Yellow Corp (YELL) 2003 Q4 法說會逐字稿

Good morning and welcome to the USF Corporation’s fourth quarter and year end conference call. This conference is the sole property of USF 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 the line, you are accepting these terms. Thank you. The length of the call will be no longer than one hour, and it will end by 11:30 Central Standard Time.

All participants have been placed in a listen-only mode. Following the presentation, the call will be opened for questions. I would now like to turn the call over to your host, Mr. James J. Hyland, VP of Investor Relations and Corporate Communications.

Thank you, Leandra. Thank you for joining us today. If you do not have a copy of our earnings release you may obtain one from our website, USFC.com, along with a copy of our operating statistics for the quarter. Speaking on the call today will be Dick DiStasio, USF’s CEO and President; as well as Chris Ellis, SVP Finance and CFO.

The goal of this conference call is to have an open discussion and dialog on the Company’s results and ongoing operations. During this call some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 could be made. Forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Additional information concerning factors that could cause actual results of operation and financial conditions to differ from those in the forward-looking statements is contained in our forms 10-K, 10-Q and other filings with the SEC.

One housekeeping note, USF Corporation will be presenting at the Deutsche Bank Securities Global Transportation Conference in Naples, Florida on Thursday, February 12th. At this point I would like to turn the meeting over to Dick DiStasio, USF’s CEO and President. Dick.

Thanks, Jim. Good morning, everyone. I think the best way for me to describe this quarter’s result is … “Progress being made, not there yet”. I will let Chris get into the detail in a minute, but first I’d like to make some comments on the quarter.

First of all, I am pleased to report fourth quarter income from continuing operations of $18.7m versus $13.6m in 2002, and diluted EPS from continuing operations of 68 cents versus 50 cents in 2002. This was accomplished with revenue of $546.6m versus $580.7m in 2002.

We made progress during the fourth quarter at USF Holland and saw a small operating ratio improvement. Steve Caddy, Holland’s new president, is doing a great job and instilling the right disciplines within the Holland organization. We anticipate that Steve and his management team will continue to improve Holland’s operating ratios going forward.

Reddaway, once again recorded strong operating results. Dugan recorded its best operating profit in three years. Logistics Processors returned to profitability as a result of better cost control. Red Star continued its march toward profitability, albeit slowed by the harsh winter weather during the quarter.

Also during the quarter we recorded a $10m pretax gain from the sale of the Red Star Newark, New Jersey terminal. As you know, when you are in the business that we’re in, transportation, you are also in the real estate business. Terminal acquisitions, dispositions, enhancements, et cetera, is part and parcel of our continuing operations. That’s how we view it and will continue to view it.

The sale of the Newark Terminal is part of a strategy to improve Red Star’s operating performance. This transaction was part of a New York/New Jersey metro reconfiguration to improve service and reduce costs.

So as you can see, we made progress during the quarter. Now let me take a minute to update you on where USF is today in terms of its strategic development. During the quarter, I took the opportunity to visit all USF business units, and to see the operations and meet our people. I was excited by what I saw and by the people I met. We have a great team at USF, and these individuals are dedicated and committed to our customers as well as our shareholders. I also had the opportunity to visit many of our customers during the quarter, and found out that we have some tremendous opportunities available to us.

We recently finished our budget meetings. We went out to all of our business units and put everyone through the drills and disciplines of the budgetary process. I can summarize my travels this past quarter in two words… “I’ve learned”. I’ve learned that we have a great team of people within the USF organization. We are well-respected by our customers and that there are tremendous opportunities for us to take advantage of.

But I also learned that we’ve lost our edge in some respects. We haven’t put forth as good a sales effort as we are capable of. We need to instill a better budgetary mindset and discipline within this organization. And we need to focus more on productivity yield and especially top line growth.

To that end, I’d like to mention two initiatives that we have planned. First our best practices program is now in progress across our LTL groups. This project is expected to produce significant cost savings and increases in productivity as well.

The second initiative is that we are having a Company-wide strategic planning meeting in February. We will focus the energies of the Company into one single purpose, and the outcome of these meetings will have a direct effect on all of our constitutions.

Our management team will instill discipline into the business. That wasn’t there before. Our customers will see a more effective and efficient business partner, and we will continue to create value for our shareholders.

Let me tell you, we are moving in the right direction towards a Company of one. I’d like to add we have a strong balance sheet, giving us the financial flexibility to take us where our strategic plan dictates. Our goal is sustainable financial success. That is my directive from the board. I am not here to maintain the status quo. My expectations are high, and I’ve asked our people to develop a new mindset and to raise their expectations. I am asking people to think outside the box. In fact, I’m demanding it.

