Knight-Swift Transportation Holdings Inc (KNX) 2005 Q1 法說會逐字稿

Good morning, my name is Janice and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Swift Transportation Company investor meeting conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period. (OPERATOR INSTRUCTIONS)

Thank you, Mr. Moyes.

You may begin your conference.

Ladies and gentlemen, the meeting will begin momentarily.

Thank you for your patience.

Good morning, everyone, and welcome to the Swift Transportation first quarter conference call and our investor meeting.

This morning's presentation will provide a little more detail than we usually go into so it might run a little bit longer than our normal quarterly calls.

I want to open by saying that this is a great time to be in the truckload market.

This is a great time for a truckload carrier that can grow and this is a great time for a truckload carrier that can grow and execute.

We believe since we are the largest regional truckload carrier that we are positioned -- we're in the perfect position.

Today we will begin with the legal discussions.

Today's presentation's discussions will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as expect, anticipate, intend, estimate or similar expressions are intended to identify those forward-looking statements.

These statements are based on Swift Transportation's current plans and expectations and involve risks and uncertainties that could cost future activities and results of operations to be materially different from those set forth in the forward-looking statements.

For further information, please refer to the Swift Transportation reports and filings with the Securities and Exchange Commission.

First of all I would like to introduce some important people that are here today.

Bob Cunningham, who is our new President, Chief Operating Officer;

Bill Riley, who I think all of you know.

We have Glynis Bryan, who is our new Chief Financial Officer just joined us; and Sam Cowley, who is our new General Counsel, has just joined us and a new board member Karen Rasmussen (ph) is here with us today and -- (inaudible).

Earl Scudder's here.

I don't see him right now and Carl Eller, one of our board members, is supposed to be joining us this morning.

So we are excited to have three of our board members with us today.

I'll start off with a little introduction.

Bill will come up and go through -- or Bob will come up and go through the overview of Swift and our strategy.

Bill will go through the numbers and we'll come back and close and have the Q&A.

The investment highlights for Swift Transportation that we look at today, we're extremely optimistic about the long-term industry outlook.

Everybody is very nervous about, how was February?

How was March?

You know, how is April going?

We have got to look at this as a long-term growth strategy.

The current industry dynamics favor us and favor companies like us.

We have a long history of revenue growth.

We are very focused on execution and improving our asset utilization.

We plan to lower our operating ratio by doing whatever it takes and we will be able to because of our great customer base.

We are just scratching the surface with many of our larger customers.

We have a lot more services to offer our larger customers and if an opportunity comes to acquire someone else, to complement our business, we can do that.

We have done 12 successful acquisitions in the last few years.

As you will see, our operating leverage provides us with significant earnings momentum.

And we have the experienced management team to make all this happen.

I know that you want to hear about the SEC investigation and the FMCSA and we will hit that right off the bat.

I and the Company are fully cooperating with the SEC investigation.

The investigation centers around two days of my trading and I am currently in settlement negotiations with the SEC.

With regard to the FMCSA, our safety rating is and has always been satisfactory which is the highest level we can have.

We continue to cooperate with the FMCSA and the first hearing that we have is scheduled for December of '05.

There has certainly been a lot said about the truckload industry and I want to talk a little bit about the industry first.

It is a very, very exciting industry.

The truckload industry as defined by the American Trucking Association is a $550 billion industry.

We operate the largest truckload fleet in the United States and probably in the world.

With that said, we only represent 1/2 of 1% of the total industry.

To me, that means there is a lot of room for growth with very, very good business.

The industry continues to be constrained by capacity.

We don't see an end to this capacity shortage issue in the near future.

It is very, very difficult to find drivers.

People have not been adding tractors because they can't find drivers.

Imports continue to increase coming in off the Pacific Rim and all of these factors really benefit Swift.

This is probably one of the most important slides in the presentation.

I want you to focus of the top part of it.

There have been rumors about the truckload sales and the capacity to increase it within the truckload industry.

A significant proportion of the increase in Class A trucks is due to No. 1, replacement of prebought trucks that were prebought in '01 for the '02 engine.

The lengthening freight cycles, starting to get some numbers for prebuys of '07s and a significant number of Class A tracks sold into the vocational market.

Another issue is if we made an order today for two years out, or even three years out, all those numbers are counted in today's numbers.

Little bit distorting.

Of the top 10, truckload carriers have increased their fleets by only 3.2% annually over the past five years.

The top 10, 3.2 over the last five years and more significantly the top 10 only grew their carrier base 2% between '03 and '04.

Because capacity is growing less in GDP, we expect rates to continue to go up.

You have to ask why the rates are continuing their increase more than inflation and the answer is very simple.

It's capacity and tightness.

The market is great because there aren't enough truck, trailers, and drivers to go around.

The big customers continue to grow and they need large carriers to handle their volumes.

That's why large carriers like us are winning.

I'll now turn it over to Bob Cunningham, our new President and Chief Operating Officer, and he will go through our operational strategy.

Good morning, ladies and gentlemen.

I'm excited to be back at Swift and I'm excited to build on the foundation that Jerry started in 1990 -- in 1966.

Bill this company to 18,700 tractors.

We have just short of 52,000 trailers and approximately 20,000 drivers.

We are proud of our history of consistent revenue growth.

Since 1990 we have had a compounded annual growth rate of 23%.

We run an outstanding network of regional terminals -- 37 terminals -- that are scattered across the country and we have a very strong team to help us manage those.

You met two of those individuals who are going to help is today -- Glynis and Sam.

We also announced Monday night Bill's retirement.

We are going to miss Bill.

Bill has been an integral part of Swift.

We are not going to let him get far.

I've asked Bill sell your outside businesses and stick around.

But he's come to the time in his life where he is ready to go play and we wish him the best and we are grateful for his wonderful contribution to this Company over the year.

He has been a fabulous partner of mine for the last 20 years.

Although you only see a few of us on this organization chart, we are supported by a very deep and very talented management team that I'm extremely proud of.

One of the things that we just implemented on April 14th was a new structure for our organization.

Historically, we have always had one Executive Vice President over Operation and one over Sales; and it is my belief on a go forward basis that one thing we needed to do is we need to work closer together hand in hand with Sales and Operation.

We divided the country into three regions and we have an EVP who has Sales and operating responsibility for each one of those regions.

Those three gentlemen are on the top line there.

That is Mark Martin, who will handle the East;

Richard Stocking, the Central;

Jeff Riley, the West.

Swift has always been a very sales-driven company.

If you will we have always had a book it mentality.

Book the freight and we will let Operations figure out about it.

We are too big to operate in that manner.

So going forward, one of the things that I think is critical to our success is we are going to break out a new area force which we call Network Management.

Since this Network Management group that will devise the plans and will have Sales and Operations execute that plan, Network Management will have responsibility for all our prioritization tools for our planning, for our customer service, for improvement in our utilization, and our trailer management.

They will devise a plan for us on a go forward basis and then it will be Sales' and Operations' responsibility to execute that plan.

The operation folks will now be able to focus in on the things they do best.

Fleet management, the utilization of the driver miles, safety, driver retention, and fuel management.

We believe going forward that these three teams with the Network Management group designing the plan, and Sales and Operations executing the plan, and taking advantage of the innovative technical tools that we have to help us with our decision processes will drive our operating ratio down to produce the results that we all want.

Let me talk to you for just a minute about our regional terminal network.

This decentralized regional network really offers some tremendous advantages to us as a company.

First of all let's talk a little bit about driver retention.

Driver retention is a lot like Sales.

It is a relationship building process.

We are going to dispatch 3 million loads this year in 2005 and we've got drivers stationed out of every one of these 37 facilities.

We have fleet managers and driver managers who are responsible for those drivers in each one of those facilities.

