奧多明尼昂貨運 (ODFL) 2005 Q2 法說會逐字稿

Good morning and welcome to the second-quarter 2005 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through July 29 by dialing 719-457-0820. The confirmation number for the replay is 214-9430. The replay may also be accessed through August 22 from the Company's web site which is at odfl.com.

This conference call may contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding Old Dominion's expected financial and operating performance for the third quarter and full year 2005. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by important among others set forth in Old Dominion's filings with the Securities and Exchange Commission and in today's news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.

At this time for opening remarks I would like to turn the conference over to the Company's Chairman and Chief Executive Officer, Mr. Earl Congdon. Please go ahead, Sir.

Good morning. Thank you for being with us today for our second-quarter conference call. Joining me are David Congdon, President and Chief Operating Officer, and Wes Frye, the Company's Chief Financial Officer.

As you have seen in our press release this morning, our strong results and operating momentum at Old Dominion have continued and have proven to be a bit better than we expected. I would like to begin by addressing a question that we often receive as we have built what we believe to be the LTL industry's best record of strong, consistent and profitable growth over the last 3 or 4 years.

The question we are hearing is this. While Old Dominion has certainly grown into a much stronger organization over the last several years, won't you face the same problems as the rest of this cyclical industry should the economy slow? In other words, how much longer can your growth continue?

The short answer to this question is that because of Old Dominion's transformation over the past 8 years, we believe we now have a unique opportunity to continue delivering secular growth for the foreseeable future in what some view as a cyclical industry. And by the way, we think and hope that our industry will be less cyclical in the future than it has perhaps been in the past. Let me explain this in more detail.

After a major expansion of our service internetwork (ph) in a tough economy in 1995 we began implementing a strategy -- strategic plan in 1996 and in '97 that still guides us today. The primary components of this plan were to build a multiregional and interregional infrastructure. To increase market share within our service center network, to improve our revenue yield, to pursue selective geographic expansion, and all the while, striving to maintain and enhance our operating efficiencies.

We have consistently implemented these strategies since that time through both strong and weak markets; and while our operating results have moved in approximate tandem with the economic cycle, we have consistently delivered a topline growth rate year after year 7 to 11 percentage points ahead of our LTL industry peers. During the 2000 and 2001 period, the economy were difficult and industry results were poor. But in contrast we were building -- we were beginning to build our 15th consecutive quarter record of comparable quarter improvement in our operating ratio and net income growth of 30% plus.

The fundamental reasons we have produced these results for almost 4 years are the same reasons we believe we will continue to have significant secular growth opportunity in the years ahead. The strength Old Dominion brings to the table put us in a unique position to continue capturing market share from the national long haul LTL carriers, the LTL regional carriers and the multiregional and multinational holding companies.

In addition to this, we have reached a critical mass of coverage and capacity that enables us to compete credibly for substantial business from major regional and national companies. Reaching this critical mass gives us access to a much larger market that we are -- still are only beginning to tap and also represents a significant potential for further growth.

In addressing these growth opportunities our basic strength continues to resonate through our interregional capabilities we provide transit times as fast or faster in long haul lanes as national LTL companies. Through our regional service networks we compete head-to-head with any regional provider in next day and 2 day service but our advantage is our ability to offer seamless interregional service as well.

Unlike the multiregional, multinational carriers, Old Dominion provides all these services through 1 company, 1 management team, 1 fully integrated service system and 1 non-union workforce, giving us cost and service advantage that are also driving our increasing market share. Another thing since our market share is small, compared to our major competitors, we believe and I think we are proving it is easier to gain share than it is to lose it.

We are also well ahead of anyone else trying to duplicate our market position. Small regional carriers lack our service center network and interregional capabilities and the cost and time necessary to build a multiregional and interregional infrastructure is a substantial barrier to entry.

National unionized carriers due to their cost structure and work rules will have -- in our view -- a difficult time creating next day service products. Even national companies that have acquired regional companies are at a disadvantage -- competitive disadvantage to us because they aren't not integrated into one company. Their customers still have to call multiple companies to fill their service needs and the task of integration will be rather large and somewhat risky.

Cementing the strength of our position, we have invested financial and human resources to create and maintain both cutting-edge technology systems and the distribution of capacity with our service centers, tractors and trailers and employees to stay in front of our market opportunities. We are also well positioned financially to expand capacity as needed in the years ahead.

