Arkansas Best Corporation (ABFS) Q1 2008 Earnings Call Transcript April 23, 2008 12:00 pm ET

David Humphrey – Director of IR Judy McReynolds – SVP, CFO and Treasurer Robert Davidson – President and CEO

Justin Yagerman –Wachovia Securities Tom Wadewitz – JPMorgan Ed Wolfe – Wolfe Research Greg Olive [ph] – BB&T Capital Markets Tom Albrecht – Stephens, Inc. Ken Hoexter – Merrill Lynch Art Hatfield – Morgan Keegan David Ross – Stifel Nicolaus

Welcome to the Arkansas Best Corporation first quarter 2008 earnings conference call. We will have a short discussion of the first quarter results and then we'll open it up for a question and answer period.

Our presentation this morning will be done by Mr. Robert A.

Davidson, President and Chief Executive Officer of Arkansas Best Corporation, and Ms. Judy R.

McReynolds, Senior Vice President, Chief Financial Officer and Treasurer of Arkansas Best Corporation. We thank you for joining us today.

In order to help you better understand Arkansas Best Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements of their very nature are subject to uncertainties and risk.

For a more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statements section of the company's earnings press release and the company's most recent SEC public filings. We will now begin with Judy.

Thank you for joining us this morning. I'd like to update you on our company's first quarter results and then I will turn it over to Bob for a further discussion of the quarter.

I will start with the total company results. Our first quarter 2008 revenues were $448 million, a per day increase of 5.4% over last year's figure of $428 million.

Our diluted earnings per share improved 79% to $0.34 a share from $0.19 a share last year. Our after-tax return on capital employed for the last 12 months was 10%, which is at the median level of all S&P 500 companies across the business cycle.

We continue to expect the range of our 2008 net capital expenditures to be between $60 million and $70 million. As always, we have the flexibility to adjust our plans and buy additional equipment if business levels dictate.

Arkansas Best's financial position continues to be strong as reflected by our nearly debt free position and our $197 million in cash at the end of the quarter. The large majority of our cash is invested in money market funds that are secure.

In December of last year, we began moving out of tax exempt auction rate security investments after we heard some negative news surrounding the bond insurers that insured these instruments. We were out of these investments by mid January and we received full value for them.

Now, I would like to review ABF results for the quarter. ABF reported first quarter revenues of $428 million, a per day increase of 4.5% over last year's total.

ABF daily averaged tonnage for the quarter was down 0.5% compared to last year. ABF's first quarter operating ratio was 97, a 160 basis point improvement versus the same period last year.

ABF's workers compensation costs as a percent of revenue were below the first quarter of 2007 by 120 basis points. Two factors positively affected these costs.

Each year during the first quarter, we go through a review and update of the loss development factors that are applied to our workers compensation claims. Because the improvements and claims experienced since last year's review, these factors were reduced and ABF's operating ratio benefited by 60 basis points.

The remainder of the improvement in workers compensation costs relates to routine claims activity for the quarter, which also favorably impacted ABF's operating ratio by a similar amount. Even without the impact of the development factors adjustment, ABF's first quarter 2008 workers compensation costs as a percent of revenue were below our five-year average and we are certainly encouraged by the results in this area.

And now, I'd like to turn it over to Bob for his comments about our first quarter performance.

Thank you, Judy, and good morning everyone. The freight environment certainly continues to be challenging.

It's been rocking along the bottom for six quarters now, not getting any worse, but also not showing any real signs of recovery. But, any company has to deal with downturns as well as good times.

In the first quarter, the great ABF team displayed solid execution while providing consistent service to our customers and further improving a superior freight transportation product. We successfully maintained our focus on cost control, matching labor and equipment to the available freight levels and even during a period when competition for business was certainly higher, ABF adhered to its traditional pricing discipline and our emphasis on individual account profitability.

And finally, we continued to improve our operational metrics that ultimately benefit the customer and also contribute increased earnings for our shareholders. As Judy pointed out, ABF tonnage per day was down about 0.5% compared with the first quarter of last year.

