Ladies and gentlemen, thank you for standing by, and welcome to the Arkansas Best Corporation First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, April 27, 2012. I would now like to turn the conference over to Mr. Dave Humphrey, Vice President of Investor Relations. Please go ahead, sir.

Welcome to the Arkansas Best Corporation's First Quarter 2012 Earnings Conference Call. We'll have a short discussion of the first quarter results, and then we'll open up for a question-and-answer period. The presentation this morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of Arkansas Best Corporation; Mr. Michael E. Newcity, Vice President, Chief Financial Officer 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, by their very nature, are subject to uncertainties and risks. 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 Mr. Newcity.

Thank you for joining us this morning. During the first quarter, our company maintained our traditional service levels in the midst of handling less tonnage throughout the ABF network. The margin effect of this choice combined with the effects of some large cost items produced weaker-than-expected quarterly results. These cost items are as follows: We had a low corporate tax benefit rate that reduced our results by $0.18 per share, our first quarter effective tax benefit rate was 19.4% compared to an effective tax rate of 40%, which represents the midpoint of the range of our previously anticipated full year rate. This was below historical levels because of limitations on the amount of deferred tax assets we were able to record on the quarter. Through the remainder of the year, our quarterly tax rates will vary depending on our financial results. Therefore, the 2012 full year tax rate could be substantially lower than past full year tax rates. High workers' compensation cost at ABF reduced the results by $0.13 per share. During the first quarter, ABF was adversely impacted by additional expense recognition associated with workers' compensation claims. The cost of these claims were substantially above 10-year historical averages due to unfavorable severity on new and existing claims and unfavorable changes to loss development factors driven by overall claims experience. This additional $5.3 million of expense increased ABF's operating ratio by 1.3 percentage points versus last year. This cost increase is very unusual for ABF and occurred despite recent favorable trends in both accidents and injuries. Investments made in sales, customer service and IT at all subsidiaries amounted to $0.12 per share. During the quarter, we made investments in sales and customer service personnel and in development of IT systems throughout all the subsidiaries. These investments are designed to address…

Thank you, Michael, and good morning, everyone. Despite first quarter, bottom line results that do not meet our expectations, we believe we have better positioned our company for success and enhanced our opportunities for additional growth. ABF's price increases remain at healthy levels. However, our improvements in pricing carry with them the risk of losing some accounts. We continue to experience the impact of our decisions and our customers' decisions in the first half of this year. Our current base of accounts is priced better and is poised to grow more profitably as shipment levels improve. The business environment we experienced in the first quarter was sluggish and inconsistent. Compared to business levels from last year's first quarter, ABF's daily average tonnage declined about 10.5%. Severe winter weather during the first 3 months of 2011 impeded that quarter's tonnage gains by about 2%. As a result, this year's business levels are effectively below the previous period by over 12.5%. Last year, the effects of adverse weather were offset by the operational efficiencies achieved from handling 20% more business during the first quarter of last year compared to the first quarter of 2010. In this year's first quarter, the costs associated with weather were minimal, but the resulting positive impact on operating income was negated by the operational inefficiencies associated with a double-digit decline in ABF tonnage. On a positive note, we're very encouraged by the tonnage trends we've experienced so far in April. Compared to the same period in March, the improvement in total tonnage is the highest we've seen in over 20 years. ABF has earned additional business from existing customers and new customers and some customers who have returned to our company after leaving in prior periods. We're hopeful that the positive freight trends we experience in April…

Sheila, I think we're ready for questions.

[Operator Instructions] And our first question comes from the line of Justin Yagerman.

So when you look at the business right now, I mean, it's pretty evident you're losing market share? And when I look at what's going on from a yield standpoint, the sequential decline here, while seasonal, is one of the worst that I've got in my model. So I'm trying to figure out exactly, when you guys analyze what's going wrong with the business right now, what is it? Are you being picked off at lower prices by your competitors and then you try to make up for that later in the quarter by lowering some yield to defend? Or are you seeing different service products and so that's part of the IT investment that you're putting into place? I just want to get a better idea of what's driving these tonnage declines in what otherwise would sound like a decent manufacturing and economic backdrop.