Finally we have a veteran management team of long tenure at Old Dominion that originated and implemented the strategies that are driving our success today. We have operated very successfully through many economic cycles and have seen many industry leaders come and go. We believe we've created an organization that is significantly differentiated, based on the value of our competitive coverage and high-quality services. Due to our comprehensive service offering, we are truly an attractive alternative for any customer seeking a single source logistics solution.

So the bottom line is that Old Dominion has a real opportunity to continue outstanding secular growth, whether the economy is expanding, flat, or slowing through continued market share growth.

Thanks for being with us this morning and now I will turn it over to David Congdon for his comments.

Thanks, Earl, and let me add my welcome to all of you this morning. I am very pleased to say that the growth strategies that Earl reviewed are accountable for another quarter of strong profitable growth at OD. Our reviews for the quarter, excluding fuel surcharge, included organic growth of almost 22%. This growth, on top of 20% plus growth in the comparable quarter last year says a lot about the momentum we are achieving at OD.

Consistent with our primary strategic focus, 85% of this quarter's growth was generated within the same service center network that was in place last year. This high rate of same-store sales revenue growth has leveraged our investments and contributed to our operating ratio improving, again, on a comparable quarter basis for the 15th consecutive quarter and our net income expanding at a more rapid rate than revenue.

I'd also note that for 3 of the last 4 quarters, our average length of haul has declined, resulting from strong growth in our next day markets. There are a number of reasons for this trend including our involving customer base, our growing number of states with full state coverage, and our focus on building our presence in regional markets. As Earl mentioned we are very competitive in next day and 2 day lanes and we believe this fact continues to represent a real growth opportunity for our Company.

We continued to selectively expand our geographic coverage this quarter by opening a new service center in Portland, Maine, which established direct operations in our 42nd state. We will enter our 43rd state next week with the opening of Sioux Falls, South Dakota, in addition to opening Grand Isle in Nebraska, which will be our second facility in that state.

During the remainder of the year, we plan to enter our 44th state with a center in Burlington, Vermont, as well as improve our coverage and capacity by opening Beaumont, Texas and Fort Myers Florida. And I might add that there are several other potential locations that could be opened before the end of the year, just pending the finding of real estate.

One more important element that is driving our secular growth opportunity relates to the LTL industry consolidation. As the LTL and the transportation industry has become more sophisticated and is becoming more dominated by the large stronger non-union players, the costs of staying on the cutting-edge have risen, increasing the disadvantages of smaller companies. Also those companies that have not successfully adjusted to the changing market or whose cost structures remain high are in a risky competitive position.

As we see it 50 to 60% of the LTL industry revenues are being handled by carriers that fit this profile. Therefore, we see a tremendous amount of market share becoming available over time. Given all the strategic advantages Earl and I have previously mentioned, we feel Old Dominion is clearly positioned to capitalize on this consolidation trend. As always we will evaluate potential acquisition candidates that would help us achieve our goals through accretive transactions. Otherwise we will keep capturing market share with what we view as a superior business model.

Now I'll turn it to Wes to discuss our financials in a little greater detail, as well as the revision to our earnings estimate. Wes?

Thank you, David. Old Dominion set new records for the second quarter with the 30.8% growth in revenue to 264 million, putting us well on track to achieve annual revenues of more than 1 billion for this year. The revenue growth for the second quarter was driven by a 23.3% increase in LTL tonnage during the quarter. This tonnage increase was a result of a 19.7% increase in LTL shipments and a 3.1 increase in the LTL weight per shipment. The LTL revenue per hundredweight increased 6.6% and 2.4%, excluding fuel surcharge. So combined, our revenue per shipment increased 5.6% excluding fuel surcharge.

Of the 30.8% increase in revenue for the quarter, approximately 3.6% were attributable to fuel surcharge and approximately 5 percentage points were attributable to our Wichita South East acquisition in the first quarter leaving us with an organic growth, excluding fuel surcharge for the quarter above 22% and about 18% tonnage growth, excluding the Wisket (ph) acquisition.

As anticipated this rate of topline growth -- especially through increased freight density in the existing lanes -- provided economy for scale, generating an improvement in our operating ratios to a 90.4% for the quarter from 90.6 for the second quarter last year. As you can tell from the operating statement in our press release, most of our expense categories tracked as expected for the quarter -- although I will point out a non-recurring operating expense in our miscellaneous category of approximately 800,000 and that is about 500,000 after-tax related to the writedown to market of certain assets.