That's about what we lost in two large retail accounts last year, for which pricing was not compensatory. This is a fairly clear example of business that we were better off without, as operations pounds per hour improved materially along with a significant drop in pieces per shipment.

Throughout the quarter, tonnage per day was up slightly in January and down about 1% in February and March. And so far in April, it's about the same as the full first quarter.

ABF's billed revenue per hundredweight in the first quarter increased by 4.8% over last year. Our general rate increase was effective seven weeks earlier than in the first quarter of '07.

And in addition, fuel and other energy-related costs have been much higher than in the first quarter of '07 and the resulting increase in fuel surcharge boosted revenue per hundredweight. At this point, we consider the fuel surcharge to be simply part of the overall yield.

On the other hand, changes in freight profile, primarily related to our regional freight initiative, reduced the apparent yield comparisons. Our length of haul was down 3%; our weight per shipment was up 2.3%.; and the freight density also increased.

All of these factors depressed the nominal revenue per hundredweight, but actually tended to help rather than hurt profitability. ABF secured average price increases of 2.2% from our most price-sensitive customers under contract and deferred pricing agreements.

Over the long term, we need more, but this is a respectable level considering the current LTL marketplace. It illustrates that even during a difficult economic environment, many shippers recognize the value of a dependable trucking company with a strong financial foundation.

We're still seeing slow but steady progress in ABF's regional initiative. Last year, we reduced transit times in thousands of regional lines and our tonnage moving less than 800 miles grew from 44% to 46% of our total in the first quarter.

As a result of provisions in our new labor agreement, we expect to shortly begin implementation of operational changes that will result in transit time reductions in thousands of additional regional lanes, as well as in our long-haul lanes. Also by the end of the year, our expected rollout of regional service to the remaining western one-third of the country will allow ABF to offer full national and regional service throughout the full United States.

ABF's growth in the regional marketplace is resulting from the overall value that distinguishes ABF as a stable, financially-sound, full-service carrier. Once again, ABF's long-term successful implementation of the quality process is making a difference, as we eliminate the root causes of errors in the services we provide to our customers.

Each day, we strive to meet the specific requirements of each individual customer in an error-free manner and in many areas, ABF is getting pretty darn close to the goal of zero defects. We're able to accomplish this through the best IT platform in the industry, through intensive training and through a customer-centric attitude that permeates the entire ABF organization.

ABF's first quarter 2008 cargo claims ratio was 0.64% of revenue. That reflects further improvement over the full-year 2007 ratio, which was ABF's best in at least 25 years.

It's remarkable, but not surprising, that our cargo handlers and drivers continue to improve on that best-in-class performance. As you know, we take great pride in delivering our shipments claims free and that's something that matters to customers too.

Our first quarter 2008 DOT recordable accident rate per mile for total road and city was 8.3% below the same period last year. Judy previously mentioned the favorable workers' compensation claim expense.

We did enjoy an atypical reserve adjustment, but we also had systemic and sustained improvement in our accident and injury claims experience. We're glad for the continuing benefit to our profitability, but we're also pleased about the positive impact on the health of our employees and the safety of the motoring public.

ABF's first quarter productivity, measured on a shipments per hour and on a pounds per hour basis, also improved over the same period last year. Weather effects were very slightly worse than in the first quarter of '07, but I'd consider the impact to be negligible.

The ABF team deserves a lot of credit for these positive trends: Continuous improvement in cargo care, significant reductions in transit times, further improvement in our tremendous safety record and a material improvement in productivity. These trends obviously benefited our customers and they also delivered improved earnings to our shareholders during the quarter.

We like to say that quality doesn't cost money, it makes money, and this quarter is a nice example. We know that trucking is a cyclical business.

Fortunately, this isn't our first rodeo. The long-term experience of our employees and our management team gives ABF the confidence and the knowledge to deal with the current environment.

We know that when freight is scarce, you don't want to degrade your service levels or save a few pennies by offering an inferior product. At a time like this, we're spending more rather than less on customer service because that added value is important.

Our customers choose us because of the consistent value we offer and deliver. In an uncertain environment, stability and competence matter to employees and matters to customers.