As you can see from this past quarter’s results, we are making progress and we are confident that we can make significant strides in 2004 in terms of top line and bottom line growth. I’d like to thank you, and now I would like to turn the call over to Chris Ellis, our CFO.

Thanks, Dick. I am going to talk a little bit about the income statement and some non-P&L items for a couple of minutes. So first let’s go through the income statements. But before we start with this, I just want to alert everyone that beginning in the first quarter of 2004 the presentation format of our numbers is going to be changing. And I’ve mentioned this to most of you in recent discussions. With the business of our LTL group shifting more and more to, as Dick said, a one company, one team approach, the LTL group is acting more and more as one entity.

Additionally, under Dick DiStasio’s leadership, changes have been instituted throughout the LTL group to reflect this one team approach. So beginning in the first quarter 2004 results, USF will be presenting the LTL operating results as a single consolidated unit. In addition, we are going to continue to report the other business units of truckload and logistics group.

So now let’s get to the numbers. Our discussions here are going to be mostly around our income from our continuing operations. There is a small loss, about $338,000 for discontinued operations, and this relates to the freight-forwarding segment that was disposed of in 2002. And I want to remind everybody during these discussions that we had 59 working days during this year’s fourth quarter compared to 63 days in last year’s fourth quarter. So the net income from continuing operations for the quarter was $18.656m or 68 cents per diluted earnings per share. This compares to last year’s income from continuing operations of $13.642m or 50 cents a share.

Now included in these results are two noteworthy items that Dick alluded to earlier. First of those is that in our USF Red Star LTL operations, we sold a terminal in Newark, New Jersey for a pretax gain of $10m, which is after-tax of about $6.1m or 22 cents a share. And we’ll come back to this event a little bit later in my talk.

And then secondly, we took a couple of restructuring charges totaling approximately $1m pretax or $600,000 after tax which is about 2 cents a share. And these charges were in our corporate IT area, to scale back on our heavy fix overhead, and the other charge that was included in the $1m figure was a charge at our logistics group, and I am going to come back to these items a little bit later too.

So now looking at our revenue in the fourth quarter, our consolidated revenue was $546.6m compared to $580.7m in the fourth quarter of 2002, and this is a decrease of 5.9 percent. But now remember, we had four fewer working days this year compared to last year. 59 days this year and 63 days last year, so on an equivalent working day basis, the consolidated revenue actually increased slightly, about a half a percent.

And in our LTL group the revenue was $450.9m in this year for fourth quarter, and that is down 5.7 percent from the $478m last year, so the per day working revenue, on the other hand, if you take it on a per day basis, was up about seven-tenths of a percent, and the tonnage per day for the LTL group was off about six-tenths of a percent.

Now there is a significant reason for this relatively flat revenue in our LTL group for the quarter. This reason is that Red Star showed a decrease of revenue of about 20 percent, and this is part of their restructuring that they have been ongoing to improve their operating results. You recall since last year Red Star did two major things. It reduced it’s operating coverage by exiting both Atlanta and the Carolinas and they also got out of business with a major retail customer that was highly unprofitable.

So if you back out Red Star from the LTL group, the remaining LTL companies showed a 3 percent plus revenue per day increase and their tonnage per day, without Red Star was up about 2 percent. Now Red Star’s operating profit, again, includes a $10m gain on the sale of their Newark terminal. Now this terminal has been leased back on a short-term lease while Red Star looks for a replacement. We plan to move out of this large terminal, it’s got over 160 doors to two terminals that would allow more operational efficiencies, and this is both in the line-haul area and in the City operations.

For the fourth quarter, Red Star’s results before the gain on the sale showed a slight operating loss and an OR of about 101. And while we fully expected in prior conversations that we would break even this quarter, we’ve got to remember that Red Star did suffer from some inclement weather in the back end of the fourth quarter.

So now we look at Holland, their revenue was relatively flat on a per day basis, up a little over 1 percent per day. With their weight and shipment per day also down about 1 percent, Holland’s revenue for LTL shipments was showing an increase of a little over 3.3 percent. But on the other hand, their operating ratio has held pretty steady – it actually improved a little bit, going to 91.6 from a 91.8 in the fourth quarter of last year. I think they have really held the line in controlling their costs.