Our improved operating ratio contributed to growth in the net income of 33% for the second quarter and a 30.2 increase in earnings per diluted share -- $0.03 above our expected earnings range.

Our net profit margin increased to 5.3% for the second quarter from 5.2% for the second quarter of 2004. Our effective tax rate was 40.3% for the current quarter versus 39.5% for the second quarter of '04 and we anticipate the 40.3 to be there for the remainder of the year.

As discussed in the past couple of quarters, we continue our planned capital expenditure initiatives during the second quarter. Net CapEx for the second quarter was about $50 million and approximately 97 million year-to-date 2005, including the acquisition of Wichita South East Kansas transit against our planned CapEx this year of between 145 and 155 million.

We completed the quarter with long-term debt to total capitalization of 29.4% and expect this metric not to change significantly for the remainder of '05, based upon our current CapEx levels but leaving our balance sheet in a strong position for any continued opportunities that we may see occurring in the market. Primarily based upon our second-quarter and first-half results, we today raced our guidance for earnings per share for 2005 to a new range of $2.05 to $2.10 from the previous range of $2.03 to $2.08. We also established our guidance for the third-quarter earnings per share in a range of $0.59 to $0.61 compared to $0.50 for the third quarter of 2004.

Although we are still very early in the third quarter these expectations are being supported in July thus far by a continuation of positive trends in tonnage, shipped in the double-digit range and also our LTL weight per shipment.

This concludes our prepared remarks. Operator, we will be happy to open the floor for any questions at this time.

(OPERATOR INSTRUCTIONS) Ed Wolfe of Bear Stearns.

Earl, in your comments you talked a bit about potential secular growth for the industry and I'm guessing what you mean by that is some of the comments about consolidation and the smaller guys can't do some of the things the bigger guys can. How much do you believe that maybe the truckload guys are going through a tougher spot right now in terms of reports than the LTL guys, because maybe they're constrained at the truck level and you guys are more at the real estate level and that's a little trickier to bring back into the market? Is there some truth to that, do you think?

I think they are encumbered with a driver shortage. Seems to me that they've done a pretty good job of -- at least up to now -- of controlling their prices and they have not overpurchased with equipment, like has happened in years gone by. I think that the LTL industry is getting a lot more sophisticated in their management. You are looking now at the big players in the LTL industry. Yellow is, I think, constrained by a Teamster contract that is going to cause them to keep their prices where they ought to be and certainly UPS with Overnight is, I think they want to make money and so does FedEx.

So I believe we are going to have a really good pricing environment in the LTL, which is -- commented why I think the industry, hopefully, will become less cyclical in the future and that we ought to be able to control our bottom lines better than we have in the past.

As far as what is belaboring the truckload carriers, I haven't watched their performance well enough to have a really good comment about that.

In terms of your own growth when you grandfather next January the Wichita acquisition, what's a fair tonnage growth rate internally at that point for you directionally do you think?

Want to hit that one, David?

Wes, you've probably got a better feel for that.

I think that at this time we don't want to comment on that.

I mean, do you have any long-term growth rate whether that be (MULTIPLE SPEAKERS)

Our long-term growth rate, Ed, is pretty much in the 10 to 15% range and that's -- we continue to view that as -- .

Is that revenue or tonnage?

That's revenue. If we look at pricing as being part of that then, obviously, tonnage would be somewhat below that. Now having said all that, obviously, in the last couple of years we've been far exceeding that. But that continues to be our objective.

On the last conference call you made comments that you have been digesting a lot of growth recently and there's a lot of new terminals and that there are startup costs in margins that go with that and that maybe the margin expansion wouldn't continue yet you were able to do it again. At this point where you are 3 months later, do you still have that same caution or do you feel pretty comfortable now that you've digested a little bit more and -- .

We've digested -- some in the second quarter from the standpoint of those newer terminals, the operating ratio is still higher than the overall system, obviously, but it is improving. We estimate that probably the effect on our overall OR is about 3/10 of 1%.

I would like to say this, Ed. I am real proud of our management team and the way we have digested this expansion because we are -- I sit in staff meetings and hear our operating people say that all of the brakes are clear, all of the line haul is clean. In fact it is so dadgone current that it makes me wonder if it's not too current. But we have digested everything that we've done and are in a position to eat some more meals.

Well said. Wes, when you say 3/10 of a point, are you assuming some timeframe? (MULTIPLE SPEAKERS) -- immature versus more mature terminal or something like that?