We believe that ABF will continue to benefit from a flight to quality during the remainder of this year. I think we're now ready to take some questions.

Therita, I think we're ready for some questions.

Hey, good morning guys, how are you doing?

Good, how are you?

Good morning, Justin.

I wanted to get a sense, because it doesn't feel like your quarter was as impacted by fuel as many of your competitors, on the percentage of your business that's subject to fuel surcharge caps and I guess, if you could comment a little on how you were able to overcome the rapid rise in fuel and is this more of the favorable benefit of your workers' comp canceling out the negative impact of fuel, or how should we be figuring out how you're operating within this high-energy cost environment?

We do have some fuel surcharge caps, but as you might expect from our traditional pattern of pricing discipline, we probably have fewer of those than other carriers. I will say that we don't look at that on the aggregate.

Since we focus on individual account profitability, we're going to those customers one at a time and just simply explaining that the world has changed. It's not too different from a factor that we've had for a long time, which is single commodity-class exceptions.

You might put in a class 70 for a customer and if they start shipping ping-pong balls, all bets are off and it's time to take a look at the deal. We've got a few instances of where we've got fuel surcharge caps, but at the end of the day, fuel surcharges are in the revenue and fuel is in the cost and ABF, along with every other carrier in the marketplace, is going back to customers and saying, we're running a loss and we can't do that.

Got it. So it's just -- it's looking at it on an account-by-account basis.

If you roll it up on a account-by-account basis, the aggregate company results end up pretty good.

Got it. On that workers' comp benefit that you saw in the quarter -- and you may have commented on this and I missed it -- I guess what part of that more favorable experience is going to be on going and a benefit for the rest of this year, and what part of that is more one time in nature?

Judy mentioned that 60 basis points was from the adjustment of development factors. That really comes from the fact that we have a more favorable claims experience.

But, if you could assign 60 basis points to the development factor adjustment, the rest of it represents a systemic improvement in the company. You see them in the lower accident rates, so we have improved injury rates within our company, so I think at worst, you might assign 60 basis points to one-time benefit.

Got it. Okay, that's really helpful.

You mentioned how tonnage was trending through the quarter and April, if you could give a little bit of color of what yields have been doing during that time, it would be helpful?

We're not going to disclose individual month yield comparisons. And honestly, because of all the factors that I mentioned, the moving parts of length of haul and weight per shipment and commodity class, it doesn't make a whole lot of sense to consider revenue per hundredweight on a quarter basis.

We'd provide it, but I think giving it on a monthly basis would make even less sense.

Got it. On the GRI, when was that again, can you remind us?

It was February 4.

Which was seven weeks earlier than the previous year.

Yes. And how much was that for?

It was 5.8%.

5.8%, okay. And then I guess lastly, we've been hearing about multi-year contracts from a number of different carriers out there or at least the shippers are trying to put multiyear contracts out there, you guys are very disciplined on your pricing.

I'd imagine you're not accepting any of those without step-ups in the second year, if you're accepting them at all. Can you comment at all on the prevalence of those in the marketplace, and whether or not you guys have taken any of those, and I guess if you have, if you're seeing a step-up in pricing on them?

We honestly would welcome multi-year contracts. Handling freight for a specific customer, even when you're an experienced carrier, is a little bit of a learning process and we learn what the customer's requirements are and we try to adhere to that and that's difficult to do when you have customer churn.

So we welcome -- we thrive on long-term relationships, but we're not going to lock ourselves in to a bad deal, even for a year, much less for a longer period of time. So, as long as it's a win-win deal with a customer, we'd welcome a long-term relationship and I think customers would benefit from that as well.

Okay, one more if I can. Did you guys buy back any shares in the quarter and what's the thought process going forward on share buybacks?

We did not buy any shares back in the first quarter and we still have the $18 million authorization from the Board that we're going to continue to look at on an opportunistic basis.

I'll bet you wish you did. Any how, thanks for your time, guys.

Appreciate it.

Thank you, Justin.

Thank you, Justin.

Yes, good afternoon.

Good morning, Tom.

Hi.

Yes, right.

It depends on where you are, right?