At USF Bestway, we reported that revenue was down 2.7 percent, but on a daily basis their revenue actually increased about 4 percent. Nevertheless, their LTL revenue per hundred weight, which is an idea of their rates, was down 4.2 percent. And this is, the competition on the West Coast has remained pretty intense, and in addition, Bestway has brought on a new customer, a very large customer, that has very high volumes but their yield per shipment is a bit lower. So Bestway’s OR suffered in the quarter, coming in at about a 97.7 versus a 93 last year in the fourth quarter.

Reddaway grew revenue 1.5 percent nominally, but it’s daily revenue was up 8.4 percent over the fourth quarter of last year. Once again, as Dick alluded, they had just a commendable OR of an 89.9.

The last LTL company, USF Dugan, posted a 2.4 percent revenue decline, which again is equivalent to a 4.2 percent daily revenue increase in the fourth quarter. Their OR though improved over last year’s loss to a 98.2 this year compared to last year’s loss.

In our truckload area, USF Glen Moore grew its daily revenue by about 9.5 percent, and they actually slightly improved their OR to a 95.5, and this compares to a 95.7 last year. One little note here, their results were not really affected by fuel costs, that remained essentially the same percentage of revenue this year versus last year.

In our logistics business, our last segment, our revenue declined 9.4 percent to a $67.3m compared to a $74.3m last year. And this decline was really heavily impacted by the loss of business with the Fleming Company, if you recall, because they went into bankruptcy earlier in the year 2003. And this was USF Logistics’ largest single customer. Their operating profit of $4m now, as we talked about earlier, does include a $373,000 charge for restructuring, and what they are doing is they are merging their management and most of their back office and administrative functions of USF Processors into the Logistics main office. So before the charge, logistics had about a $4.4m profit, and this on a daily basis is about 12.6 percent lower than last year.

Taking a look really quickly at our corporate costs, we came in at $8.3m, and this compares to $9.1m last year. This reflects primarily lower IT expenditures. Again, this $8.3m does include the restructure charge of $621,000 so the actual on an ongoing basis, regular basis, the IT costs were down even more.

Let’s take a quick look below the line at our non-operating. Interest expense is in line with last year. There’s just the fixed bonds that we have. And interest income increased slightly and it reflects a higher cash balance that we have this year compared to last year.

Our expected tax rate for the quarter came in at 39.5 percent, and this is really due to the higher income before tax, as we have – there are some fixed costs that are non-deductible expenses, so the higher you go up in income, that will drive down the tax rate a little bit.

Let’s take a quick look now at a couple of non-P&L items. In our capexes for the fourth quarter, our capexes came in at $17m. This is compared to $52m in last year’s fourth quarter. For the whole year, expenditures were $116m and that compares to $141m for the total year of 2002.

The higher expenditures of 2002 in the fourth quarter reflect tractors that were bought. If you remembered, we bought those ahead of the newer emission controls because the efficiencies of these newer engines is still not fully proven, so we went ahead and bought those in advance, and therefore during the year of 2003 we really didn’t have to buy a significant number of tractors.

If you look at our balance sheet, our cash on hand at the year end wound up really strong, came in at $122m and the financial ratios at USF remain really, really strong. Our debt to total cap came in at 27.3 percent, and this is compared to 29 percent last year. Now if you go and you back out the cash and get it on a net debt basis, that drives the debt to cap ratio all the way down to 16.1 percent. So that finishes up my portion. I’ll turn it back to Dick.

Thanks, Chris. Before we go to Q&A, I’d like to make one more comment. Some of you may have seen our press release that we put out yesterday, but for those of you who have not and are not aware, Chris Ellis, our CFO is retiring after 19 years here at USF. I would personally want to thank Chris for all his dedicated years of service, his invaluable help to me in my transition here as CEO, and for agreeing to stay on with the Company for the transition period to help out with our new CFO as he settles in. So Chris, thank you, you will be missed and best of luck to you in your retirement to sunny New Mexico.

Thank you, Dick.

Jim.

Thanks, Dick. Thanks, Chris. Leandra, we are ready for questions.

Thank you. (Operator instructions) Thank you. Our first question is coming from Ed Wolfe of Bear Stearns.

Good morning, gentlemen.

Good morning, Ed.

First, I guess congratulations is in order.

Thanks, Ed.

So let’s start with you on a couple simple things real quick. Could you give us what the tax rate should look like going forward, as well as corporate expenses and capex.