Well, yes. It's certainly a fair question. We look at our business -- we're working through a basically a multiyear recovery process from the recession that occurred and affected us most in 2009. We had, last year, a pretty dramatic improvement in business. The environment improved in a way that allowed for the market to improve prices to what they -- to a better place, not really to what they should be, because I think now we're probably about at 2008 pricing levels with 2012 costs. And so we're in a process of working through that. When you're working through some of the issues that we are, there's risk associated with that. And it's a risk that you have to be willing to take to get the right place at the end of the day. And so we feel like we're in that process. We feel like the decisions that we made and the levels of increase that we made those decisions at were the right things to do for our company. And it's a process, you have to work through it, you have to live with the results of that. And then move on to better revenue opportunities, which I'm pleased to say, in April, that we're seeing. We're also seeing some of the customers who made decisions to move away from us, move back, because of the quality of our services. And I think that speaks to what we're trying to accomplish here. We want to be sure that we're providing the high-level service, that in the end, we're able to get that value from our customers. And so we -- I think with respect to your question on the quarter, the fourth quarter, the first quarter yield decline, that's more of a business mix issue. We don't see LTL yields deteriorating. We see that that's fairly flat. And there's not much to read into that there other than there's a bit of a business mix issue whenever you're looking fourth to first.

Okay. And then can you talk a little bit to these IT investments that you guys are making? And how you're [indiscernible] difference. I'd be curious to hear where you guys are putting capital to work.

Well, with respect to ABF, what we're doing is working through IT investments that will help us in operating efficiencies. Obviously, we need to get more efficient with our base model. We have some interesting efforts there that are going to help us, not only in our 2012 results, but also help us to know some of the options that we have as we're going through the labor negotiations as well. And so...

Is this labor optimization or is it actual technology...

Yes. Well, it's asset and labor optimizations, what I'd suggest to you. It's line haul optimization mostly. And then on the non-asset-based subsidiaries, there's some interesting things that we're doing there. On our brokerage business, we see that we need to make sure that we put that company in the best position to grow and that's working. You can see the revenue growth there. We are also investing in sales people to grow that business. We're putting customer service people in place to allow our sales people to be more effective across the organization. And with respect to FleetNet's business, which is in the emergency services segment, it is a known fact at this point that we're going to have tremendous customer additions in that segment as a result of some of the investments we've made in people in IT there. So they're all very purposeful. And I wanted to be sure and point them out because it is something that's unusual whenever you're experiencing the down period in tonnage for ABF.

And our next question comes from the line of Chris Wetherbee.

I was wondering if -- I may have missed it, but did you give the tonnage decline, I guess, for the month of April so far?

It's declining about 9% per day at this point, but it's -- when you look sequentially, it's up in the 4% range. And that's -- as I mentioned, that's the encouraging part when you look sequentially at that figure, that's the best in over 20 years.

Okay. And your comps do get easier a little bit in the next couple of months of the quarter, I'm guessing.

Yes, we do. We do have easier comps. If you look at it month-to-month-to-month, April, year-over-year, was up 16.3, last year, May was up 7.9, June was up about -- was 5.2. And so...

Okay. And then, I guess, just back onto the IT investments for a second. I think, in the prepared comments, it was mentioned that there might be some continuation of the expenses or the investments as you go forward. Can you give us a sense of the order of magnitude as you think about that over the course of the rest of the year?

Well, from a comparative standpoint, that will decline as we move through the year because some of those we actually began in the later part of 2011. But what we wanted to do was point out that that's something that we're investing in that we think will bring us more top line opportunities. And then Michael, do you have something to add to that?

I was going to mention the first quarter that was -- I mentioned the $4.8 million in the comments.

Yes. But we do see that, that will give us more top line opportunities, and that's why that investment is being made.

And our next question comes from the line of Scott Group.