I guess it depends on where you're calling from, exactly. Let's see, I'm not sure how much you talked about this, I think relative to some of the other LTLs that have reported, you didn't focus on it a whole lot.

But, pricing appears to be taking a further leg down in, maybe in the March and early April timeframe, at least that's what some other LTLs have commented on, and I'm wondering if you're seeing that as well and if that makes you kind of more cautious on what things might look like going forward in terms of margin, earnings performance versus what the performance was in first quarter, because it does seem like it's fairly consistent across a couple different carriers that say, pricing's gotten meaningful worse looking forward?

I'm not sure really how to evaluate pricing for the full quarter, so I'm especially careful about evaluating the nominal revenue per hundredweight during the first part of April. I can tell you that it's a competitive environment, but one can swim in these waters if you're careful and I'm not overly concerned about the environment.

So it doesn't -- from where your positioned in the market, it doesn't feel like things have gotten worse in the March/April time frame from where they were?

I think that tonnage has seemed to have gotten softer after the middle of February, kind of stepped down a percent or so. But, we look at a lot of deals every month, some are more competitive, but if you roll up at the end of the day and the quarter, for the full quarter, we were able to get 2.5% on our contracts and I hope we continue to do that.

I know you're a little reluctant to talk about this; I'll give it a shot anyway. If we look at revenue per hundredweight ex-fuel, do you thin it was – directionally, was it kind of flattish or down a touch or how might we look at that?

I don't have those numbers handy and I think that's probably instructive [ph] because yield includes fuel and costs includes fuel.

Okay. So you don't even look at it enough to have a sense of whether it would be up or down ex-fuel.

Let's see.

We've got the numbers somewhere; I don't have them in front of me.

Right, okay. Fair enough.

How do we look at the Teamster contract? I think when you had the prior call, I'm sure you got some questions on it, on the fourth quarter call, but you've had a bit more time to consider what the benefit might be on the cost side.

Do you have any additional comments for how that might affect your cost side performance over the next couple quarters? And also, is it something that really takes a while to realize the benefits and it's year or two of the contract that we may see a little more impact?

As I indicated earlier, in mid-year, we're going to be aggressively pursuing some of the flexibility in our regional network and actually, we have some benefit in the longer haul network as well. There are things that weren't possible under the prior contract that now are possible for us.

We don't have that done yet and so I think realistically, we've got to withhold optimism until we actually have it in place. But, I really don't see any obstacle to that.

Certainly, it's something that our Teamster employees will benefit for. They've seen how we've been able to grow with the previous flexibility in our regional network and like management, I'm sure they want more of the same.

As an aside, I really have to compliment our -- not only our management, but our employees, as well. During the quarter, we had the distraction of the labor negotiations and I think it's just remarkable how that we were able to go through the negotiations, put something to bed and then very quickly put that behind us and start pulling on the same end of the rope.

And if you look at the quarter, this company had improved productivity. We improved the load average in the long-haul network and improved the load average in the regional network.

We had improved transit time reliability, even though the actual transit times were materially shorter. We had lower loss and damage claims and we also improved billing and collections.

I just want to take this opportunity to give credit to the entire ABF team for closing out that period of negotiations and realizing that now it's time to move forward and make progress, and I think we are.

Yes, it sounds like the execution's been quite strong in terms of productivity and service and so forth. One last one, I'll pass it along to someone else, just to follow-on on that issue.

Are you expecting to embrace the potential for using more casuals or part-time workers on the docks and is that a potential significant leverage point, looking more at the cost side within the national network as opposed to just the regional flexibility?

I suspect that we will use all the features of the new contract, including the four-hour casual. But, our first order of business, we've got a number of employees who are on layoff and our first order of business is to get all of them back working full time and we think that, with the additional penetration in the regional market, we'll be able to do that.

Okay, so that's -- probably we can revisit that in a couple quarters just to talk more about the casuals and the dock. Okay.

All right.

Tom, I think I'll just close out the comment by saying that, right now, we're focusing on using the utility employees in ways to enhance our regional service and the other conversation will probably come later.

Right, okay, I appreciate it. Thanks for the time.

