a high quality and go to first quartile type quality for all of our companies. Dugan has over the past couple of years has had some challenges in that area and since Walt Ainsworth has been in there, he has raised the quality of that organization by doing some restructuring and that has caused some additional costs.

It's absolutely essential that we do that because if we offer these inner company products, we're going to be measured by the quality of the lowest company. And I can tell you first hand that that effort has paid off.

In addition to some degree, as he's expanded in the Southeast in a very price competitive environment, he's probably had - I know he has, had to be very price competitive in some of the re-bids that he's seen. We believe all that restructuring that's occurred, however, by raising the quality, he'll be attracting additional business, he'll be receiving additional business through other companies as they hand off to him and that as the economy comes back, that will more than pay for itself. But we're paying a little bit for it in this quarter because of, as I said, some of the steps that he's taken to raise the quality to get a higher on time performance and at the same time to maintain a customer base for the comeback.

OK. Fair enough. And if I could just throw one at you, Sam, and I know you discussed this a few weeks ago when you did the conference call on your retirement. Could you update us on timeframe? How your search is going? How long you are willing to stay to the extent you'll share that with us to see transition? I guess what I'm trying to understand is I'm trying to, you know, guess the odds to what extent we're going to be without CEO possibly for a period of time.

Well, Gary, let me tell you that a month ago when I first announced my retirement and I met with the Board, ensuring that we had an orderly transition and that the initiatives that we begun were continued was a paramount importance. In doing so, we set up a committee, the lead director on the Board, Neil Springer, is on that committee along with me, along with Chris, along with Jared, along with Pete and Gerry Klaisle , our Vice President, Senior Vice President HR. We meet on a regular basis to ensure that all of the initiatives underway continue to be underway and as you know and you've commented in your - in some of your writings, how strong our management team is. We wanted to make sure they all understood the importance of that. And they all do understand and a number of those initiatives are being pushed forward on a regular basis and they will continue to do so.

So I have no question in my mind that all the efforts that are underway will continue over the next several months.

Now having said that, the Board began, the search is well underway. We anticipate that the Board will be reviewing - that we'll have somebody on board by August 1. That we will be interviewing candidates in late June or early July, final candidates and I know a lot of people think these searches take forever, but they don't have to take forever. We obviously are going to have an opportunity to look at a number of candidates for this job and the board is committed to go out and get the absolute best person they can to take this position and do so as fast as they can. And I know that with Mr. Springer and the board meeting with the search consultant on a regular basis, basically, two or three times a week. So I anticipate we'll have somebody on the first of August - no later than the first of August.

In the meantime, my plans are, obviously, to begin to phase out. That I will be available and I'll be phasing out over the next month or so as I approach my 65th birthday. I will continue to be available to advise after that time and be able to call on me anytime they want. In addition, I think the entire team will be structured to move forward and really not miss a beat. And I understand your concerns, but I want you to know that even before you had concern about that, the board and the managements here at USF had that concern and I think we've addressed it aggressively. And I'm very comfortable we're not going to miss a beat and we're not going to lose anything as we make this transition. So I'm - we're all very comfortable with that.

Excellent. OK. Thank you very much.

Your next question comes from Mike Manelli with Morgan Stanley.

Yes. I want to talk about pricing again real quickly. Instead of looking at things geographically, I was wondering if you guys could talk at all about, you know, looking - what pricing has done, looking at it kind of by length of haul and that the overnight lane versus you're longer length of haul business. Our sense is that the overnight market is maybe a little bit more competitive right now than it is as you get out in length and haul. I wanted to see if you had any comments on that.

No question about it. They overnight market is very competitive. It's been very competitive for the last two or three years. It's - and as time goes on and it's staying competitive. Because CF went out of business in the - in the fourth quarter, they - obviously, they took out almost 25 percent of the capacity of the longhaul market. And that has allowed the longhaul carriers and carriers such as ourselves to price into that market a little bit better than we have been in the regional market. And that's why we're expanding our business in that area. That's why we continue to believe that represents a great area of potential for us.

I can also tell you that we're executing very well, even though we have multiple companies. Doug Waggoner is staying on top of the products and the shipments as they go from company to company. We're measuring ourselves and have metrics on that. And I think we're also, as we announce new expedited products that will even be faster than the PremierPlus, they will continue to get a yield - a better yield. So we'll have a little better yield in that market and I think that'll be present for awhile now.

OK. My second question was with Red Star. I believe that the major customer that Red Star is walking away from is also a major customer at Holland. I just wanted to know if you guys were still doing business with that customer at Holland.

Well, every - one of the concerns that we have - Home Depot is obviously a very great customer of ours and we appreciate the opportunity to work with them. It - when it became apparent that it didn't make sense at Red Star, we worked with Home Depot to make an orderly transition out of that business so that we didn't interrupt any of their needs and, at the same time, moved as quickly as we could. They made some structural changes in the Northeast as well that further warranted a departure from that business and they recognized that.

Each company measures this business very carefully to their own set of metrics. And we are comfortable that all of the other companies that are handling the Home Depot business are comfortable, at this point, with that business. But like any business, not just that particular customer - any customer - we measure it on a regular basis and we obviously come up for annual reviews in most cases and look at it very carefully then.

But on an ongoing basis, we try to keep profitable business and if the business relationship is unprofitable to us, it doesn't make sense. We try to handle the withdrawal of that business on a professional basis, so that the company's reputation with its customers isn't hurt, and our reputation as the provider of services to that company isn't hurt as well. And we've done that, I think very effectively in this particular case.

OK, great. Thanks guys.

Your next question comes from Jason Seidl with, I'm sorry, Avondale Partners.

Hey guys.