Who better than this organization and this Company do we have to have safe time and one-on-one time with those drivers?

It's an opportunity to develop a relationship with those drivers.

If everybody was based in Phoenix that would be very difficult; but we have them out in the field where they get home on a regular basis and in the regions where they operate.

We're able to cement that relationship with those drivers; and that is one of the reasons why I think we are being successful with our driver turnover.

Second, it provides a local presence with our customers.

We're close to our customers' locations and, lastly, also some great advantages for both fuel and maintenance needs. (technical difficulty) to stand in line for a dealer to make a spot available and we have got our own shops where we can trucks in and out and back on the road in a hurry.

Our plans for the future to accelerate our EPS growth comes from these five areas.

We are going to continue to focus on our profitability.

We are going to continue to utilize our technology to move the freight that is our most profitable.

We are going to focus on our cost management and our utilization.

Our sales and marketing -- we are going to aggressively go after that higher margin traffic.

We also are going to look for opportunities to expand our relationships with those customers -- and I'll speak a little bit more on this in a second -- through our dedicated operations, our intermodal businesses growing and our opportunities that we have in Mexico.

Safety remains a top priority.

We are continuing to implement safety campaigns into -- in practices and incentives for good safety behavior.

The driver retention, we have a very competitive compensation package, some exciting programs to help keep these drivers happy.

And as Jerry said, when the opportunity presents itself and we have our operating ratio to a point where we can, we're going to take a look at acquisitions as they come along, and only as they are accretive to our business.

Our state-of-the-art prioritization tools are central to our efforts to reduce our operating ratio.

We have the ability to analyze every lane of traffic from every shipper.

With those tools we are able to identify what traffic we need more of and what is not priced right.

And we either need to get the price in line or we say goodbye to it and we have done that.

We have had to say goodbye to some significant amount of business because we couldn't get the price where it needed to be.

We will continue to do so.

Let's talk a little bit about our revenue per mile for the first quarter.

I know that has been a concern of everybody's and, quite honestly, we wish that it had been a little higher as well.

First of all, in the first quarter our average length of hauling increased 33 miles.

About $0.02 a mile and Bill is going to speak a little bit more on this later.

Also the reality of the market situation, particularly in January and February, we had some soft spots.

We had some soft spots in the Northwest in particular and in the Bay.

We chose, rather than to cut rates, to take some traffic that was moving on the rail off the rail and move it over the road.

We kept our trucks moving, we positioned some equipment in the Midwest where we had a better opportunity to utilize that capacity, and it was the right decision.

Our revenue per mile, excluding fuel surcharge for January was 1533.

For February, it was 1535; for March, it was 1563 and month to date April, it is 1.57.

Month to date April is up $0.04 over January.

We had a good quarter.

I'm in your shoes.

The message that I would like you to have and that I would have is that there is still a tremendous amount of upside for Swift and our ability to raise rates and to continue to implement these prioritization tools which we are focused on.

As we focus on our asset utilization, our revenue per tractor per week continues to rise.

As you can see we've had three solid years of quarterly improvement.

That trend is continuing in 2005.

Our first quarter revenue per tractor increased 8% to 2851 miles as opposed to the first quarter of 2004.

We believe that continued emphasis in this area will continue to produce positive results.

I talked to you in the last conference call about our quarterly bonus program we had for our driver managers.

I am happy to report we paid 436 (technical difficulty) in the first quarter to driver managers and fleet managers.

Our increase in pretax earnings from the higher productivity was $3.8 million.

That is an 11.4% return on investment; and we think there is more opportunities for there to come.

Most importantly, our driver managers and our fleet managers are excited about the program.

In today's economy, the consumer is driving our GDP and personal consumption expenditures were one of the major drivers of the 3.8% GDP in 2004 fourth quarter. 80% of our business is associated with consumer products.

Our customers are in markets that are growing and that puts us in a great position to capitalize on that growth.

Swift's top 10 customers' revenue grew by 8% or $54 billion last year.

That is more than double the GDP.

Of that 54 billion we believe that at least 2% or approximately $1 billion is allocated to truckload transportation expense that they are going to need to spend going forward.

Here is a list of those top customers that are having success in their markets.

Their growth facilitates our growth.

And our potential is to further grow with these customers by offering additional services that they aren't (ph) giving us today.

Our top size customers are 32% of our revenue.

Our top 25 are 58% of our revenue and our top 200 customers represent 88% of our total revenue.

Now let's talk about the additional service opportunities that we are pushing with these customers.

Our dedicated operations are good for Swift and are good for our customers.

Our customers benefit by consistent capacity.

They are able to leverage that relationship when they have surge needs in their busy times, eliminate their need for capital expenditures on equipment, and we are able to provide talented drivers and systems and management to help them.

On the Swift side of things, it gives us consistent revenue base.

Our Dedicated Operations operate at a very good operating ratio, much lower than the rest of our fleet.

Our driver retention is good.

Our safety numbers are good.

Our customer service is excellent; and we are able to leverage that over (technical difficulty) dedicated relationship with our over-the-road business.

Another area we will grow is our intermodal business.

Fall of 2004 we announced that we hired Dan Biers (ph).

Dan is a seasoned executive with a wealth of intermodal business experience.

He is building a solid organization.

We have developed relationships with and rate schedules of all the Class 1 railroads and almost everyone of those customers that we have have intermodal traffic that they are giving to someone else.

We intend to leverage our existing relationships to get some of that business from them.

And, last, our terminal network is geographically positioned, which will really complement door-to-door service that rail will require.

Mexico is another area of opportunity of growth for Swift.

We currently operate out of six facilities which facilitate a seamless cross-border transaction.

As you know, we completed in 2004 our acquisition of Trans-Mex which, we believe, makes us the only U.S. carrier to own 100% of the Mexican truckline.

We were just down to celebrate the opening of the brand new facility in Nuevo Laredo.

It's an $8 million facility.

A gorgeous facility right on the highway.

We've had customers come up to this grand opening all the way from Mexico City and everything in between.

At that particular border crossing, there are 5,000 loads a day that cross.

We currently move 150 or 3%.

Those customers that were at that grand opening told us "Get us trucks.

Anything you get into Mexico we can load you back out."

Lots of opportunities for growth there.

As we focus on improving our operating ratio by increasing our utilization and growing where it makes sense, we will never lose sight of our top priority which, of course, is safety.

We have implemented many safety campaigns and we have added staff specifically to focus on reducing our accident per million miles.

We have made significant progress over the last three years; and we have had -- continued to reduce our accident per million miles in the first quarter this year.

Our accident frequency in (technical difficulty) was down 18% as compared with the average from the prior four years.

To build on this progress we are in the process of installing 19 simulators in all of our training terminals and academies.

Our goal is to have our drivers' first accident happen on the simulators.

Our efforts to reduce driver turnover continue to pay off.

This is a slide we're very proud of.

We have reduced turnover to an average of 89% in 2004 which is well below the industry average of 120 as listed by the ATA.

Our driver pay increase on March 15th of this year will help us to retain many of these drivers.

And at the end of this first quarter our annualized turnover dropped to 87%.

We are going to continue to do whatever is necessary to retain these drivers.

We have a mentor program which we introduced last year with six-week training with students.

We have got a brand-new road ready program that is going out.

It is a volunteer program where we actually train drivers how to repair the 30 most common malfunctions that take place on the road.

Instead of a guy being on the side of the road broken down, waiting six hours for a truck to come and all the frustrations that come with that and lack of miles and lack of pay, we're going to give him the tools necessary.

And he physically will have a toolbox in his truck for those that choose to where he can actually help himself back on the road.

Our drivers are excited about that; and it is a new program that's really rolling out.