Well, you know we are doing our budget reviews right now. One of the great things that Dick DiStasio has done since he’s come in is he’s changed entirely our budgeting and review process, and we are right in the throes of doing our budgeting right now, so I really wouldn’t even be able to give you an idea of what the capexes are going forward. Obviously as the economy hopefully picks up during the year, the capexes, I would think, will be north of what we had in 2003, but at this point I am just not in a position to give you an estimate.

As far as the tax rate is concerned, I think somewhere between 40 percent and 41 percent will be in the range we’re looking at for 2004.

Okay, and corporate expenses, you noted that there was less IT spending, and that’s headed south. Does that continue, or is that just in the quarter? How should we look at that going forward?

Well again, we’re doing our budgeting right now. I think there’s a lot of stuff that’s been put in in IT. If you recall, we made heavy investments in new systems, and some of those systems are going to be coming online. But what happens is, those systems are really on behalf of the operating companies, so a lot of those costs I think you will find will wind up in those companies.

And just to add to that, what we’ve done is we’ve reviewed what projects we need to put in place, significant projects we need to put in place to make our 2004 year. So what we’ve done is we’ve streamlined those projects to meet the 2004 financial needs, and then after coming out of our strategic plan, obviously we’ll reevaluate what we need to do with the IT function in order to meet those needs of our strategic direction.

Dick, when do you get back to us with some guidance on these things, do you think?

I’m sorry, when do I get back to you on?

You know, to us on some guidance in terms of your capital spending and your corporate and your technology spending and all of that? Are you going to have an analyst meeting, or?

You know, I guess that all really ties into guidance, and I guess there’s an answer I can give you with regard to that. I’d rather refrain at this point from issuing any guidance right now, and I know that’s not what you want to hear and I respect that, from the fact that I know you have to develop models. However, I ask for your patience, we need to finalize the budget process and strategic planning process, and after we finish those two projects, obviously we will have a better perspective about our long-term strategy and how it will affect our future profitability.

At some point in the near future we will introduce the strategic plan to The Street, and at that time we will consider giving, obviously, the full year guidance. But that will be forthcoming. The strategic planning process begins at the end of February, and that will take anywhere from 30 to 60 days to cumulate the information that I’d like to get together and discuss with The Street.

Okay, longer term you’ve already made a couple of hiring decisions at the holding company. Do you anticipate some major changes in the operating people at this point? Where else should we expect to see some hires and some changes in personnel?

Well you know, I’ve already made the change at Holland and I’ve made a couple other changes, but it is going to be an ongoing process. You know, I guess this is the point to comment about change. The one thing we know about change is that it is constant, and since I’ve joined USF, you know, we’ve implemented many changes. Operational infrastructure, strategic and management changes. And as we work towards taking USF to the next level, I would anticipate, Ed, that these changes in the aforementioned areas will continue.

And if you read my comments in the earnings release, I stated that USF must continue to change and we have increased focus on growth and the implementation of our long-term strategy. So change is constant and USF is not an exception to the rule, and as I see the business continue to move forward, at the appropriate times I will make management changes.

Okay, and then one last thing. You put out a release about the poison pill, what is the thought process there and what is your long-term thought about the Company? One of the attractive things to shareholders is this is a consolidating industry, and maybe some of that upside is off the table now. Can you talk a little bit about that?

I mean, I could answer about the shareholders’ rights plan. You know, we extended the plan because we feel it is now a better plan for the shareholders. You know, we made the necessary provisional changes to conform to Delaware law, and the board obviously will revisit it on an every three year basis. As far as us being attractive, you know, I really can’t comment on that other than the fact that we owe it to the shareholders to continue to improve the value of their holdings. And that is what I am going to focus on. Focus on higher shareholder return.

Okay, thank you very much for your time.

Thanks, Ed.

Thank you. Our next question is coming from James Valentine of Morgan Stanley.

Good morning. First, Chris, thanks for all your help over the years, I think you’ve been arguably one of the most direct and candid CFOs I’ve had the pleasure to work with, and you will be sadly missed. I don’t know how you are going to live without this wonderful Chicago weather, but you can come back periodically in January.

The first question I guess with Holland, we saw some sequential margin improvement, and I am trying to think going forward the sustainability of that, so it comes down to, how much of that is driven by tonnage, pricing versus cost control in terms of thinking about that going forward?

Hi Jim, this is Doug Waggoner. Our new leadership at Holland has taken the posture on improving returns there. We’ve implemented a very strict yield management improvement program that is a function of looking at the freight mix, weeding out unprofitable business and growing the top line, and I think just in the short period of time of two months we are starting to see results there.