Thank you, Tom.

Hey, good morning.

Good morning, Ed.

Hello, Ed.

Hi, Bobby; Hi, Judy. A couple different things.

First of all, is there an update in terms of where the revenue is? I know you gave some percentages of less than 800 miles, but when you think in terms of regional, I mean the real regional business kind of 400 to 600 miles, is there any either percentage of that versus a year ago or just a sense of what revenue looks like for the new product?

Can you give a range?

Clearly, we're growing in less than 800 miles. I think if you broke that at 500, the growth would even be stronger.

Is there a way to understand just roughly what that kind of amount of revenue is? Is it $50 million, is it less than that?

I've it on a tonnage basis; I think I said earlier that tonnage less than 800 miles in the first quarter of last year was 44%; this year, it's 46%. I don't have a revenue breakdown.

Do you have the tonnage for the 500 breakdown? 500 miles?

No, I don't.

Okay. In terms of pricing and fuel, I think it felt like in the fourth quarter that fuel, if anything, for the group might have been a benefit and in this quarter, it really feels like it's been a detriment, and for some more than you guys, apparently, but across the group.

I'm guessing the combination of fuel becoming part of the pricing story and pricing getting a little more competitive and just fuel spiking up so fast, does that seem fair to you, what I'm saying, in terms of fourth quarter maybe fuel year-over-year being a small benefit and this quarter it being a detriment?

I've always said that if you look just at the supplies and expenses line, you see part of the story in diesel fuel, but if you look out at the fuel surcharge we're paying on rail, if you look at higher energy costs, and if you look at car allowances for sales people and roll all of that up, it's spread up and down in the category. I think fuel hurt a lot of carriers this year in the first quarter.

I think fortunately we had some significant productivity improvements and line haul improvements that helped offset that.

So directionally though, is what I say correct though, do you think, in terms of -- let's put it into parts that pricing has gotten more competitive, not less competitive over the last four or five months and second, that with fuel going up so fast, it's harder with push back in terms of some people might have their own programs that have caps or their own programs that go up less quickly and those kinds of things?

I'd say in the abstract, what you said is correct. As fuel's going up, you have a few day lack in the implementation and when it goes up on a sustained basis as fast has it had, that lag does have some kind of impact.

Of the fuel surcharge caps that we had, as fuel goes up, some of those come into play and it takes you a while to get them fixed, so there is a little momentum issue.

Do you see any freight coming to you because of concerns maybe of other carriers that aren't as strong, that there might be consolidation in the industry, or is it early for that yet?

We continue to swap accounts with just about everybody that you could name.

Okay, but there's no impending mass consolidation in the near term that you see or anything like that?

No, I think it's still a market where we will occasionally lose freight on price and we'll gain freight on service, but there's always been a little bit of customer churn in the marketplace and I'd say that right now is no better and no worse.

Okay. And just one last follow-up on the regional side of things.

Where are you from a profitability standpoint when you look at the regional business? Has it gotten to a point where it's a benefit each quarter or it still a drag, but a lesser drag at this point?

That's a good question, Ed. It is still not at breakeven.

We have an improvement over the first quarter of '07. In other words, it's less of a drag than it was a year ago, but it's still costing us about a point on the operating ratio that's embedded in our results.

And obviously, we believe that over time we'll eventually work that out of the system. In the meantime, our 2008 improvements are actually larger in scope, but they're significantly less costly because we're leveraging an existing network that we put in place last year.

So, short answer to your question is we're making progress, but it's still costing us a point on our OR. It's a long-term investment that this company has no trouble making, both practically and in philosophy.

Okay, thanks a lot for the time. I appreciate it.

Thank you, Ed.

Hi, guys, Greg Olive here for John Barnes.

Hi, Greg.

Hi, Greg.

Just had a quick question on the regional expansion. How is this going to affect your OR and how is this comparable to the Eastern expansion?

The comment I just gave to Ed is that it's significantly less costly. I don't have the final roll-up on the numbers yet, but it's not anything like what we already have invested.

In fact, most of what we're doing is leveraging existing capacity there.