As Jerry mentioned earlier, we have a long history of successful acquisitions.

We have made 12 acquisitions in the past 17 years.

When we went public in 1990, we anticipated that about 50% of our growth would come from acquisition and 50 from internal growth.

We have acquired approximately $1.2 billion worth of revenue.

We are going to continue to look at acquisitions as they present themselves and only when we can make complementary accretive purchases.

So, in summary, we are making progress.

We are moving in the right direction.

We are focused in the right areas and we will continue to increase our revenue per mile.

That is a recipe for success.

I'm excited about our potential and I think you should be too.

Mr. Riley, this is your swan song.

It's good seeing a lot of the same faces I've seen for 15 years or nearly 15 years.

So it is not a swan song;

I will still be around.

People will see me.

As Bob said we have a formula for growth that, our number one focus today is not topline growth.

It's bottom line growth.

The 23% compounded growth basically the same as when we went public in 1990.

In the first quarter of 2005, our operating revenues grew 19% to 743 million.

Excluding fuel surcharge we grew 13.4%.

Approximately 3.5% of the growth was from rates, 5% was from utilization, and 5% was due to the increase in average number of tractors available for dispatch.

Our revenue per mile has improved in each of the last two years.

From 2003 to 2004, our revenue per loaded mile was approximately $0.07 up which was in line with the guidance that we had given at the beginning of 2004.

For the first quarter of 2005, our revenue per mile increased approximately $0.05 year-over-year, coupled with an actual increase in our average length of haul.

We normally figure that for every $0.14 or 14 miles your rate per mile will decline about a penny.

So that equates to about $0.02.

From 2003 to 2004 our average length of haul decreased slightly; but we were able to achieve rate increases through negotiations.

In Q1, as Bob previously said, our average length of haul increased 33 miles.

We continue to have a focus on productivity.

Our utilization has continued to improve over the past several years.

Our miles per tractor has improved for 4.5% since the low point in 2002 and notice we picked 2002.

It would have been very easy to improve that scale by putting in 2001 when we merged MS but 2002 was a good baseline to look from.

When you look at 2000 trucks having the increase in revenue or the increase in utilization we have, it is a significant improvement.

It is driving our revenue, it is driving our results.

More importantly, our deadhead has decreased 230 basis points since 2001.

For the first quarter of 2005, our productivity improvement continued as we increased our miles per tractor from 2123 from 2029 in Q1 of '04.

We reduced our deadhead to 13.1 from 13.3.

Our improving margins are driving earnings growth.

Our effective yield management and productivity improvements have enabled us to improve our operating margins despite growth in costs, such as fuel -- which we all know, driver wages, and insurance.

Our operating ratio has improved 224 basis points from 2001 to 2004.

And we improved in first quarter 180 basis points Q1 of '05 versus '04.

These OR improvements have increased and resulted in a 56% compounded annual growth rate in net income from 2001 to 2004.

Net income for the first quarter 2005 increased to 19.4 million, from more than 3 times the 6.4 million we earned in Q1 of last year, despite record fuel prices which were up over 30%.

(indiscernible) into our operating expenses.

Let's drill down to the detail.

Our salaries, wages, and benefits increased 14.3 million but were down as a percentage of net revenues, excluding fuel surcharge.

Last year as you recall, we had early retirement and we had nearly $5 million associated with the voluntary early retirement benefits.

Driver wages per mile have increased slightly year-over-year as our per diem program has partially offset some of our wage increases.

But the offset still appears in the driver benefit side.

Operating supplies.

This is one we're very proud of.

Have remained relatively flat on the dollar per dollar basis year-over-year that has decreased as a percentage of net revenue.

In 2004, operating supplies include a $4.3 million inventory adjustment and $2.1 million amortization of legal fees to the insurance settlement which obviously the benefit ended December 31st of 2004.

Factor and trailer maintenance has remained relatively flat as a percentage of revenue year-over-year.

This slide is probably the one I am most proud of.

You recall on our third quarter conference call we said that we had sent out our Sales and Marketing group with one initiative.

That initiative was to take our fuel surcharge from $0.01 increase for every $0.06 per gallon or $0.01 for every $0.05 a gallon.

Thank goodness we did.

It goes to prove and it is the same focus that Bob was talking about on increasing our rates.

We are going to get it done.

Fuel expense went up by $47 million to 18.4% of revenue in the first quarter.

Our average cost was $1.95 compared to $1.50 in the same period last year.

Backing out our fuel surcharge receipt for the fuel increases, our actual cost of fuel was 12.6 as compared to 11.4% for the prior year.

So even though fuel went up over $0.30, our net negative impact because of the improvement in our fuel surcharge program was approximately a penny a share year-over-year.

The minimizations of fuel expense was the result of that revised fuel surcharge program and I take my hat off to our Sales and Marketing group because they basically took a "no prisoners" attitude and forced that through.

As you can see from the next slide despite the continuing increase of fuel, we have been able to improve our operating ratio by increasing our revenue per mile and fuel surcharges and improving our overall asset utilization.

Purchased transportation increased 20 million in the quarter of which 10 million was fuel surcharges we gave to our owner operators.

Excluding fuel surcharge, purchased transportation decreased from 17.1 to 16.6%.

This is the one that we always tend to look at.

We say 4 years ago Swift had almost 50% of its tractors leased, 50% owned.

So when we talk about depreciation as you know we had in rental expenses well for comparative basis.

A total of rent depreciation amortization expense has decreased as a percentage of our revenue as the Company fleet has increased only 3.5% year-over-year but our net revenue increased 13.5%.

I am happy to say once again Swift disposed of a significant amount of equipment in Q1.

We sold 731 tractors, 196 trailers with an approximate gain of $208,000 on the disposable of that equipment for the quarter.

Insurance and claims was the only negative that we really saw in the quarter.

Why?

It was slightly higher than the guidance we have given of 4 to 5%.

Our action frequency is down 18% as compared to prior years.

If you recall on our conference, we said that our loss pick ratio was going to be based on past years' experience.

So the 18% Bob Cunningham described reduction and frequency did not affect our insurance allocation for Q1.

It is based on our historical accidents per million miles.

And we actually had a utilization increase.

Plus we had also figured that we would've had the autohaul disposed of sooner than we did.

We had it for the full quarter and that was about 1/10 of 1% in insurance and claims.

Our remaining expenses -- communications, utilities, operating taxes -- are in line with our revenue growth.

Balance sheet.

Our financial condition remains very strong and healthy.

In 2004, we purchased over $250 million worth of treasury stock.

In addition, our CapEx rose by over 100 million compared to 2003 to fund purchase of tractors.

The two items were funded partially by an increase in debt which raised our debt to total cap at 45.7%.

Back in 1990s you recall, I said our goal was below 40% debt to total cap.

And at that time we had roughly 50% owned, 50% leased.

As you can see now Swift significantly owns the majority of its tractors. 75%.

And our debt to total cap is down to 43.2 and we project it will be by year end below 40%.

We now have over $275 million of available capital under our existing credit facilities.

Swift has unbelievable operating leverage.

For every 100 basis point improvement in our OR, our earnings per share will increase 18%.

Only a couple of companies in our estimations have better leverage than we are and they are nowhere our size.

All other expense (indiscernible) being constant, if you consider that each $0.01 increase in our revenue per mile will equate to $0.16 per share and each half point reduction in our deadhead improves our earnings $0.14 per share.

You can see why our management team is so excited about our future.

Look at what happens to our earnings per share based on improving our OR.

You can see, it is $0.26 a share for every improvement of 100 basis points in our operating ratio.

Unbelievable operating leverage.

With that I'll turn it back over to Jerry.

Thank you, Bill.

Just a couple of points.

With Bill's departure, we are really going to miss him.