Judy, can you talk about -- were you guys profitable or unprofitable in March? And can you give us some color -- do you expect to be profitable in April, in the second quarter?

Our March results were slightly unprofitable. But if you had -- if you consider the unusual nature of the workers' comp costs that we had to record in that month, we would have been profitable. And so -- and then in April, we haven't closed out that month yet. I wouldn't say that we're going to have results that would be greatly positive or negative. I mean, it's just -- it's probably going to be pretty close to 0. And certainly we're hoping that, that will be the case. Our trends, on the revenue and pricing side, look good.

How about your expectations for the full second quarter? Can you tell us...

Well, we don't give guidance. But April would be the weakest month of that quarter, probably. June is always stronger than either April or May. So...

Okay, that's helpful. I was wondering -- can you talk -- give a little bit of color on what you've done with the Teamster contract? Now you talked about some improved things in March and into early April. You talked about that a little bit. And then with that though, I mean, when I look at the labor costs, they were up a lot sequentially. They were up year-over-year, and tonnage was down 10%. So maybe, what can you do in the near term before the contracts due next year to furlough employees or do something?

Well, a couple of things there real quick, and then I'll talk about the change of operations. If you consider the high workers' comp cost in that salaries, wages line, the numbers moved, maybe not as much as you would have thought they would, because some of our costs become sort of fixed in nature at lower tonnage levels, but they did move in the right direction there if you exclude the workers' comp effect that's in that line. And you asked what we can do? We have people on layoffs, particularly dock workers on lay off. And we've also had to reduce our driver force. We do that to keep our assets and people that are deployed in line with the business that we have. What happens to you in the first quarter, and this is every year, is that a portion of those costs become more fixed in nature if you're going to make a commitment to your customers to give good service, which we did. The benefit of that is in later quarters being able to get the value for what that customer service you're bringing to that customer is, and have a better opportunity for greater profits as you go through the year. So customers are not really willing to give up service in the first quarter versus any other quarter of the year. So we have to be mindful of that. But with respect to the change of operation. The premise of this is to really deal with the movement of freight to and from in the line terminal and our distribution centers utilizing our utility employees to either run turns to the actual DC or run a meet and turn with the line driver at an intermediate location. And it can improve our on-time service, our line haul efficiency and allows us to use those same utility employees to supplement the local operation. And so we feel like that it has the potential to help us in a number of areas, and it's -- what we have to have going forward is more flexible and fully is to be able to meet our customer service requirements.

And our next question comes from the line of Todd Fowler.

I just wanted to follow up on the workers' comp. In the release you said there are some development as well as the frequency of claims. I wanted to get an idea of the expenditure in the quarter, how much of that you think is going to continue into the second quarter for the rest of the year.

Well, Michael -- I'll let Michael deal with the magnitude of it, and then I might have some comments after he has given you that.

What I was going to say about the remainder of the year, if you look at the workers' comp from 2011 and 2010, those are both in line with 5-year averages below 10-year averages. The fourth quarter was on the total bases and workers' comp was below about 5 and 10-year averages. So what we experienced in the first quarter is not what we would expect for the remainder of the year. Unfortunately, these end up being lumpy-type costs when you look at them and they tend to smooth out when you look at them on a kind of a rolling average basis.

Todd, I think the important thing for you to come away with, I gave some statistics about improving accidents and injury statistics. Those are the things that we can do to better control the costs, and those are moving in the right direction. When you look at the first quarter, what we experienced are some increases related to either settling the claims or to medical costs on individual claims that were -- it was really the accumulation of them that was unusual in nature. Not so much on any individual one something unusual happened, but we had a number of them have adjustments. And the other thing that we had to couple that with was we go through a process of updating our development factors in the first quarter of every year. The last 2 years, that's been more of a flattish or a positive thing. This time, it costs us about $2 million of the $5.3 million. And that can happen. It's just meant to adjust the claims reserves to what they're ultimately going to cost the company. So that's not a routine or a process we go through in any other quarter of the year. We just do that in the first quarter. So I hope that gives you some color on that.