Okay, excellent. And as far as pricing goes, pretty much, you guys have done incredible with (inaudible) kind of your thing.

But, last quarter, people said, including you guys, this was the most rational pricing in a downturn that they've seen. Are you guys still believing this?

This downturn is characterized by -- it's longer, but not as deep, and I think it is probably reasonable to think that the longer you have the downturn, the more that some players out there become less disciplined. But at the end of the day costs are costs and the market is really based upon -- not constrained by what shippers are willing to do, but what carriers have to do.

So this is a cyclical industry. It's pretty clear that in a downturn, pricing gets a little tougher and we get hurt in profitability.

But in my tenure, which has extended over a long period of time, this is not the worst environment we've been in. The average player in this business, including those that are scrambling for tonnage, are considerably more sophisticated than those that we saw in the '80s and early '90s.

Excellent, thanks a lot. I think the rest of my questions have been answered.

Congratulations, guys.

Thank you, Greg.

Hey, it's Tom Albrecht here; I used Ram's phone to get online earlier. I was dialing in late.

I thought they cut you loose out of Stephens or something.

No, we play musical chairs here a lot. Let me get a couple of my factual questions out of the way, and then I have another question or two beyond that.

On the cargo, Bob, 0.64% obviously outstanding, what was that versus a year ago?

Let's see. In the first quarter of '07, it was 0.72%.

Incidentally, for the full year of last year, it was 0.72% as well, which was a 25-year record.

That's like hitting 370 this year, but you hit 350 last year, so pretty good either way. Your length of haul, what was it and what was it versus?

Tom, this is Judy. Our length of haul for first quarter '08 was 1,135 versus 1,170; 3% decline.

Okay. And then rail percentage?

Let's see, 10.3% versus 12.4% last year.

Okay. And then just a couple others and then I'll get to bigger questions, the pounds per dock hour and the stops per P&D, any sort of improvement metrics you can talk about?

Pounds, we measure on a pounds per dock, street and yard, kind of rolling them all together.

Okay.

And that improved -- I don't have a percentage reduction to give you, and I don't know the --

Well, it improved 3%.

Okay.

Okay.

And the stops per whatever kind of gets into the wage [ph].

Okay. All right.

And then, Bob, your comments earlier combined with I think in the press release talked about this whole flight to quality, I know you said that you win accounts from the same old crew or however you worded it a moment ago, but it sounds like maybe there is an actual discussion that's occurring within shippers on who's really a quality player, who's a survivor, or am I misreading your comments, because it seems like that's a theme you certainly want us to pick up on?

It's one I believe, Tom. We're doing an outstanding job on things that matter to customers, and customers who -- particularly those who are less price sensitive, those who see their total logistics costs, their total supply chain costs, tend to gravitate to us over and over and over again, we'll see accounts that we lose and then will come back to us on the basis of either our IT platform or our cargo care or the level of customer service that our people provide.

Has there been perhaps more defections over the last six months and yet more returns that have given you confidence in this flight to quality theme, or is it just this kind of standard churn?

I don't see a difference in churn, but it's possible. I'm not close enough to it to see it.

Customer churn is not something that we measure.

Okay. And it really seems like -- and I'd sensed this throughout the quarter that you were on top of managing your labor cost and that's even before the new contract went into being.

Can you just talk about the visibility that you would have, because you've got your labor costs each day that you try to plan for based upon I guess loads that are being picked up in the morning plus maybe recent experiences. How have you fine tuned that labor management, because it's very difficult to do when volumes are so low and somewhat still volatile?

I think there's two things there, Tom, that come to mind. First of all, there is an impact from our improved IT platform and I do think we've got the best IT in the business, but it continues to get better.

You may notice my remarks. I felt like that weather effects on us were negligible.

Right.

Obviously, snow falls on us just like it falls on everyone else, but our people have been able to use IT in a way that helps them to manage dispatches, to know where weather is going to be adverse, and they're able to take some steps which reduce driver delay, reduce motel expense, reduce accidents, and so IT and shipment visibility within our network is improving so much that we're able to take those kind of steps. But honestly, the biggest factor is the fact that we've got probably the lowest turnover in the business and it just helps to have people who have done this before.