Would you say that we only had at most two months, maybe even something less than that, because you were implementing it in November, in terms of the fourth quarter? So going forward we should see even further improvements in this effort?

That’s correct.

Could – I’m not sure who, maybe Chris, but can somebody explain a little more on why Bestway’s margin deteriorated? Chris, you had that brief comment in your remarks, I was a little confused, but it sounded like you were saying because you have taken on new business, margins have gone down. I know there’s more than that, I think you had mentioned competitiveness. Maybe expand on that, and also to the extent it relates to Reddaway’s deterioration?

Well I think Doug Waggoner is really close to the guys, operation wise, so we’ll let Doug take that.

I think at Bestway there were a couple of things going on. One, we saw pretty fierce price competition in California.

By the way, I’m just wondering, is that coming from one particular carrier out there, or is that broad-based? Because I do know of one outfit that is trying to expand.

Frankly we see it with the niche carriers, and then I guess simultaneous with that we did bring on some incremental business in Q4 that had a lower than average yield, and we also saw our length of haul decline a little bit in Bestway.

How about Reddaway? The same? Well it can’t be the same thing with the customer, but are we also seeing the same competitiveness out there?

Actually, I think Reddaway was impacted by the same factors, but both companies had, on a per day basis, pretty good tonnage growth, which you saw in the yield.

Jim, their OR was a function of last year there were some exceptionally low costs in their claims area that were abnormally low and that did have a little bit of an impact on their OR.

But when we’re modeling for 04, should we look at this competitiveness being a drag, all four quarters?

Hard to say. I mean, I wish I had the answer to that.

Okay. And if I could ask just one last question, you know, we are seeing the weakness in the LTL stocks today for a number of reasons, I am sure Yellow and Redaway’s meltdown is part of it, but you know, when I think of USFreightways, given your fairly short length of haul, I think it may be the shortest among the publicly traded carriers, I consider you the furthest away in terms of some of the fundamental characteristics of how you run your business.

Am I looking at it incorrectly? I mean, how do you guys look at yourselves relative to all the other publicly traded carriers?

Well I think our core competency, Jim, is certainly the regional markets, overnight and second day. We’re going to continue to focus on those. We do however, and we’ve talked about PremierPlusSM in the past, we have the capability to reach out into longer lengths of haul. We think we have a good operating model for accomplishing that by the use of purchased transportation in lieu of a network operation, and we see that as a growth opportunity.

And you know, Jim, this is Dick. One of the things that we’ve identified as a critical area, obviously, is top line growth. And in the strategic planning process we plan to spend a significant amount of time laying out those plans and how to deal with this.

Good, great. Sounds good. Thanks, guys.

Thanks, Jim.

Thanks, Jim.

Thank you. Our next question is coming from Jeff Kauffman of Fulcrum Global Partners.

Thank you very much. Chris, I guess I will echo everyone else’s comments, but just to keep you in the loop we will periodically call you there in New Mexico there with some silly question about results.

Sure, okay.

Dick, more of a big picture question. I know you are in the process of reevaluating the business, there’s been a lot of management changes, it’s really too early to take a look at what the plan is. Having said that, I thought there was very clear body language in your release regarding your financial position and cash position and your intentions regarding that, and then I think I heard the same thing in your comments early in this call about your interest in pursuing strategic opportunities.

The history before you with this company is somewhat mixed. You’ve had four different CEOs over the past six years, there’s been several hundreds of millions of dollars, shareholders dollars, spent on acquisitions that really haven’t shown a lot to the bottom line. Have you looked at what’s been done in the past and I guess the body language I’m reading, how should I think about strategic opportunities as different from what has been done here previously? Do you have particular areas that you think may be more additive to the Company going forward, maybe in different areas, different lines of business, different strategies?

Again, I want to make a comment though first on our balance sheet. You know, we realized that we’ve been blessed with a very strong balance sheet. And we realize that we have both an enviable cash position as well as credit rating, and we have been and will continue to be very wise about how we manage our balance sheet. Believe me, that is a main focus of my administration right now.

Having said that, let me make it clear too that we will be timely about making strategic decisions. As I said in my opening comments, we have a Company-wide strategic plan, and in February we will address that. And in that strategic plan we will dictate how we want to manage that balance sheet going forward.

Now you ask questions about where do we want to go? Hey, listen. We have a strong core competency in the LTL business, and believe me, we have some wonderful people here that we can take advantage of, so that is an area obviously we will be very, very focused on.