Yes. First 2 quarters is what we think the overall effect is on our ratio as a result of these approximately 20 -- 23 service centers we put on in the last 18 months. But on the other hand they are on an improving trend.

Can you talk a little bit about what you might be seeing there? Dugan closed down on July 8, I think it was. Is any of that freight checking out or anything from Overnight and UPS at this point?

We are seeing some business from that but not -- to be honest with you not a real appreciable amount. It is kind of hard to see it, though.

Yes, I've heard that from some other private guys down there too. They are surprised more hasn't come out immediately but maybe over time it is hard to know and that kind of stuff.

Can you take us through a little bit the quarter and some trends in July. With the economy accelerating recently or has it been pretty consistent or is it hard to see, given your expansion?

As I mentioned in my comments briefly, it is a little early in the third quarter in July. Well July is pretty much through. But we are seeing, Ed, continued positive trends. If you look at our LTL weight per shipment, sequentially, it has been increasing since March and it's still maintaining a very steady level even in July and that's in our weight per shipment. In our tonnage growth we are still seeing momentum there as well. We have not witnessed, in our view, a slowdown which we can't differentiate what's market share and what's economy. But certainly our very detailed metrics on economy from weight per shipment standpoint we are still seeing good, steady growth there. Both year-over-year and sequentially.

Finally, can you give us some cash flow numbers? Can you give the cash from operations?

We don't have any. We're spending it on growth on CapEx. As I mentioned for the year it is close to 100 million for the first 6 months. So we don't anticipate this year generating any cash. It will probably be around $20 or $30 million. Uses of cash which we will finance through a private placement that we already have in place.

In the quarter do you know what the cash from operations were? Or do want me to get back with you?

Yes. Get back on that. We probably won't know that until we finished our 8 -- our 10-Q filing.

And for the full year are you -- ?

It will not be positive obviously. We are 50 million of cash flow short.

But total CapEx if you spend 100 year-to-date where should that be for the year? Is that still (MULTIPLE SPEAKERS)

Still on track to 145 to 155 million. So we pretty much frontloaded most of our CapEx. For the half of the year. 70% of our CapEx for the half-year is in equipment.

Brannon Cook of J.P. Morgan.

Could you give us a little bit more color on Wichita Southeast? How that's been progressing in terms of -- is that growing organically on its own? Are you still working on integrating and getting the margins there? Then if you'd just comment on the acquisition environment, clearly your balance sheet is in pretty good shape at this point. Do you feel like you are in position operationally where you might be out in the market looking again?

The first question regarding Wisket, we integrated that into our network over the one weekend back when the transaction took place and from that point forward, it's been going very very smoothly. Obviously you go through some training issues at the 10 new service centers. And then the folks that came into our facilities where we merged them together, there were some training issues but it is going real well. Business retention was right on track with what we expected and we've been growing new business into and out of that territory on an interregional basis now as well. So we judge the Wisket acquisition as a complete success.

We are, certainly, as I said in my prepared remarks always keeping our eyes open for acquisition opportunities out there and that's all I can probably say about that at this point.

You did a great job of reducing salary wages and benefits as a percentage of the revenues in the quarter. Is there anything onetime going on there? Or is that just continued operating leverage in the (MULTIPLE SPEAKERS)

No, that is pretty much operating leverage, Brannon. Almost across the board in our direct cost of line haul P&D and platform. In total that reduced 1.3% points and we are seeing some productivity improvements in lading load average as well as our metrics on P&D as well as platform. So that's just coming from our focus on improving density in our existing lanes.

If I just look at the normal seasonal EPS progression from second to third quarter you guys have historically had, given the strong second quarter results it looks like third-quarter guidance is a little conservative. Is there anything different going on this year as we look to the third quarter or are you just being a little cautious?

I think as we progress and as our ratio continues to improve, the incremental improvement will be covered to come by and so we are comparing the second quarter, third quarter of '04 was a very good quarter. We operated in a 90 OR so the comparison is tougher so whether that is conservative or not I don't know if I can respond to but that is our estimate -- 59 to 61. I think that is still a good result.

, Absolutely. Thanks, good quarter.

Dan Moore for Scopist (ph) Asset Management.