And the typical officer that we have has been through six freight downturns. Our managers and our rank and file people are just great professionals, they know how to adapt to these kind of environments.

They all pull on the same end of the rope and that's something that helps us day in and day out, but it's particularly valuable in a downturn.

Yes, I can definitely see that. Okay, that's all the questions I had.

Thank you.

Thank you, Tom.

Good afternoon.

Hi, Ken.

Hi, Judy, Bob, Dave. As you look at the market, I think you threw out there a bump at the beginning of the call that you said the freight environment kind of churning along the bottom.

I just want to understand, I guess when you look at the market, do you have a better insight that it really is the market that is bottoming out as opposed to let's say one of the major carriers in the industry that appears to be rapidly losing some steam and perhaps some volume over to you?

I'm not sure that my comments are reflective of the overall market. They are really reflective of what our tonnage has done, and to be honest, we've got a little bit of swapping out of freight.

If we had all of the business that were offered to us and the pricing was offered, our tonnage would be up and our profits would be down. So, I'm just -- from our standpoint in October of '06, our freight fell about 6% and I don't think it's been materially different than that since then.

Part of that is the overall market, but part of it are our ABF-specific policies.

Okay. And to look at that again from a bigger picture, you've had over the past couple of years UPS and then FedEx keeps adding to its ownership within the LTL market.

Do you -- from your point of view in the industry, do you think they need -- there's some sort of longer term learning that needs to go on there? Just looking at it, UPS's tonnage this morning was also down on the LTL side, yet you're maintaining the ground, so I'm just wondering if it's like you said, if there is a particular focus on making sure you're getting the profitable freight as opposed to any freight like you commented on before?

I think you'd probably have to ask them.

Okay. And then on the regional model, you kind of obviously historically said you don't break it out as a separate business, but yet you felt like it is continuing to lose money, but less so.

Where do you go from here? Is there a point where this starts contributing?

Does it need to wait until you finish the network rollout? And where are you -- I guess, then, where do you lose money on it, is it just the additional marketing, because it's not additional equipment, right?

Aren't you using the same equipment and such?

Well, the real loss comes from running schedules every night. You can't enter a new market and run freight when you want to run it.

We run these schedules every night, whether they're full or half full or partially full. That load average is building, but it's taking over time.

We are losing less than we were a year ago, certainly can – are directionally pleased with the progress, but we chose to take an internal organic approach to attacking what's a very critical market for us. As you know, Ken, from following us, we have a very long-term view of things.

It was absolutely essential that we provide full-service coverage for our customers and we're committed to this market for the long term and we are pleased with the progress that we are making, so much so that, as I mentioned, we're going to expand what we're doing very significantly by the middle of this year.

What do you mean, on the regional model?

Yes, we're going to reduce transit times in thousands of more lanes, albeit at considerably less cost.

Is that because you get the density in the regional model, so it gives you the ability to offer the long-haul service at a quicker pace?

It's something I would have done last year if the contract allowed. The contract didn't allow it last year, it allows it this year, so we're doing it this year.

So, because you have one combined network, you can meld the volumes as opposed to other companies that have to have -- or have decided to have two separate completely independent infrastructures?

It certainly is an advantage, Ken, because you're able to use the same sales force, the same back-office function, the same pickup and delivery, everything is the same except for the additional line-haul network and we're continuing to leverage the regional line-haul network -- we call them high-velocity exchange points. We're continuing to leverage that, and they give us a lot of flexibility.

I'm sorry, and did you say the P&D network in there, as well?

The P&D is the same as our -- we pick up long-haul shipments and regional shipments in the same trucks.

And you can go to the same docks?

Exactly.

Okay, great. And then I guess just last question, I guess in you're -- you're well situated financially, as Judy mentioned, with the cash on hand and zero debt.

How do you view that heading into this, what has so far been a prolonged downturn, do you feel like you want to be any more active? I know there was a lot of questions on the buyback before, do you view that, hey, we don't know how long this is going to last, it's better to keep that cash hanging around for a while.

What's your view on keeping the cash around, Judy?