However, I have to tell you, the TL business, we have just an outstanding management team in place and we need to address how we want to grow that business. I am very comfortable with what we’re doing over in Logistics and Processors. That can be a very profitable business, and I like the direction we’ve been going. You know, we’ll address that.

Again, I’m not trying to skirt the issue, but we will have specific plans coming out of that strategic plan to address this issue.

I’m looking at a truck on my desk right now called Comet Transportation, actually, it’s an old truckload carrier, I guess USF used to be involved in. Let me follow up along those lines. I mean your background is a little bit heavier in the logistics business, I think, something the Company has looked at a couple times, been successful in some areas, shied away in others.

You mentioned truckload, that’s understandable. When you talk about logistics, I guess kind of where do you think logistics could be additive in a way that you are not involved today?

Well I don’t know, you know, I look at our logistics business, we are really spread out in a number of areas. You know, we are in cross docking, we are in warehousing, we are in reverse logistics. And there are huge opportunities. We’ve just hit the tip of the iceberg there. And I am very pleased over the last five months what we’ve done with Processors, and turning that business around. And that model looks very, very favorably.

So there is significant opportunities in businesses and customers that we haven’t been able to pursue and I think we will pursue in the forthcoming year.

Okay, thank you very much, and good luck.

Thanks, Jeff.

Thank you. Our next question is coming from Ken Hoexter of Merrill Lynch.

Hi, good morning and Chris, thank you as well for your help over the past few years. Just on Holland, I don’t know if you talked about this earlier, but just on the economy and what you are seeing specifically at Holland, can you talk about what you are seeing and kind of why that one seems to be lagging behind some of the other growths that we are seeing in different regions? Is it, you know, strictly autos, are there things that are starting to rebound, or what?

I think the industrial sector has just, you know, been and continues to be flat. As I said earlier, we’ve been focusing on our freight mix there and that’s reflected in some yield improvement in Holland, and I think you have those things going on simultaneously.

So we’re still seeing a flattish kind of industrial market, I guess you know, with not just some of the GDP numbers, but ISM numbers we’ve seen climb up, we’re still not seeing that in the core middle part of the country.

Ken, I don’t have the latest figures, but I remember during our last conference call, and I haven’t heard anything otherwise from the guys at Holland. The rust belt, the industrial that is heavily dependent upon automotive in the Michigan, you know, the Great Lakes area, has really shown a decline in industrial activity compared to last year. So it’s probably a bit of that still in play there.

Great, one other follow up if I may on Red Star. You know, I think it was almost a year ago now that we did a bunch of the customer write offs. I was just wondering if, you know, it’s still obviously all in it’s still kind of a negative performer here. Is this something we should see easier comps going forward, are we going to see a snap back to profitability, or is this something that is not that simple?

Ken, I’ll start this. And just to clarify it, maybe I was misunderstood earlier. It wasn’t really a customer write off as much as it was an exiting of a customer business. I mean, the customers always pay their money, but it was very low yielding, unprofitable freight. And we notified and sat down with the customer and had an organized exit strategy so that the customer would continue to be well-served, but it was a part of a strategy to get out of this unprofitable freight. And as the time evolved, we weaned ourselves off of that and the yields started improving.

If I could just add to that. Our profit improvement plan at Red Star had a number of factors, consolidating the geographical footprint, as we talked about, getting out of the Carolinas, improving the mix as Chris just indicated, and shedding some unprofitable retail type business. And there’s been a focus on productivity and you also heard Dick talk about changing the network in the New York Metro area. So I think all those things are happening together.

I definitely think, Ken, there are opportunities at Red Star and I think we’ve addressed them and identified them and we are in the process now where you will see improvements coming out of Red Star.

Great. And Dick, just when we were talking a little while ago, obviously you were working on the plan that you were talking about. Is there – I don’t know if you mentioned it, but did you have a timeframe for when you are hoping to finish that up, wrap it up and kind of talk more specific?

Are you referring to the strategic plan?

Yes.

Yes, I would say again, a timetable; we’d meet at the end of February, and it typically would take, in my experience with these plans, 30 to 45 to 60 days to put everything together, bundle it up so we can present it to The Street. So I would probably say the end of April, beginning of May.

Great, look forward to hearing definitely some more details on that. Thanks a lot.

Thanks, Ken.

Thank you. Our next question is coming from Gary Yablon of Credit Suisse First Boston.

Hi guys, how are you?

Hi, Gary.

Hi, Gary.