Right. All of that make sense and that's kind of what I was looking for. And then, Judy, I know that you don’t give a specific OR guidance, but generally, you're pretty good about talking about keeping in mind the sequential pattern with what can happen with the OR. I think Michael made a comment that the workers' comp was about 130 basis points negative in the OR. I mean, would it be fair to think about the kind of the true run rate for the first quarter from an OR standpoint being kind of in the 104 type range and then to expect the normal sequential build? Or is there something else that we should think about from the first quarter into the second quarter?

Well, there's really -- the things that we've outlined, the kind of the tax rate issue and the workers' comp cost. Those are -- if you're looking at the full-blown 105.5% OR, those are going to help us, hopefully, in the second quarter, if we have more results that are closer to "normal". In the case of workers comp, that would be below our 5- and 10-year averages. And then on the tax side, if there's positive earnings there, then we can expect to have a low tax rate on those. So those are things to think about. If you were to kind of exclude those unusual items and think about the normal sequential relationship, second quarter to first, there's usually about a 5- to 6-point improvement based on history when you look at second to first. And again, that's just because you're in a higher seasonal place as far as business levels and as the issues that we had in the first quarter with some of our costs being more fixed really rights itself so to speak in second and third quarters.

And our next quarter comes from the line of Ken Hoexter.

Two questions I throw out to you. One is, can you talk about -- I know you threw out a brief on the status of the lawsuit, what the process is there. But again, just thinking if there's any timing or are we just going to run this contract to the end and then through the negotiation process? And then, I'll just throw you my second question up front, which is -- just stepping back, why is tonnage down in a rebuilding economy? What is going on? I understand whole -- the pricing dynamic and your rate in pricing, but I just want to understand, is the LTL market different than all the other markets that are seeing volume growth right now? When you think about the rail car loadings or trucking loads, truck loads -- on the truck loads side, just why do we continue to see these level of declines?

Well, with respect to the lawsuit, Ken, we're really in a waiting process just like you are. We have done what we need to do there. There's motions to dismiss that have been filed by the defendants. Now that we're back at the District Court level. And so we're waiting for the judge to rule. And we can't control that timing, nor do we know really anything about that, that we haven't made public or told the public. And so we're in a waiting process there. We don't wait for that. We go through the processes that we need to address the issues that the company has in a number of ways. And one of those would be in this year. It's normal to go through a preparation process for the labor contract negotiation. And we're working through our part of that at this point. And later this year, that process will begin kind of jointly with the Teamsters we believe. And we'll go through a normal process there. If there is some activity that is occurring on the lawsuit that may or may not enter into the process, we just don't know and we can't really predict that in terms of timing. And then at the tonnage, with respect to tonnage and business, we've been looking at that obviously, been looking at ourselves and trying to sort through what's happening there. Something I suggest to you from a market share standpoint is that we do know that we gave up some market share as we raised prices. Most of that affect occurred for us in the third and fourth quarters of 2011. We don't see that continuing into the first quarter. We've seen more normal or typical-type results there. And so it's not something that is a worsening sort of statistic or pattern. What I am encouraged by is what we're seeing in April because, again, I mentioned earlier, when you go through what we've gone through on pricing business appropriately, there are times whenever you take the risk of losing an account, and that in fact happened, what we're encouraged by in April is the customer wins that we have attained, and some of the customers that have left us in prior periods are coming back to us because of the value that we bring to them. So you have to be willing to work through that process to get to the right place. And that's the discipline that we've always talked about with our company all these years.

And our next question comes from the line of Jack Waldo.

Let me -- I just wanted to ask, the -- once again, if I look at your non-asset based, you lost -- your asset light business is you lost $1 million.

Yes.

And if I look at your LTL businesses, you lost $22 million. And then if I read the press release, I hear about a lot of the investments that seem to be directed at the asset-based that continues to lose money. And I'm just wondering, is there some point in which you're going to be forced to switch your focus from what looks like a substantially less attractive ROIC profile in the asset-based investment side and go more to the non-asset-based side.