He has been a very important part of -- Bill and I have been partners for 15, 20 years that he's been and just hate to see him -- hate to lose him.

But I guarantee Bob in I are going to have lunch with him all the time and he is going to be a consultant to us.

He's not going to get any money out of us, but we are going to be able to pick his brain a lot.

So anyway Bill and I have got a great relationship and he's going to different adventures but we are going to be very close.

One of our favorite analysts put out a comment the other day that cost us $1.00 in our stock and I just want to address it and that's the Sears Kmart relationship.

Just want to give you some facts.

We started dealing with Kmart in 1988.

They were our largest customer for years.

We are one of their largest carriers, if not the largest.

We are one of the only carriers that when they went bankrupt I went back there and said, "We are going to stay with you through this deal."

We committed to stay with them.

It has proven we have a very strong relationship with Kmart.

We started dealing with Sears 15 years ago.

We believe that we are their largest truckload carrier.

We are a very significant part of their distribution pattern, of their logistics.

We have an extremely strong relationship with them.

They are our No. 2 largest account.

Here are the facts.

Sears Logistics in Chicago is going to control the logistics of the two companies.

The existing Sears business will not be going out for bid.

It will stay the same.

The existing outbound Kmart business, which is really what we do almost all of our business with Kmart is outbound -- is going to stay the same.

It will not be going out for bid.

The Kmart inbound business, which is where we do very little business with, is going out for bid today and we see potential upside with this inbound business.

Close to conclusion, we see this relationship as very very strong.

No downside and potential upside with the Kmart Sears relationship.

Just want to touch about continuous improvement.

If you look at this slide when we went public in 1990, it was $0.16 a share.

We went from $0.16.

The street's got us at $1.52 for this year.

In the last four quarters we have made $1.48 a share. $1.48 in the last four quarters with the exception of the MS acquisition which cost us a lot of heartburn.

That is all behind us and we feel very strong about our growth.

Want to talk about the industry.

Seems like the industry is really the big question today.

These are numbers of the top eight publicly traded companies that had announced by Monday night.

Their first quarter revenue, the major carriers was up 16%.

Swift was up 19%.

More importantly, the first quarter earnings per share growth of the eight major carriers was up 47%.

Ours was up 225%.

This industry, folks, is not broken.

Now, I just want to go over the investment highlights that we talked about.

Very positive long-term industrial growth.

From very, very focused on consistent revenue growth.

We are focused on execution, asset utilization improving, leverage blue-chip customers with full suite of services.

As Bob said, our top customers have grown, their revenues are up 8%.

We have aligned ourselves with customers that are growing.

We have a very successful acquisition history.

Our operating leverage is driving earnings; and our experience and highly motivated management team.

With that said, I just want to go back and say this is a perfect time to be in the truckload market.

This is a great time for truckload carriers that can grow and it's a great time for truckload carriers that can grow and execute.

Since we are the largest regional truckload carrier, we believe we are in a perfect position.

Now you can see why we are all so excited to be part of Swift Transportation.

So with said, we will turn it over for questions and answers.

What impact did Autohaul have in the quarter?

Had we sold that day 1 would the earnings in the quarter have been better?

It was basically about a breakeven situation because we did not have any depreciation expense charge.

If you recall we took the impairment charge in the fourth quarter of last year.

So basically about a push.

Just on the outlook a little bit, Jerry.

You seem very optimistic about the outlook here.

You seem very comfortable with those consensus estimates that you put up there.

Yet in the quarter sounds like you were a little disappointed with your revenue per loaded mile.

You mentioned some soft spots.

How do we reconcile the two?

And when you think about those consensus estimates out there, how much of the earnings improvement is internal to Swift and market-driven?

There's about four questions there.

First of all, if you look at our customer base, our customer base is growing and if you look at same-store sales -- I was with Home Depot the other day at the big carrier conference down there.

They are growing -- if you look at their same-store sales of only 4% and I think you can say this with Wal-Mart and a lot of the major ones.

Same-store sales is only (technical difficulty)

Over the region, so it's an integral part of it and those three areas together will build the team that exercise our strategy.

Then a follow-up on the yield question.

Has it gotten a little bit covert lately as you (technical difficulty) fuel surcharges stay in the double-digit rates go back and keep getting that sustained level of rate increase?

It's always work to get rate increases but we are out there beating the bushes and we are continuing to have success.

Just a couple of things as they occurred to me.

Could you give a little more flavor on the timing of the SEC and FMCSA.

I know with the FMCSA you said December is the next hearing.

As you understand it, how long do they make a decision after that hearing?

And in the case of the SEC, if you know of any timings of events coming up, could you give us a little (inaudible)?

There is no timing, Ed.

I can just say that our government does not work very fast.

I find that shocking.

So for neither there's really no -- you don't have a sense after the December hearing, how long you might get a response?

We do not.

You talked about, Bob, the different regions and I would be interested -- you put up a slide it had the green, the blue, different colors for the West, the East and the Midwest.

Could you talk about right now what the operating ratios are?

Even if it is directional in terms of the three of them, which one is operating stronger, weaker, and so forth and where the most opportunity lies?

The most opportunity is in the Northeast and typically our best ORs are in the West.

So we can suffice from that the Midwest is kind of in between on both of those scenarios?

Okay.

In terms of dedicated intermodal and Mexico which you laid out as growth drivers, can you talk a little bit about the base of the size of each of those businesses?

And where you -- and what you think the kind of three- to five-year growth rates for each of those coders should be?

I think we said on our last conference that intermodal could grow to be $100 million a year.

Where is it right now?

Around 35, 37 million, I think.

Approximately 1% of our revenue.

Small portion, right now.

And the idea is to get that towards 100 over the next three, five -- what's the --?

We think that we have an opportunity to grow at 100 a year.

So 100 by the end of this year?

No.

We won't be that high at the end of this year but we will at the end of 12 months.

And Dedicated.

Could you give a sense of where the base is there and the growth rate there?

We don't break out our Dedicated but it's a big part of our business and as I mentioned earlier it's a very attractive part.

We operate -- our Dedicated operations have a very good operating ratio and we are looking to grow them every place we can.

For the reasons I mentioned.

They see a retention, customer service.

If we look at the fleet growth growing 5.5% or so last quarter and we think out for the rest of they ear do you think Dedicated should grow twice the overall growth rate -- more than that?

We're not growing our fleet per SE.

That's not where our area of focus is.

That fleet growth, some of that was Dedicated.

Some of that was in Mexico.

We really didn't growth that much in the line haul.

As we said on the last conference call we'd really didn't protect any real fleet growth for the over the road thing.

It would be Dedicated and specialized operations which obviously we put Mexico into.

If you rate those Mexico, Dedicated, intermodal which do you think will grow the fastest as you look out the next couple years?

I would say probably Mexico on a percentage basis because we are going to be adding -- we have about another 75 trucks that will be going in there off a basis of 400.

Next year, probably, be intermodal would be as we get some of the containers that we are ordering in.

It will have a faster ramp up because it started with a much lower base.

Dedicated, I think will grow obviously much faster than the Company's overall growth and as Bob said, the returns on that contrary to what a lot of companies have, we actually have a better margin in our Dedicated than we do in the over the road.

Finally, on the revenue per mile, Bob, you took us through the $0.04 from January to April.

I am guessing that in the current environment, we've heard some other competitors -- both public and private -- say that we are going to get rate but maybe not to the same degree that we pushed a year ago.

How are you going out and getting that $0.04?

Is it still customer by customer?

Did you put something in across the board?

And do you think you can go back later in the year and do it again or is this -- are we getting to a point where maybe you hit the customer once this year and had a hold on?

It is definitely customer by customer and a lot of our efforts to raise those rates haven't gone into effect yet.