Hi Jason.

Some quick questions, I want to, I guess stay on the pricing front there. Sam, am I hearing you correct with your comments on Dugan, that they are becoming more price competitive, because it looks like it a little bit in the numbers? Were they just trying to increase the density?

Well I think everybody Jason is becoming price competitive. I don't think what's happening at Dugan is different than what's happening at any of these other companies. All of these companies are under very you know, tough pricing competition.

Now this gives me an opportunity to make a point that was made to me earlier by Jared and I'd heard it from other parts of the country as well, from our other companies. In this very tough pricing environment, there's a tendency for some customers to take the lowest price or prices lower than ours, thinking that the quality of the service that they're going to get from that new supplier will be equal to what they're receiving from USF Companies. That is turning out to be in a number of cases, not actually happening.

And so we've had a number of customers that have left us and came back to us, sometimes in several weeks. I was personally involved with one of those, and you know, it was a very difficult decision for the customer, because they'd been with us a long time. They made the decision and within three weeks, they called me back and told me they were coming back, because the quality of these low-cost carriers was not of the level that they could accept.

And so we think that what's happening as a result of this price cutting is that people are beginning to recognize that all carriers are not equal, and they're recognizing that they really do get a benefit from the USF Companies and the quality of their business.

OK, if I could still stay on there, follow-up on Gary's comments on Holland. If I look at the revenue per 100-weight billed, it's 10.16, and if I look at it in the fourth quarter it's about $10. If we take out the fuel surcharges, it doesn't look like there's much change in weight per shipment or average length of haul sequentially. Looks like there's a slight degradation in pricing. Am I looking at that right Chris?

Well you can see the revenue, I'll let Pete address the generalities, but the specifics are that the revenue per 100-weight over the past year is up 6.7 percent, and within one quarter to the next, you have seasonality's, and that's why we like to look at these things on a year-over-year basis and not one quarter after the other.

Well I do think that you do have to be careful focusing on one number, such as revenue per 100-weight by itself. It can be misleading. You're right that it's impacted by length of haul, and you know, the, the revenue per shipment or shipment size, but you have to consider multiples, and sometimes lower revenue per 100-weight can still be very profitable, because of multiple pickups or deliveries.

All right, if I could switch the focus to Red Star. Sam, how much of the, how much of the Plymouth Rock revenue being counted in terms of your turnaround forecast for break-even by '04, and what percentage would you say you need to retain to achieve breakeven?

Well, we're optimistic that we'll, you know, every bit of that revenue has to be analyzed and has been analyzed as to profitability and whether it works within our system. So, we anticipate that some of that we will lose and some of that we will, it just won't make sense for us to handle. Having said that, we expect that we'll keep the majority of that revenue and it will fit within our existing network.

We, obviously, will have to add some personnel to handle the additional work, because that's a substantial load. And we got rid of a lot of the personnel that were handling the other account whose revenue we shed. So, there might be some replacement of revenues, but we think it will be a profitable business. It will yield much, have a much higher yield than the business that we shed, and it will go onto our existing network instead of requiring a standalone network, which was very expensive to operate.

All right. And I have one more question before I pass the baton here. Chris, the number of working days as we go out through the quarter, could you just give them to me real quick?

Yeah. For the second quarter, as we said, the first quarter 67. The second quarter will be 62 ½ working days. Last year it was 64 working days. For the third quarter it's 64 working days, and last year it was 63. And then in the fourth quarter we'll have 59 working days, as opposed to 63 working days last year. OK?

OK. Thanks, guys.

Sure.

Thank you.

Your next question comes from Salvatore Vitale with Fulcrum Global.

Thank you. My question has been answered.

Your next question is a follow up question from Justin Yagerman with Bear Stearns.

Hey, guys. It's Peter and Justin again. Just one quick question. Can you talk a little bit about tonnage in April seasonally adjusted? How is it shaping up for your second quarter?

It's about like the first quarter. I mean, we see no significant changes in April, so far, that would lead us to believe that it's any more than kind of business as usual in the first quarter. In other words, obviously, there will be some slight increase over time, but it's about at the same level that you would expect. We don't see a bump. I think it's going to be a very tough environment. As you know, we get surveys, and those surveys basically show it pretty flat. Bounces up and around a little bit, but April, it basically shows about the same thing, averaging about the same thing for April that it was during the first quarter.

I just got another quick question. It's Justin here.

It's Justin.

How are you doing? I just wanted to see how things are going. Have you gotten any approval from your board yet on the rebranding and if so, is there going to be any cost involved with painting the trucks or anything like that?

Well, we've gotten, not only approval from the board, but we hope, by the end of the week, to have approval from the shareholders. The branding, obviously, USF and USFreightways have become almost synonymous, but we're going to do this, I won't say on the cheap, because I don't want to say, I don't like the word cheap. But we're going to do this as inexpensively as possible, and we're not going to be doing a lot of, you know, as trucks and trailers, it becomes necessary to paint them or get new ones, we will make the change, but when we have to do it, we'll, you know, the only real thing on most of our vehicles it says USF already. Then it says a USFreightways Company. So, and where we have to do something we'll use decals and things like that. So, there will not be a lot of cost involved in it.

Well, I'm sure the shareholders will like that.

I hope so.

Thanks for the time.

At this time, there are not further questions. Do you have any closing remarks?

No, again I want to thank all of you for listening in and paying attention and also for all the attention that you've been giving the company. This is a very tough environment for all of us and we appreciate your support and we appreciate your questions.

If you have any additional questions, it may appropriate as you should feel free to contact us and we'd be glad to answer them.

Again, thank you very much.

Thank you for participating in today's conference. You may now disconnect.