Your premise is that you have to be one or the other. And one thing that I'll -- you know the process we go through as a company, to think through strategically where we need to be, and I sure wouldn't want to have one answer. So what we work from is a number of answers. There's a number of paths to our future success. One thing I know is that we -- if we stop investing in the ABF company, that things will be worse, not better. And we have some opportunity there to improve efficiencies, to improve the things that we control and to give our salespeople a better opportunity to succeed. And those things are worth doing. On the non-asset-based side, I've been very aggressive in growing those businesses, giving them the things that they need. Probably the biggest reason for them is, on the non-asset-based side, maybe to your model, is FleetNet's business. We have the warmest winter since the early 1930s and their business is based on emergency roadside service. And so it's highly unusual for them to have that kind of a miss, but that didn't keep us from investing in the things that we know we need to do to grow that business. And we've had a number of good customer wins there that you'll see in later quarters this year. So the answer is, you don't have to do one thing or the other. It's more you've got several different paths to work on and making the right decisions on each one of those.

[Operator Instructions] Our next question comes from the line of John Godyn.

In some of the comments on unusual factors in the release, you mentioned that you got impacted by some decisions to maintain customer service levels despite lower tonnage. Of course, we think of you guys as a service-oriented company, so I'm just trying to understand if you actually did anything different this quarter in service that's not going to repeat or if maintaining high-service levels in the space of tonnage decline is something you're going to keep doing, which would keep amplifying the operating leverage whenever tonnage falls.

Well, when -- the only different thing that it's really along the same lines as what we normally do is that we did have the full effect of our fourth phase of our regional service out in the west. Last year, that was implemented sometime in March. And so in the quarter last year, we didn't have the full effect of that second day and next-day service. And we do have that in this year's first quarter. And so -- but I would say that in kind of on the material side of things, what we did was what we normally do. It was just exacerbated by the tonnage declines that we experienced.

And our next question comes from the line of Jeff Kauffman.

I guess, what I struggle with here as I hear all the initiatives, and I see the growth, but at the end of the day, and this kind of goes back to Jack's question, I'm not saying you don't invest, if I understand what Judy's saying. But at what point do we say, "We need to make money before we get into new businesses, do new things." And the union is not cooperating, therefore, we should reduce our union jobs. We should reduce our union overhang pension expense, et cetera, before we begin to grow. Is that something on the table or do we just say, we're going to keep doing what we're doing until we get to the next contract. And then, we've got a tally of everything the union costs us and that's what we need to get back.

Well, I think, Jeff, if you stop and waited and didn't take advantage of good opportunities, you'd miss them. That's something that we're not willing to do. If we can see the opportunities with the balance sheet and the resources that we have, we're willing to continue forward, particularly in this non-asset-based area. One reason that's so important is because our customers, particularly ABF customers, do a lot of business in other transportation areas that you're familiar with, I'm familiar with. What we're doing by elevating the importance of those businesses and at the same time making sure that we're doing the right things as far as ABF goes in total, we give ourselves a better market opportunity to grow in that close to $700 billion transportation market rather than just in the slice of $30 billion in LTL market. But if you don't do the right things on the LTL side, but at the same time, you're saying, "Use us for all of these other things that we do well." You're just not making any sense to a customer. We're trying to make sense to a customer and bring them things that they don't have and be that one source for them that handles their solutions and their needs.

I understand that, but does it make sense to do that for practice. I mean, at the end of the day...

It's not for practice, it's not for practice, it's not for practice. If I thought that it was, that's not what we do.

All right. One last question, as we've entered these negotiations with the union, and we understand what happened there, is the starting point where the contract is with Yellow currently and you say now what do we do from this Yellow deal? Or is the starting point where you are, where you're trying to get through the Yellow deal. How do you think about the starting point on these negotiations?

Well, Jeff, I'm not going to get too deep into this because there's no benefit to us from doing that. But I'll say this. We're doing -- we're approaching our thoughts on that with respect to ABF's needs. It's what ABF has to accomplish, what we have to have from a market-based cost approach. And that's where we start. And that's what's important to us. And so -- and that's really all I'll say.