Contracts that come up -- starting in this quarter -- and on.

And it's a difficult situation and we are going to continue to tackle it where we can.

We reserve the right to go back to customers in the interim -- in the middle of a contract if we are required.

Industry requires us to give another driver wage increase.

We've already conditioned our customers that should that be necessary that we are going to need to come back to them for some additional help.

I would probably just add on that.

Talk about the fuel surcharge difference but when you think about it if you use $1.10 as a base and $2.00 as the actual cost, then that's a $0.90 increase.

Basically our customers gave us at the end of Q3 $0.03 a mile increase is what it works out to with too much -- so on top of the rate gain we had -- they really gave us an additional $0.03 with the change in our fuel surcharge.

As a result of that I'm guessing it's getting harder.

The customers are seeing more and more increase.

You got roughly 5% last year net of fuel.

Directionally do you think by the end of this year you should be back towards that 5%?

Or do we say 3.2 or so, is a good -- where you were first quarter is a good year number to look at (inaudible)?

I think on our year-end conference call we said that although we reached our goal, our goal for 2005 was going to be higher and obviously we saw some of the benchmarks set by the other competitors that got more than we did.

One last thing.

I saw on the summary sheet, you mentioned revenue growth is one of the key things you are focused on.

Can you talk to when you look out -- I don't want to pin you down to a year but when you think about Swift as 3, 5 years, where do you think about in terms of revenue growth and earnings growth as the strategy going forward?

How important is the revenue growth to the strategy as you go out?

First of all, we are very very focused on getting our operating ratio where it needs to be and that is our number one focus.

When we get our operating ratio where we feel is in the 89, 88, 89 area at least sub-90 then we will probably start growing.

Today as we've stated, we are growing through Mexico, Dedicated and intermodal.

And in rates.

But until we get to that point we are not going to expand our fleets.

Chuck Harris from Saranac Capital.

Jerry, you just mentioned the target goal the sub 90 OR. 90 is sort of a benchmark number that has been discussed by you or the Company for at least the past several years -- getting back towards a 90 OR.

Walk us through how you get there over what period of time is it?

Can you do it on the cost side or has it really got to come out of the revenue and yield management side to get you there?

Is the size of the Company such that -- how do you get from one point to another over what period of time?

Easiest (ph) question.

Very good question.

I think if you look at first quarter we are down -- Bill, 2 points on our OR?

Almost 2 points.

So we made improvements in first quarter compared to first quarter.

It's all of the above.

We have got to get higher revenue per mile growth, is No. 1.

We've got to work on every expense item as we go down the list and there's improvements in every line.

But this Network Management is probably the tool that we have not had in the past that we think that we can really focus in, that will help our operating ratios.

We are looking on a regular basis at what we call our bottom 20% of our business and it might not be -- it could be different customers.

It could be our No. 1 customer but we've got one or two lanes that just are not showing up as attractive as they should be.

So this is a process; we are looking at the bottom 20% almost on a weekly basis and improving that or replacing it.

I think the No. 1 thing that is going to get us below that sub 90 is the new tools that we have in our network management.

Given the fact that your customer concentration would be a little larger than some of your competitors, I think you said the top 200 equals 85% of your total revenues.

88.

88%.

Are you more willing at this point to either start firing some of your customers if they are not willing to pay what you believe is the right price?

Will you really become more aggressive on the negotiations side of this, rather than take the load?

As you said, you've always been willing to do.

We don't fire customers ever.

Those are relationships that are hard to come by and are a long time developing.

On the piece of the business we walked away with -- we walked away from, that was the largest piece was a small portion of what we do with this particular customer.

It was about $28 million worth of outbound, and another $7 million of inbound.

And we agreed as a team that we would forego a particular distribution facility that they ended up with some what we felt like was significantly below market pricing.

We walked away from it.

We still maintain relationships with that customer at a number of other facilities and do a tremendous amount of additional business across the country.

So we are going to -- we are willing to walk away from business if it's not -- if it doesn't fit our system and if it's not profitable.

We are not going to walk away from customers.

Following up on Ed's question.

I think you mentioned -- just correct me, if I'm wrong -- that in the past you go through an annual pricing cycle, rate cycle with a lot of your largest customers which is going on around now.

Could you give us a feel for how that is going?

You are not going to give us guidance in terms of what rates are going to be.

But can you give us a little bit more color, I guess would be the best way to phrase it, as to how the talks are?

What the pushes and takes are and how it's looking?

We are still having some success.

And we are doing it on a lane by lane basis on a customer by customer basis.

Perhaps, maybe, we are having more success because we weren't as aggressive as some of their other competitors might have been last year.

We are still pushing and working hard together in a spirit of cooperation and partnership with these customers.

Find areas of opportunity to increase our rate.

Jordan Alliger, Deutsche Bank.

I think you mentioned that in the first quarter you saw some of the mix for your utilization needs go from rail over to truck to help the utilization.

I guess my question now is have you seen some of that mix go back to the way it was prior to that first quarter soft spot you had mentioned?

We have and I think the revenue, the mile increases that I shared with you reflect that.

So the length of haul may not be up as much in other words, presumably at this point?

On a go forward basis, that's possible.

From an industry perspective, more -- obviously there's the prebuy which is starting or underway already.

You've noted you sold a bunch of used trucks.

What is the state of the used truck market now and is someone else's used trucks, the small truckers' growth capacity?

I think as everybody knows we run a three-year replacement cycle.

We went to a 4 and then we went to a 5.

The majority of our tractors and that strategy is definitely proven out.

The used truck market is improving.

We have -- and I think what one of the significant points a lot of people miss is -- we wouldn't be able to run trucks, say, up to five years of age if we did not have our significant terminal network all of which have shops.

Right now as you noticed our operating supplies as a percentage of revenue declined.

So in fact our maintenance costs aren't going through the roof on some older tractors.

In fact with our in-house maintenance we are able to control it.

So -- but if a smaller carrier is building his fleet, based on going out and buying used trucks he's at a distinct disadvantage because he can't pay the same pay that we're paying.

He has got insurance challenges that are significantly higher and to say that your overall fleet -- our average fleet is basically two years of age.

We have a five-year trade cycle but so if his whole basis is I'm going to go out and buy used trucks in the tightest driver environment, our guys know that a year and a half down the road they are going to be in a new truck.

Where on a startup small carriers he doesn't have a lot of future to offer that guy a he used truck and Bob can probably attest to the difference in pricing on a new one.

My guess is it's probably $15,000 a tractor between a large fleet buyer such as ourselves and maybe a guy that has 100 or 150 trucks minimum.

(OPERATOR INSTRUCTIONS)

This year let's say rate increases don't come through the way you are expecting because the economy turns down in some fashion.

Well actually before we even see rates go down, let's say the economy keeps stalling and there's some slowness out there.

How do you all set that?

What happens to your results, to your plans to improve rates, to improve the OR?

How does that affect your in-house strategy?

First of all, David, we have a flexible turn in cycle on our tractors.

We can downsize our fleet if we need to.

But when you look at the customers that we are aligned with that are growing. 8, 10% a year we think we still have the strength for the pricing issue.

If we have to downsize we can do it.

We have great flexibility in doing that.

We just don't think it's going to be necessary.

We are seeing very positive results of rate increases as we are going -- as today.

Let's say rates don't start trending higher.

They stay around this level maybe 3% year-to-year increases per quarter.

Is that still an environment where you can show meaningful operating ratio improvement or is it more -- that's a kind of environment you can keep it steady at this rate and not get the deterioration?

I think you are still going to see our productivity continue to climb.

I think you're going to see our driver retention continue to decrease and I think those metrics will also contribute to our bottom-line regardless of what happens with rates.