Dick, I think this is I guess either for you and/or Doug. Holland and Redaway seem to carry the bulk of the profits for the LTL business in the Company, so as I just kind of stare at numbers, you’ve got these other divisions doing a fair amount of revenue, but you know, it’s not bringing a lot to the bottom line whatsoever. How do you write that over time, Dick, when you’ve got 70 percent of the profits coming at a – I don’t know, 50 percent of the revenue or something like that? When you have a network where all the pieces kind of need to be together and that’s how you are going to [incent] people, how do you address that so we can get comfortable that these other assets start to give you better return?

You know, as I’m delving into the business here, the LTL side, you know we really are more of a one company unit rather than five different business units. And when you look at what we’ve done in the past is, we’ve really operated as individual companies, and we really haven’t shared the lane opportunity that I see exist out there in the past.

Now as we become more of a Company of one, which is the direction we’re going into, for example at the end of March we will have a common pro number in place, and we’ve also during the budgetary process, have taken a different approach on how we are going to allocate revenues between the companies. I mean, that’s one of the reasons we want to go from reporting five individual LTLs to one, because there will be a shift here. Because it’s the right thing to do for the customer and it’s the right thing to do for the business.

So I don’t see it as underperforming units, I’d rather see this as taking the Company as a whole and identifying obviously best practices that we can improve the performance, and we’re doing that right now, both from productivity, both from optimization of our lanes, long haul, you know, the PremierPlusSM business. So there is a lot of opportunity.

How will people get paid then? Folks that were getting paid off their silo will now get paid off of a different equation. How will that work? Do they know how it’s going to be?

That’s a very good question. I’ve changed our stated compensation plan for 2004. At the executive levels of the business units we now have a portion of their incentives tied into the overall Company profitability, which means it is in their best interest for each LTL company to perform, and then a portion tied into the individual company, and obviously a portion tied into our strategic plan, so we find success there as well. So there is more of a cohesive tie into the Company’s performance.

Okay. I want to jump over to Holland for a second. Down revenue yet an improved operating revenue. Was that mostly costs? Can you talk to that a little bit? I mean, if you are really going to move the needle here you’ve got to do it at Holland. Can you tell us a little bit of some of the things that went on in Q4 to get that OR down on what was a tough revenue comp?

Well I think one of the things that Steve Caddy observed immediately when he took over the position at Holland was to focus in on the operational side of the business, which he has. He’s embraced that in a way that I am very, very pleased with. And that is, he’s jumped into productivity issues, he’s jumped into the way we operate the business both from weights and inspection, accessorial charges, things of that nature, that I think that we weren’t really focused on and that Steve is.

Now the good news about what we have at Holland is we’re going to be focused both on the operational side of the business, which is dealing with the labor issues and so forth, but even more importantly we have, I think, significant top line growth sales opportunities. PremierPlusSM, our Mexican service, that Steve has his people really focused in on right now and we are going to see some opportunities as we go forward.

I’m sorry I’m asking a bunch, but I just have ---

No, that’s all right.

I want to come back to Doug’s comment, I was surprised before because I haven’t heard any companies I talk to, private or public, say that the see the industrial side of the economy being flat. Con-way didn’t say that. Do you really think it’s flat, or aren’t you guys just losing some market share? I don’t see flat from anybody.

Gary, what I said was alluding to just the industrial part of the Great Lakes, I didn’t – it was a regional type thing. It could be that the economy is overall starting to pick up, but I got this from economic reports that come out of the different states around the Great Lakes area – Michigan, Indiana, Ohio, things like that.

But would you not agree – I mean, Holland’s lost share, even this past quarter, no?

Well again, I go back to my comments about mixed management. We have a couple of large accounts, I think we talked about them last quarter where we made intentional decisions to shed business that we didn’t think had the margins we were looking for. I think that reflects a little bit in their tonnage as well.

And Gary, we are now getting some very good data that is helping us understand our business and our tonnage better, and we are using that data to drive our business decisions, so you know, you’ll see some things. Listen. We want to grow this business profitably.

Right, understood. Okay, one more question. I just wanted to clarify and understand better this whole issue with acquisitions and balance sheet capacity and whatnot. My understanding, and I know things change and you’ve got to take advantage of opportunities when they come about is, you’ve got to fix the house first, and it’s earning a lot less than it did at the last peak before you go and make acquisitions. Is that – am I understanding that correctly, in broad terms?