And our next question comes from the line of David Ross.

It's actually Bruce Chan on for David Ross. Most of my questions have been answered with respect to tonnage and pricing. Obviously, you guys have done a lot to bring pricing back to sustainability levels and certainly have done so more than a lot of your competitors. I'm wondering if there are any geographic pockets out there that you're seeing more competitive pricing?

Not from a pricing standpoint, no. We've seen from a, I guess, from a growth standpoint, we've seen some more exciting things in the southeast and up in the kind of the Northern California up to Canada. Those were some growth areas for our company. But from a pricing standpoint, we're not -- I haven't had anything report to me from a regional standpoint that's any different from any other regions.

And then just one quick question to get a feel for true impact on yield. Do you guys have your length of haul figures for this quarter?

Yes. We do have that. Here, David's got them in his hand. I'll let him give you that.

Length of haul in first quarter, this first quarter, was 1,044, and that compares to 1,036 first quarter last year. Really not much of a change, a slight increase. Pretty much flat.

And our next question comes from the line of Scott Group.

So I just want to just make sure I'm understanding the workers' comp thing. I've seen the raise -- you talked about $5.3 million. Is that the absolute number? Is that the year-over-year number? And then, what's a normal number? What should that be? And what do you actually expect for the remaining quarters of the year? I guess, it's not...

Well, that is the -- that is, Scott, the amount that is unusual. When you compare to 5- and 10-year averages, that's the amount that's unusual. And I'm going to let Michael give you kind of what those 5- and 10-year averages are as a percent of revenue.

Yes, we're looking at the percent of revenue, it's, on a total basis for workers' comp and third-party casualty, it's 2.38% 5 year and 2.51% for 10 year. And then for...

And tell him what this year is.

Yes. This year, it's 3.7%.

Yes, that's the magnitude that is out of line with our 5- and 10-year averages.

And just to be quick, you'd expect it to go back down to 2.3% starting in second quarter?

Well, it's very unusual for us to be above our 5- and 10-year averages. These -- what we do on our financial statements is as incidents happen, and as adjustments are made to reserves, we record them. In the period that, that happens, in the month that, that happens. And so we can't predict the future on this. All we can do is tell you what's historically happened to us. And the other good news, I mentioned in my opening comments, that our injury rates are some of the best that we've had in a very long time. And so that helped to never have a claim set up to increase. That's the direction that you want to be going.

And Scott, just to give you some color on the history. The fourth quarter was 2.4% and 2011 was 2.44%, and 2010 was 2.44%. So it's -- it can be lumpy through the quarters, but it can work out on the year.

Hey, Scott, I think we're going to move along because I've got some folks that haven't gotten to get a question that are in the queue. I want to let them have a chance.

[Operator Instructions]

I show some other people in the queue, are there others that you have?

We do have a follow-up question from the line of Scott Group.

So just a couple other, just quick things. Do you have the monthly, the monthly tonnage and yield numbers for the first quarter? I know you gave April, but do you have the numbers for first quarter?

We have the -- yes, for the month -- monthly for the first quarter of '11 over '10, is that what you mean?

No, '12 versus '11.

'12 versus '11. Let's see, we were down 7.8% in January, 8.6% in February, and March, down 14.3%. And then what we gave you for April, month-to-date through the 25th is down 9.1%.

And you have the same thing on the yields?

Actually, I don't. We don't like to give yield at that granular level because we have to go through some routines to make sure that what we're giving you is a good indication based on pure price. I may not have mentioned this, but we had an 11.5% or so increase in yield, including fuel surcharge. If you exclude fuel surcharge, it was up in the high single digits for the first quarter. And for April, that is -- it's up about 7.5%.

And our next question comes from the line of Tom Albrecht.

And there seems to be no further questions at this time, I will now turn the call back to you.

Okay. We appreciate you joining the call this morning, and this concludes our call. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.