So our goal, obviously, as we work together in all those facets will help with that effort to drive that operating ratio down, David.

David, back to that question, we just don't see 3% as a realistic number.

Could you quantify what the decline in driver turnover (inaudible) can you quantify for us a little bit what does a 5% decline in turnover mean in terms of OR or earnings?

Is there some way you can quantify that?

We really can't quantify it but let me -- if in fact you had drivers like that ready to go in every truck.

You are still going to lose 2 to 3 days on one driver quitting and another guy getting back into the truck.

You have about a 40% operating margin once you cover your fixed expense.

And so driver turnover -- the question is how much does it cost, driver turnover.

You hear numbers 4 to 5000.

I don't think anybody can tell you the exact thing but I think I would say it is the improvement you have seen over the last -- four quarters in Q1 definitely the improvement in utilization is a direct correlation of focus on driver turnover and if you look at what happened to our salaries and wages as a percentage of revenue, remember, we gave our drivers at the beginning of Q2 of last year a $0.02 a mile increase and we have one-half of one month in March of this year, yet driver wages or wages and benefits as a percent of the revenue was down and the number one focus -- we got rates and driver retention are the two drivers and initiatives that the Company is totally focused on as well as its reorganization.

So I don't think we can directly quantify if we take it an 85 what that is going to do in the OR but it's definitely going to benefit.

John Larkin from Legg Mason.

Couple of questions, Bill.

Could you give us give us a little information on how the '02 engines are performing economically?

And then also tell us a little bit about your strategy for dealing with the '07 change?

Specifically, around the issue of low sulfur fuel and its availability and its potential incremental cost relative to today's fuel?

Obviously the '02 engines I will tell you that we've lost approximately 3% in fuel economy so it's costing -- trucks cost $4500 to $5000 more.

We have not had significant hardware problems.

We have had some sensor problems and so there's been more down time associated with it that I think it totally backed up our decision to do prebuy and to run the trucks longer because the pre '02 engines are getting better fuel economy and as you can see from our utilization numbers it hasn't hurt our utilization.

As far as '07, obviously, we are concerned on availability of the low sulfur fuel.

The '07 engine is probably going to cost us 2 to 3% in fuel to Connie and once again this affects everybody that buys the truck.

So we are still negotiating our '06 package.

And we will be doing some type of a prebuy.

Estimated costs have come down.

Originally, we were told 8500 to 13 5.

It looks like that cost is going to be more like $7500 but that's still almost 50% more than what the '02 engine cost us.

The negative on the low sulfur fuel is, it is going to apply to every single truck every carrier runs so that is another potential 2 to 3%.

As far as lower BTU output.

The '07 engine is going to be a challenge.

Also for fuel on availability the refiners are saying they can't guarantee it is going to be 15 ppm when -- it may be when it leaves the refinery but when it gets to the far end of the pipe it may not be.

So there are some challenges.

The good thing is everybody's got it -- and it's a universal challenge.

As we go forward, the one thing is, what we've seen on technologically I think the '07 engine, we are actually going to be getting some this year.

The '07 engine will, I think, have a lot better performance and less headaches than we had on the initial startup on the '02s.

Any costs associated with the feathering of the Volvo equipment since they have become your major equipment supplier?

There are costs.

We have duplicate inventory.

We've had some -- their service network is not as great but the amount of time in the shops have been less than some other brand of trucks.

So I would say, overall, the biggest cost has been training of employees and some duplicate inventory because of different components.

As far as performance and whatever it's out there.

And so you are just absorbing those costs while you're operating a maintenance line.

With respect to intermodal I thought I heard Bob say that the intention was to grow intermodal about 100 million a year.

Once you reach 100 million, maybe 12 months from now.

If I understand you correctly.

You think over the next 12 months -- not through the end of '05 but over the next consecutive 12 months we have a chance to have that 100 million.

100 million run rate or 100 million 12 months from now?

That's what John is asking.

At the end of 12 months from now.

Once you get to the $100 million run rate do you plan to continue growing it at a very rapid rate?

I thought I heard you say 100 million a year from that point forward.

That's correct.

We think that is the potential.

In light of that big growth opportunity, what is your strategy with respect to equipment, how do you plan to handle the driage) Will you be using your existing over the road trailers?

Will you be using contractors for the driage?

Would you be going more with containers?

What is the capital expenditures associated with your strategy?

We purchased 1500 containers to start.

We got more behind that and we are going to do a combination of TOFC, trailers on flat cars.

We will use combination where it makes sense of where our regional terminals are who can help with driage (ph) and we will also use outside (indiscernible).

I know, Jerry, the outside members of the board have been pushing to eliminate or at least reduce the number of what people refer to as interlocking transactions with Swift and some of the other companies that you own or control.

Can you give us an update as to where that philosophy stands presently?

And whether or not we can expect fewer of those sorts of relationships in the future?

And whether the ones that exists currently will be wound down over time?

I think you'll see this year, John, a number have been eliminated by the elimination of Bill and Earl Scudder.

At least Bill -- that will really relieve one of them.

They are working on it but some of them are very deep and some of them go back before we were public.

The interstate relationship -- we've been hauling, for example, Freightlines.

They are one of our very good customers.

The airplane issue.

I don't want to go out and get on an airplane that I don't know who the pilots are and I don't know the service of that airplane.

I want to get on the airplane and have confidence in the airplane and the pilots.

I know who they are up there.

So I think some of those relationships are going to continue.

I don't see the board running out and buying a corporate airplane and -- go ahead, Bill.

Jerry's CFO has refused to allow him to buy a corporate airplane.

So I mean, Swift aviation is very good use.

Interstate equipment leasing and a lot of people don't understand that.

That's where Jerry totally goes out and that's the largest single related party transaction.

That is where Jerry goes out and he funds, buys tractors, and leases them to owner operators with very little capital down to the owner operators.

You look -- probably 2,000 of the owner operator trucks are interstate equipment trucks.

If you want to take an average value of say 65,000.

That's $130 million in capital that Swift hasn't put out.

If the guy abandons the truck he absorbs all of that and with this finer amount that he takes down there's a high possibility that, if Swift was doing that with that type of financing, that the independent contractor under U.S. labor laws would be classified as an employee.

And we would be subject to Social Security (MULTIPLE SPEAKERS) the whole works.

So interstate equipment leasing believe me for Swift Transportation is an unbelievable benefit.

One final question on the hours of service rules which are currently under evaluation again by the FMCSA.

Read something yesterday I think in Traffic World perhaps, that Congress is not real excited about the possibility of grandfathering in the existing rules and that the FMCSA has another set of rules.

It's kind of their backstop that they may promulgate by September of this year.

You have any views as to where that may be going?

What the impacts may be on the industry?

I guess I would probably let Karen Rasmussen -- heads up the Arizona Transport Association.

Karen, can you address that?

She is tied into Washington very well and then we can give our comment.

Personal opinion only John.

I don't believe that the hours of service will be codified as part of highway reauthorization.

It could happen but it's not looking very likely.

It was not done in the House Bill.

So far it has not been done in the Senate.

There are a lot of rumors out there about this backup set of regulations and depending on who you talk to on what day, and what they entail, I personally don't think there is going to be a huge change.

I think FMCSA is committed to the rules or at least some version of the rules that were enacted.

As you recall we went through a lengthy process four or five years to get to the set of rules that we are operating under now.

So I don't know.

Another month of so we may know more.

Does that answer your question?

I think the hour of service rules we are operating under now really hasn't improved the drivers environment.

There's far less detention of drivers and they're far less what I would say shipper or the (indiscernible) drivers now because of the detention charges that ourselves and almost every other major carrier put in.

So it's created a better life and probably a contributing factor to the improvement in driver turnover.