Good number here. Just wanted to ask maybe 1 follow-up or 2. A lot of questions have already been addressed. With respect to the upside in the quarter, can you give us a little bit more visibility on exactly where it came? You talked about leverage -- was it leverage on the pricing front? Was it just absolute operating leverage covering more of those fixed costs with the revenue growth thus topline came in stronger than expected? Was it efficiency gains? Was it E., all of the above? Can you give us just a little bit more visibility for where the upside -- where you were surprised, I guess with respect to your (inaudible)?

I think, Dan, it was basically the all of the above but we did I think from a productivity standpoint I have very good results there that maybe were better than expected. Our revenue growth remained very strong maybe a little bit more than expected although we did expect in the high 20% range of growth. It was more like 31%; so I think it is a combination of those but our salaries and especially our direct wages came in very efficiently and that's probably the biggest reason.

Just looking out here, I guess, it's July and I don't mean to beat a dead horse because the question has already been asked but with your -- I guess with comps being what they are, current business trends being what they are, can you give us a sense for what you expect tonnage to do moving forward? Are we going to see more organic growth? Can you just give us a little bit more color on the outlook with respect to the current environment?

As I mentioned in my comments -- .

I was a little late on the call so I apologize.

Our tonnage of growth so far in July is pretty much trending what we expected and continue to trend based upon what our results were in the second quarter. So that is probably the extent of what I will say at this point.

Geographically anything you mentioned with respect to comparison standpoint or current trend standpoint? Any strength or weakness one way or the other?

As David mentioned, 85% of our growth in the second quarter was organic. Well not only organic but same-store sales. So we expect that to continue as we take market share, both on a regional level. We had very strong growth in our regional markets -- next day specifically. Where (indiscernible) grew almost as strong as our longer haul markets. So we are seeing market share pretty much across the board both in terms of our transit time and in terms of our geographic growth.

David Mack of J. Goldman and Company.

Have a question for you on the cost side. Wes when you talk about some efficiencies that you had when I look at things on the cost per ton basis I see that salaries, wages and benefits were actually up 5 -- a little over 5%. Let's say, fuel is fuel so you keep that out. Other cost on average were up around 4.5 -- 5% on a per ton basis. So what should we be looking at other than just the OR which could be affected by fuel surcharge when you are talking about the efficiencies?

We got efficiencies from the direct labor just in being able to handle freight resulting from some density improvements. We also got some leverage of growth relative to our overhead cost. So a combination of both of those resulted -- as I mentioned in my conference call we did have a write-off -- a write-down of some assets to market that equated to about 2/10 of an operating point. And that is in the miscellaneous but we have seen pretty much across the board if you -- other than the operating supplies which increased because of the fuel costs which is offset in fuel surcharge. We had pretty much improvements in most of our cost categories.

Some of that has been through efficiency; some of that is just the leverage of the growth against overhead.

So it might not be the best way to look at it on a cost per shipment or cost per ton basis?

Not really. Not really. Some of it is just purely fixed cost that will vary on -- that will be fixed over time. So to do that on tonnage or shipments may not be exactly representative. But we've seen efficiencies in clerical costs, even in salaries. Even though we've added quite a few salesmen, the production in our revenue exceeded that. So we are getting efficiencies across the board.

When -- I know you talked through how much of the pricing was fuel surcharge but how much -- I don't have the numbers in front of me -- how much would you say in revenue you achieved from fuel surcharge?

3.6%.

So 3.6% of (MULTIPLE SPEAKERS)

Is what portion of our revenue was fuel surcharge. (MULTIPLE SPEAKERS) hundredweight was up 2.4, excluding fuel surcharge but that's with a couple of metrics that we tend to bring that down. That is our length of haul is shortening because -- as David mentioned because of an increase in regional next-day freight and also the weight per shipment is up. Both of those would tend to bring down the revenue per hundredweight but we still were up despite that 2.4% excluding fuel surcharge. We are of the view that pricing is still very stable.

Jag (indiscernible) Grumman (ph) Credit Suisse First Boston.

This is Jag. I'm subbing in for Jason. Most of my questions have actually already been answered but I did have one. I was wondering if you could comment on the pricing environment you are seeing basically -- given the current level of fuel surcharges. What success are you having been pushing through increased prices on shippers? Are you seeing any kind of push back?

I would say that the pricing environment just remains very good for us. We are taking, we took the general rate increase back in May and push back from customers has been almost nonexistent. We might have had 1 or 2 asking for an increase in their discount to offset it but it's really there's no push back at all, and with regards to our contract accounts we are continuing to be successful getting 3 to 5% increases with a profitable account to as much as 10 or 15% with accounts that are less profitable.