You know what? Again, I’d be, you know, remiss by saying that we are focusing on driving the top line and bottom line, but with regard to our cash position and our balance sheet, you know, I really can’t answer that question until we come out about our strategic plan, and then I believe I will have a more intellectual answer for you that makes a lot of sense.

Okay, thanks a lot.

Thank you, Gary.

Thank you. Our next question is coming from Jason Seidl of Avondale Partners.

Hi, gentlemen. Let me follow on one of Gary’s question, it’s what I sort of had too. Is the slower growth in revenue per day in the fourth quarter, is that related to I guess Holland having some problems within their own Great Lakes region, Chris, or is it a function of that combined with maybe even that you walked away from some parade and some other people took it up?

Well, you know, there’s another equation in there that nobody has really talked about. The same quarter last year, and that’s not an excuse but it’s the phenomenon that occurred, and that is that CF went down. And everybody got big, big bumps in business that resettled elsewhere over time. And we showed really good comps all during the year, so you run up against it.

But Holland is still diluted, you know, they’ve taken a fresh look. As Dick said, we want to grow this thing profitably, and when they get in there and they study these accounts, you don’t want to play freight, you want to ship freight for profits, and they – you know, I am just looking at their OR. I just want to look at their P&L for the fourth quarter, and they held labor actually flat. I mean, tonnage is like – in that type of environment we have weather issues and these other things in play, to do what they did, has to be a function of taking a better look at their customer base too.

I was definitely pleased to see them post their first margin improvements of 03, but I guess my point is, you know I look at some of the other carriers out there such as Con-way, such as Old Dominion and on a per day basis, they grew revenues at a double-digit pace and had extremely strong profitability, so I am just kind of wondering what’s going on. I know Holland in the past, it’s been almost about density. I guess I’m just a little lost as to why the slower revenue growth is there.

You know, Holland’s, if you look at their length of haul, it hasn’t appreciably changed. And that has to do with how much you penetrate into this long haul market, what we call the PremierPlusSM area. And Dick alluded to the fact that when you service a customer, you want to service them well. One of the things that was a very big initiative, it’s going to be finished up in the first quarter, is putting in the new common pro, and this will make things a lot more transparent to the customer to handle this long haul freight. And Holland does not want to – what should I call it – compromise the service that they are giving their customers. So you have the Con-Way system that has been in existence this way a longer period of time, they have extended their length of haul and their yield is up. I would dare say, I haven’t looked at their statistics, but if it is anything like the past as a predictor, they have steadily increased their length of haul and their yields have gone up. And Holland hasn’t really at this point penetrated that market share, that potential market, and they surely plan on doing it going forward.

Well, Chris, getting into the PremierPlusSM market, I guess what percentage of business is it right now, and what percent I guess is the goal?

Well Holland right now, the PremierPlusSM percentage is about 3 percent of revenue versus about 12 percent for the whole LTL group, so they obviously have a lot more penetration relative to the other LTL carriers available.

And Jason, you know, we do understand that and that’s part of Steve’s business plan going forward to focus on that PremierPlusSM business. I had the opportunity to visit one of his sales meetings that he held in December and you know, it’s all about the change in mindset there. We are focusing on selling the PremierPlusSM and the Mexican service, and there is huge opportunities there that I don’t think quite honestly we took advantage of in the past, so you know, your assessment is correct, but we’ve identified that and we are putting the plans in place to deal with that going forward.

Okay. I guess I will just end like everyone else, Chris, it’s been fun through all the years, and I wish you all the best in retirement.

Thanks.

Thank you. Your next question is coming from Mike Duvall of Charter Consulting. Mr. Duvall, your line is live, do you have a question? I will check his line. We will move onto the next question coming from Thom Albrecht of BB&T.

Hi, guys, just a quick factual question. I heard you a moment ago say PremierPlusSM – did you give a percentage of revenues that represented during the quarter?

No we did not. I think it’s pretty much flat.

Twelve, 13, 10 –

About 0.6.

Okay. That’s it. All my other questions have been answered. Thanks, guys.

Thanks, Thom.

Thank you. Mr. Hyland, there appear to be no further questions. I would like to turn the call back over to yourself.

Thank you, Leandra. Thanks for joining us today for the call. If there are any further questions, we will be around today, please give us a call. Thank you.

Thank you. This concludes the USF Corporation fiscal 2003 fourth quarter and year end conference call. Please note that there will be a replay of this call available beginning this afternoon. The replay can be accessed at 1-877-519-4471 with the PIN number of 4426737. Thank you, and have a wonderful day.