And most importantly the improvement in our safety.

As we stated earlier our accidents are coming down.

I think other carriers' accidents are coming down and if you remember the number one goal of the new hours of service was to decrease accidents.

We are seeing that.

We like the bill.

We like the rules the way it is today and we are optimistic that it will stay that way.

That's what we are supporting as an (indiscernible) Company.

Scott Flower, Smith Barney Citigroup.

A few questions -- could you refresh us and I don't know if you've mentioned.

What was the pay increase that you have just taken and what is your outlook in terms of do you think that it's going to be necessary to have a further pay increase later this year?

Just give us some sense on the pay increase taken and what the outlook (MULTIPLE SPEAKERS)

We said the pay increase initiated March 15th including the benefit cost was projected to be about $0.02 a mile.

It ranged from a minor amount to $0.04 or $0.05 depending on the length of seniority with the drivers to keep the older drivers.

So it was skewered to a higher amount for more experienced drivers, lower amount to entry level drivers.

Do you have any sense that that will be enough or do you actually play by year in terms of whether you will need a second half increase as well?

I don't think we see a second half increase at this point.

Obviously we did one, April of last year, and this one in -- if you look on the surveys that we looked at at the end of last year we were definitely right in the average if you took it by regional areas.

Our Northeast was actually higher than the average and -- but it is somewhat market-driven.

To have the improvement and driver retention rates that we have had, it says definitely we are paying a very very competitive and compensatory (indiscernible) driver package.

It's not just -- drivers don't leave just for pay.

It's how often you get them home.

It's how they are treated.

It's a lot of soft issues as well.

Couple of others.

I know that you all have had success in pay changes you made through fleet managers and driver managers.

I am just wondering if you look across the organization do you see any other possibilities of changing bonus structures or incentive pay to get the kind of behavior you want going forward?

Are there any other opportunities in other areas that you (technical difficulty).

That is an area of focus and I'm a strong believer in pay for performance and as we can develop I think as the driver manager fleet manager bonus was obviously very successful, and we are looking for opportunities to expand that program in other areas as well.

The answer is yes.

Any functional areas you think might be fertile?

(MULTIPLE SPEAKERS) The sales and marketing group have an existing one that was announced at the same time and that's an annual.

So that won't come to fruition for them until the end of the year, which is based on raising rates.

Those are the first two areas.

We also have some cost saving areas and some other things that we are looking at right now to add to some other departments as well.

Like Bob mentioned roughly the 11% payback what he was really saying was 89% of the shareholders and 11% to the employees that earn that bonus.

That's exactly right.

I think another important issue in that, Scott, is all of our employees from grade 16 up are in stock option and stock purchase programs that we have.

So all of our employees are very motivated from the stock price standpoint.

Obviously you talked to someone about the reorganization and looking geographically and not having just functional silos.

I am wondering you sense that you may need to make sure there's fine tuning and coordination between the regions because obviously as you go to a GO function or GO sort of strategy in terms of how you organize vs. purely just functional there may be some areas of coordination lacking.

Just wondering is there anything when you change this and have individual region managers that have both sales and Ops that you make sure you fine tune that from that change?

I'm sitting right in the middle of those three gentlemen that I spoke to you about along with our VP of pricing and we are working together as a united team.

Tom.

We've been ignoring Tom.

Tom Albrecht, Stephens Inc.

Let me just start with a couple of easy questions.

At the beginning of the year your insurance guidance was 4 to 5%.

In light of the first quarter.

Is that still the goal, Bill?

I'd say, probably looking at the first quarter, Tom, we are probably going to be on the high range towards 5% on that.

When I looked at the organizational chart there were a couple of names that I usually see that I didn't and wondered how their role might have changed.

Rod Sarder and Dave Barry.

Any comments there?

Rod Sarder is heading up our flatbed division and a significant part of our Dedicated business.

Dave Barry will continue with the owner operator program and with government affairs.

Gary (ph), a question that I get asked a lot is, as the transition occurs with Bob taking on the CEO title presumably later in the year, what is your role going to be?

Not only functionally, but I think clients are wondering what sort of interaction you'll have with customers, etc.

Let me speak to what I hope it is and then I'll let Jerry answer what he wants to.

Jerry is a tremendous ambassador not only for this industry but also for Swift.

He does a wonderful -- our customers love having an opportunity to visit with Jerry Moyes.

Jerry is always like that.

He's always been extremely good about getting out and visiting with the customers.

Jerry works harder than anybody in this Company.

He always sets the pace.

It would be my hope that as working chairman that that would continue.

Jerry likes it, our customers like it and so we are still going to -- we've been partners for 25 years and had an excellent relationship for 25 years and I would think on a go forward basis that we are going to continue to -- and I need his talent that he brings in that area to help us.

So we anticipate that not to change.

With that said I've only got 24 days of snow skiing in, Tom.

And I'm going get a lot more next year.

I'll be sure to ask about that as winter asks and I'm not asking that as someone who is supposed to your role or anything but I know folks are trying to figure out that dynamic.

And if Wal-Mart has a question, going forward, will they call you, Jerry?

Or will there be more account personnel?

Just some of those dynamics there that people are thinking about.

Well, this will definitely be switched over to Bob and Bob is going to be the president and very involved in this.

But I still own 28 million shares and I'm going to be very very involved in what's going on.

I believe that you're in the midst of adopting trailer tracking with QUALCOMM I believe rather than Taryon (ph).

What is the timing of that and will there be some numbers you could share with us perhaps as a goal on what you would like to do with the trailer to tractor ratio?

Obviously, Tom, we are in an initial rollout situation.

One of the things is, if you look we had, about two years ago, about a 3.3 trailer to tractor ratio.

It is now below 3 and we expect to drive that down.

The biggest payback isn't the reduction of trailers to tractors.

It's utilization on those trailers.

It's telling the driver exactly where that empty trailer is.

Customer may tell you it's empty but the driver goes there and he finds out that it's not.

It's a frustration level.

So in our estimation, the biggest payback is going to be driver satisfaction.

And you're going to be able to track very well high-value loads.

As Bob showed over 80% of our business is consumer products.

Paramount of that is high-volume electronics and high-dollar electronics.

So the security functions of that are valuable to us.

We don't expect it to save us tremendous amounts of money.

We think the soft issues, we think it's definitely going to help in the driver turnover situation.

We will help utilization as we go into the intermodal side.

We may not have to buy as many intermodal trailers because we will have some freed up because of the trailer tracking.

So it's a lot of different issues they go into.

And the timing is to have everything installed in a year or how long will that take?

We have the capacity to -- it'll probably be, I would say, closer to 18 months..

We are currently installing 70 a day in Phoenix.

We started in Memphis this past Monday, installing as well.

We've got 580 as of today that are installed or as of Monday.

The first 30,000 are the easy ones -- it's the other 10.

Bill, what's the latest with equipment package.

You stated, I believe, you want to have 80% of your fleet upgraded before '07.

There's still sort of a missing component.

You announced a couple of deals and there is still a big chunk that hasn't been accounted for.

We will be able to announce that probably by the end of the second quarter.

We are probably going to end up with two manufacturers because we are almost too big for one person to take the entire bite out of the apple.

On this whole issue of network optimization in that, having seen the tools, they are pretty neat.

But I, too, was a little surprised that your rate performance wasn't a little bit better or at least more consistent with the last couple of quarters. 4.5, 5% and you've described some of the dynamics, softness in the Northwest, equipment allocation issues in the Midwest.

But -- and you did walk away from one pretty sizable piece of business.

If the numbers tell you to, will you walk away from additional pieces of business or is it all just going to be lane by lane and work in the process?

If the numbers don't meet our profitability standards and what we think we need in order to operate at a good OR we are going to walk away from and try to replace it.