John Larkin of Legg Mason.

Congratulations. Nice job on the quarter. Could you refresh our memory on the GRI? When that went in and what the percentage increase was?

It went in, specifically, I think it was on May 16 and it was about 5.8 or 5.9%.

How much earlier this year do that go when compared to last year?

About 2 weeks, maybe 2 1/2 weeks earlier.

2 weeks earlier. And what percentage of the traffic you are handling is covered by the GRI?

About I would say, 40 or 45%.

And that is down from maybe 50% 5 years ago?

Yes, we have had growth in our contract business which -- as David alluded to -- with our expanded in coverage gives us -- opens our market to large national accounts.

Are you satisfied that the contract business the with large national accounts is as profitable as the business with the smaller customers who might be covered by the GRI?

We are never satisfied.

John, the contract business is not as profitable as the mom and pop stuff. But you need it to build density in the system as you probably know as well as -- maybe better than we do. So we take it and try to have it profitable. Most of it is. But it is not going to have the operating ratio that the small shipments give us.

So you would like to have both? You don't want to be skewing that percentage too much below 40 with the smaller accounts? Is that a fair assessment?

We are trying very hard to not let it shrink any further but I will tell you, it's a difficult assignment. I think all of the LTL carriers have got the same issues out there.

With the huge influx of imported containers coming into the U.S. especially with some of the Panamax vessels now calling on Houston, Savannah, and Charleston, have you been able to make much hay with your initiative to capture some of that traffic for distribution?

I would say we're continuing to focus in that area but in terms of making a lot of hay I would say we are not making a terrific amount of it. It's not a significant contributor to our growth. I think more of our growth is coming from traditional domestic LTL shippers.

Just to take a look at the quarter as it developed month by month, sequentially, did you see any weakening or strictly month-to-month as you went through the quarter?

Are you saying in terms of topline?

Just in terms of demand.

No, not really. We saw -- when you look at -- you almost have to combine April and March because of how the holidays fell. When you kind of combine that, we saw sequential throughout the quarter increase in tonnage throughout the quarter and it's at this point continues to increase into July as well.

Tom Albrecht with Stephens Inc.

Great quarter as well. I wanted to talk a little bit strategy and not so much the nature of the questions you've already had. Regarding the Wisket, for example. It appears it's performing at or above expectations. Can you talk about how much of that is just because of the good work you have done to lower their costs and improve their density vs. opportunities that are arising in Texas, Oklahoma etc. due to the struggles of others?

It's really kind of a combination of things. I think the fact that we have positioned ourselves more strongly in the regional markets that Wisket serving has definitely put us in a better position to capitalize on some of those opportunities in the marketplace from struggling carriers. As far as lowering the cost, I think we've brought a lot of new technology and different systems into that company they were used to so hopefully it -- our systems help us drive lower cost.

They also -- Wisket had some contract business with customers that were --we also had the same customers and we were able to compare prices and realized that Wisket was about breaking even and a lot of problem was they had no freight costing system and their prices were just simply too low and those customers have been pretty good to us that they have allowed us to increase the Wisket prices somewhat which has really been a big thing that's made that acquisition very successful.

Can you talk about, too, do you have any clog in your network right now? I believe a year or so ago -- more like a year and a half ago -- you picked up additional capabilities in Indiana, I believe Pennsylvania. How are those centers performing? I believe those were more breakbulk (ph) facilities and do you have any clogging at other breakbulk facilities at this point?

We really don't -- the only one that I think break that is most clogged would be our Atlanta; and we have plans to open some new service centers in the Atlanta markets. We have identified some land in North Atlanta as well as West Atlanta, which will take some constraints off of Atlanta.

But Atlanta, we are processing freight just fine. It's not clogged up at all but that would be the one that has the most problem, if there is one.

But if we do nothing we will be in trouble in several years.

Let's go back to Texas for a minute. If new sudden opportunities arose do you have enough capacity with the Wisket acquisition to handle anything that might happen?

Wisket acquisition did not help us much in Texas per se. I guess the second most clogged break that we had would be -- I hate to use that term because it's flowing real nicely now -- would be our Dallas break. But we have capacity to handle a surge of business should it occur.

How about if I use the term maybe closer to capacity in those markets than clogged so we don't (MULTIPLE SPEAKERS)

We also have identified some land in Dallas and are planning to build a 300 door facility there.