Go ahead.

Or Bob, go ahead, sorry.

Well, Ken, I think when we look at our balance sheet, we're very pleased with the financial stability of it, but also the opportunities that it affords us, and we mentioned earlier we still have the $18 million in the stock repurchase, but probably more importantly, we're able to look for strategic additions to our business that benefit our customers and we're actively doing that.

Can you conceptually talk about what kind of additions that might be. Is that like plug on different type of companies or -- it's not going to be a market physical expansion, would it?

Well, actually, the truth is we're looking at all of the above. We're looking at just many different alternatives for what we could do to add to the services that we offer our customers and that would enhance shareholder value.

But that's not -- I figure that's not part of what Bob is indicating there is significant changes up ahead in mid year?

Those changes tend to be self-funding in the short run, so in this environment, we're delighted to have the solid balance sheet that we have and it's always good to go into this kind of environment with your powder dry. But we're looking both within ABF and outside of ABF or places in which we can use our balance sheet to enhance our shareholder value.

Great, appreciate the time.

Thank you, Ken.

Hey, thanks, everybody, for --

Hi, Art.

Hey, how are you doing, Judy?

Good.

And Bob and Dave, hello to you also.

Hello.

Most of my questions have been answered, but I just want to get -- on the annual update of claims development factors that you do every year, do you -- Judy, do you have what that number was last year?

Yes, it was about a -- actually, the benefit is about $2.3 million from that. About $1 million of that benefit was a negative last year.

Last year when we updated, we had about $1 million negative hit to our workers compensation costs because we had to increase the amount we developed claim. The remainder of the difference, the $1.3 million the other way is a positive this year.

And again what it means is that for every claim we have, we develop it less, and you do a one-time update on your whole claims book in the first quarter of each year, and then -- but as you have claims for the remainder of the year, you're going to develop them less.

Okay, exactly. Okay, I just wanted to get a feel for how that worked against last year.

And then finally, did you give the tonnage trends for first quarter on a --

I think I said that we were up somewhat in January and we're -- we were up about 1% in January, we were off about 1% in February and March.

Okay. And did you comment at all on April?

I said April is running about what the full quarter -- full first quarter was, which is down about 0.5%.

Okay, all right. That's all I had, thank you very much.

Thanks, Art.

Thank you, Art.

Hello, everyone.

Good morning, David.

Hi, David.

Just a question on CapEx, you reported the lowest CapEx number we've seen in a while just on the gross side and then also had a big proceed from sales resulting in a big gain on sales, can you talk a little bit about what was going on there?

Well, we certainly -- we've talked about the fact that we're downsizing our equipment level to match the business levels that we've had and we've been doing that for some time. But in the first quarter, we did have more sales of equipment and assets than we had of -- had purchases.

Obviously, for the remainder of the year, we wouldn't expect that to continue. We're going to have an equipment program and a real estate program that we spend about $60 million to $70 million.

And in selling the trucks in the first quarter, how was the pricing environment for the used equipment?

I think it is okay. Actually we're seeing some success in overseas markets, which is encouraging for both us, I think, and also in the truckload environment, it just makes that market better to have the overseas options.

Do you have an idea of what percentage of your vehicles left the country and went overseas?

I don't have that kind of detail, but we're certainly hearing about it from our equipment people that deal with that, and so it's as much about what we're able to do as it is what others are that just improves the market.

Okay, and then going back to the strong financial position you have in your balance sheet with over $7 a share in net cash, you mentioned the strategic alternatives being an option, I just wanted to know about the central state pension plan, whether or not entering into that five-year labor agreement recently precluded you from exiting that over the next five-years, or if you could occasionally go back and try to negotiate a withdrawal payment similar to what UPS did in the meantime?

Well, we attempted to negotiate a withdrawal from that fund and from all funds. We were unsuccessful in doing so.

I will say that if the -- if there's a significant change in the industry, we'll probably have a chance to revisit that, but absent that, we are in the pension fund and I can't point to the any prospect of being out of it.

Okay. Thanks for your time.

Thanks, David.

We appreciate you joining our call and this concludes our call. Thank you.