Our first goal, obviously, is to increase the rates where we are inadequate.

And if not and we can't come to an agreement with our customer in that particular lane of traffic, we will seek to replace it.

How much of a lag is there between the rollout of that software which was basically going on throughout the first quarter?

And maybe identifying the proper information then actually turning that into improved rates.

Is that something that should accelerate as the year goes on?

It's happening on a daily basis.

And those three EDPs over those regions -- that's their primary function with their team and there are network managers who identify what we need to either increase or replace.

And we are working on it daily.

Our whole organization, our whole sales steam Network Management team is focused on that very thing.

We have a question from the field.

Craig Harris.

Jerry, could you elaborate, I know you talked at the beginning on the SEC investigation and the settlement.

What are you talking about as far as you having to pay back the gain that you made from last year and if so, where will that money go?

We are not discussing that.

We are just stating we're in negotiations.

That's all we can say.

And do you have -- I know you were asked this before but do you have any idea when that might come to a close?

As I stated earlier our government does not work real swiftly.

I'm not sure when that will happen.

Do you know about what time -- time from you are having stayed on as CEO -- I know you announced last year that you would wind that down at the end of this year.

Do you have more of a firm date when Bob will move into the CEO position?

It has been stated that it will be December 31st of '05.

Anybody -- Donald Broughton.

I was trying to understand a couple of things.

Your rate goal has been and I believe it tends to be a penny to a penny and a half per quarter sequential improvement.

That was last year's.

We said we haven't put out a rate goal for this year only that it would be higher than what we had for last year.

So it's a penny and a half to two pennies.

And we've started in the whole a little bit to begin with.

As we walk through the cost side of the equation, getting to the earnings, the adoption of SFAS 123 3 is going to cost 4 to 6 million, that's $0.05 to $0.08 a share.

That actually, I think, was pushed off until next year.

Your driver pay increase you estimate as $0.02 a share.

No.

$0.02 a mile and you are pacing that on the tenure of the current drivers.

Is that right?

That's correct.

The risk would be that the larger pay increase goes to the more tenured drivers and that those drivers are the ones you end up retaining more.

So it is going to be at least $0.02.

Possibly more.

Correct?

I think if you look at it, Donald, those drivers are more productive in whatever will run more miles and so if a new driver tends to run 100,000 miles a year, a more experienced driver is probably going to run 115 to 120 and so your productivity improves on that.

And you have then a lower amortization on depreciation, everything else.

So overall we think the cost is $0.02.

But you're right.

If every single driver became the five-year tenured driver, your cost would go up.

Yes.

The productivity of the driver (MULTIPLE SPEAKERS)

Your safety will improve, your (MULTIPLE SPEAKERS)

That would be the best thing that could happen to us.

Productivity does markedly improve after they have been on the road for a year or so.

Right?

It continues to.

But not markedly?

We will call it $0.02 of headwind.

Insurance.

It's already higher than guidance, at least for the first quarter.

You said it was going to be at the high-end.

That's $0.03 a mile from where you were.

You booked $0.04, $0.04.5 throughout last year.

We certainly went to the high side of that on a per mile places.

You've got at least $0.03 a mile of headwinds and insurance costs coming at you.

As we stated the current loss pick is based on prior years' experience as we said on our first quarter or our year end conference call.

At the end of Q2 we bring the actuaries in and they will rerun that.

We may end up with a lower insurance mod (ph), depending on our experience.

Last year you booked $0.04.5.

This year you've already booked $0.09.

I've been saying it ought to be $0.07 to $0.09.

There is a $0.03 difference per mile that versus last year.

Correct?

For Q1.

But for the full year let's assume that instead of $0.04.5 you are booking $0.07 to $0.07.5 which is closer to the industry standard of $0.07 to $0.09 per loaded mile, per mile, so you've got $0.03 of headwind, correct?

Potentially.

So that's $0.05.

The new trucks are more expensive by a margin of $5000?

Correct.

Which is over a depreciated life of about a penny a mile.

That's correct.

So we have $0.06.

Right.

Of headwind.

So in order just to keep the OR flat you have to get at least $0.06 a mile in rate increase.

That's not true.

Rate increases aren't the only way you -- we can -- as our utilization goes up, as our deadhead goes down.

Those other factors come into play as well.

It's not just strictly rates.

I understand that.

Combination of all those things.

Understand that, Bob, but you've already made some pretty big -- .

The other issue, Donald, is I think we've said we are still comfortable with a guidance of 4 to 5 in our insurance.

First quarter went up a little bit but we're still comfortable with the guidance that we've given.

Yes but 4 to 5% of sales is $0.07 to $0.09 a mile.

7.

Which is $0.03 plus more per mile than you booked in '04.

I think, remember, you are looking at Q1 and Q1 is the weakest, obviously, from a rate (MULTIPLE SPEAKERS)

I certainly hope it's not Q1.

Q1, you booked over $0.09 a mile.

But so you have the weakest utilization, your rate effects go in Q2 Q3 plus we have very little intermodal business in Q1.

The other business that we do, obviously, is we will drive that down and the loss (indiscernible) based on last year's numbers.

And it doesn't make the quarterly adjustment because your revenues in Q1 are lower than Q2.

So let me summarize what I think I hear you saying.

These headwinds in cost are going to be offset or more than offset by rate.

And then improvements in OR will then -- on top of that -- come from other improvements in utilization lowering deadhead, more miles per truck, etc.

Is that your message?

All of the above.

Thank you, gentlemen.

Donald, the glass is half full.

It is not half empty.

Any other questions?

One final question and this relates to the existence of the 37 terminals I think you mentioned earlier.

I'm old enough to remember Builders Transport, which had a fairly extensive terminal network.

And one of the reasons they had trouble was the fixed cost bogie that was related to those terminals with company fueling, the maintenance infrastructure, fixed facilities tend to be magnets for cost.

And I'm wondering if you've ever taken a fresh sheet of paper and taken a look at whether 37 is the right number?

Whether you ought to have 20 or whether you ought to have 50 to sort of optimize the economics of that particular set of trade-offs?

I don't remember how many trucks Builders had at that time.

A couple of thousand.

We are at 18,000 trucks.

You can divide that by 37 major terminals, John. the good news we feel we have all the infrastructure in place.

We are opening a new facility in Houston this year tied into the 4 million square foot new Wal-Mart Import Center down there.

But we think our brick and mortar is in place.

We don't seeing a lot of expense going forward in that.

And each of these terminals run anywhere from 500 to 2,000 trucks.

These are major operations, John, and I challenge you to go look at some of them.

Because they're almost like a major trucking company in themselves.

I think as you look at the whole industry trend in the industry trend is to regional movements rather than transcontinental.

And so I think one of the real pluses that Swift has is we have already built the infrastructure.

We have a lot of carriers today that are opening up terminals that they had shut down because of maintenance and needing to keep drivers home regional.

Let them see people more often.

So I think one of the real assets doesn't just show in land and building on the balance sheet.

It's the ability to see the drivers face-to-face, to get them home more often, and to encourage them on regional operations.

You take -- a person starts out and he gets put into an ad hoc, he runs throughout the region.

And as he stays with it more often, he gets into a Dedicated situation.

Almost all of our Dedicateds are pretty much adjunct to one of our major terminals and so I think it really gives us a sales and marketing edge that a lot of our competitors don't have and I think you'll see it emulated.

I think if you look at Knight, for example on a percentage basis, they have more terminals than we do.

Any other questions?

All right, as I said in conclusion we are just very very excited about the future.

Bob and the new team that we have on board and never could be more excited than where we are today.

I've been in this industry 38 years; and I think it's the most exciting time that we've had.

So with that, thank you very much.