Lastly, and I think my colleague Jack is on as well. But last quarter -- I'm not sure everybody picked up on this but you guys strongly hinted that your margins would be flat to slightly deteriorating as you continue to fill out the network the next to 2 to 3 quarters. You obviously came in better year-over-year and that was even with the miscellaneous write-down of assets. Can we go back and maybe assume that your margins will continue to be able to improve despite the rapid growth?

I think we were trying -- I'm not sure we were trying to say that are margins were going to be deteriorating but I think we were trying to leave the impression that we had opened 25 facilities within -- since January of 2004. Now it's up to about 27. And that those were putting they were operating higher than the Company's operating ratio and putting somewhat of a drag on the Company's operating ratio. Wes pointed out earlier that it's about 30 basis points.

If you could take those 27 facilities and just bring them down to the average of everyone else vs. where they did operate it so it's a 30 basis point drag. But it was actually nearly 40 basis points in the first quarter but only a little less than 30 basis points in the drag in the second quarter. So what that tells me is that we are layering new business onto those terminals and they are improving. I don't think that the geographic expansion that we have undertaken and the expanded facilities that we have undertaken in the last 4 months I don't think that those are going to necessarily cause our ratio to go up in the future. They should be.

What we're still striving to do is to build earnings per share and we are doing it by driving the top line at a pretty fast rate and it's giving us a great increase in earnings per share but it is not a strategy that will cause the operating ratio to plummet. Best way to get that down is to slow down the geographic expansion and we could show some rather quick reduction in the operating ratio but I believe that our earnings per share increase would be less. So we think at this time in our economic life that we need to push that top line in the geographic expansion mostly both within our existing area and in new territory and try to do it without having the operating ratio start climbing drastically. We've done that in years past and don't want to do that. So we are trying to watch our growth. I think we've got a pretty good balance that's working.

Yes, there's no doubt about it. So I'm just going to leave it with keep up the good work.

Adam Salamer (ph) at BB&T Capital Markets.

I just had a quick question here. Earl, in your commentary you talked about the national guys pushing into the regional market. You said that was a slow process. Customers may be getting frustrated with their -- the service they're getting there. Is that something that 2 years down the road those guys will more successfully move into the regional market? Or in your opinion is it just not a good fit for a national player to be in your space? (MULTIPLE SPEAKERS) color there?

You are referring to Yellow, I'll suppose, because they are fast becoming -- you know, the Yellow roadway the only real national player that is not in the regional business and Yellow is trying to do it through their acquisition and they will be in the regional market then. They are going to try to put in some next-day service and have done some but they've got union work rules that they have got to overcome and I'm not sure that short-haul freight for a carrier with a Teamster contract is going to be as profitable as they might think it is.

So we don't really think that we are going to see Yellow Roadway as a major short-haul competitor. Might be wrong but we are not expecting that. We think that our big short-haul competition in the future is going to be carriers like FedEx, Freight, and whatever UPS decides to call Overnight in the future as well as Conway -- all really good carriers and we are going enjoy competing with them. Just hope that we can keep our superior rate of growth going, so that we can gradually catch up with those fellows in both coverage and size.

(OPERATOR INSTRUCTIONS) Buck Horn of Raymond James.

I was wondering if you could comment if you have been in any talks with Yellow or even Service Transport about taking over any former Dugan facilities or even Service Transport terminals that have been closed up?

We did have some discussions with Service but they didn't really have any facilities that fit our needs. Who is the other carrier? (MULTIPLE SPEAKERS)

Yellow or the USF, we have been in contact with them on a couple of facilities. I think any time there is an opportunity in the market, we -- our gentleman who handles real estate is pretty well connected with the real estate people at those companies so we touch base since there's something that fits our needs, we will pursue it.

And do you happen to have the ending FTE headcount by any chance? I can get that off-line if you don't.

What headcount?

The full-time equivalent headcount, just your total?

I have it. As soon as I can find it I will give it to you.

That's fine. I will pass along.

At the end of the quarter, it was 9328 full-time employees.

We're standing by with no further questions at this time. I will turn the conference back over to Mr. Congdon for any additional or closing comments.

Thanks again for your participation and for your questions. You had some really good ones for us this morning and we appreciate your interest in Old Dominion. I hope we have given you some perhaps some new food for thought today and so feel free to give us a call if you have any further questions. We look forward to speaking with you again. Hopefully with more good news after the third quarter. Good day.

Once again, ladies and gentlemen, that concludes today's call. thank you for your participation.