奧多明尼昂貨運 (ODFL) 2007 Q4 法說會逐字稿

Good morning, and welcome to the fourth quarter 2007 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 8 by dialing 719-457-0820. The confirmation number for the replay is 3149967. The replay may also be accessed through March 1 at the Company's website, which is at ODFL.com.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding Old Dominion's expected financial and operating performance for 2008. 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 factors among others set forth in Old Dominion's filings with the Securities and Exchange Commission, and in today's news release, and 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, whether 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 President and Chief Executive Officer, Mr. David Congdon.

Good morning, and thank you all for being with us for our fourth quarter conference call. I'm here today with Wes Frye, our CFO. Earl Congdon, our Executive Chairman, is traveling today. Wes and I each have some brief remarks about our fourth quarter performance and the Company's outlook for 2008. And then we will take your questions.

Old Dominion performed reasonably well in a tough environment for the fourth quarter, continuing to expand market share and maintaining our disciplined pricing strategies. We're very pleased with the 10.3% tonnage growth compared with the fourth quarter of 2006. This represented the second consecutive quarter for which the comparable period rate of growth in tons increased sequentially.

Our weight per shipment increased 5% for the quarter, double the increases of the three earlier quarters of 2007, which were in the range of 2.3 to 2.5% growth. Throughout the year and continuing through the fourth quarter we saw normal seasonal and sequential trends in our weight and shipments per day, coupled with market share gains inherent in our business model.

In the face of an ongoing debate in the media about the potential for a recession, we are encouraged that neither an increasing weight per shipment, nor normal seasonal patterns, is typically associated with eminent recession.

Consistent with our past experience, over 95% of our growth for the fourth quarter was through our existing service centers that were opened at least a year. Our ability to go in our existing network at a rate well above industry averages reflects our continuing opportunity to gain market share. We have adhered firmly to our pricing philosophies of not reducing price to win new business, only doing so when required to meet pricing that threatens our existing market share. As a result, we believe our expanding market share reflects our ability to meet customers' increasing demand for comprehensive services, high-quality transparent execution, rapid transit times and broad geographic coverage. By combining all these traits into one non-union, fully integrated company, Old Dominion remains uniquely positioned for growth as compared with our regional and national peers.

We expanded our geographic and full state coverage throughout 2007 by a combination of acquisition and organic growth, which further contributed to increased market share within our existing network.

On December 14, 2007 we completed the acquisition of selected assets of Bullocks Express Transportation based in Denver Colorado. Bullocks' eight service centers produced approximately $17 million in annual revenue. Seven of their service centers were combined with ours, and their eighth center, Farmington, New Mexico, became an additional center for the OD network. The acquisition and integration of their operations and network into OD's was completed over the weekend immediately following the closing.

This acquisition was our second for 2007, after the first quarter acquisition of Priority Freight Lines, which also produced annual revenue of approximately $17 million through their eighth service centers. The Priority acquisition added three centers to our network, and the other five were combined into existing OD centers. The effect of the two acquisitions, plus six service centers opened organically during the year, brought our total service center count to 192 at year end.

You can expect us to continue steadily expanding our geographic and full state coverage in 2008 and beyond. This will include completing full state coverage in 10 more states and filling in some existing full coverage states with additional centers. As we mentioned in the news release, we reaffirmed our goal of achieving $2 billion or more in revenue for 2010. With 192 service centers in operation at the end of 2007, we are very well-positioned to implement this expansion plan successfully.

As we again demonstrated in 2007, we have proven capabilities to (technical difficulty) our network through internal development, plus an extensive history of successfully acquiring and integrating attractive LTL operations in accretive transactions. Looking into our crystal ball for 2008, although we expect the pricing environment to remain competitive, we are encouraged by improvements thus far in January.

Based on our quarterly tonnage growth trend and good momentum thus far in January, we expect to continue producing tonnage increases in the high single and possibly low double-digit percentage range.

Absent an unforeseen recession, we are again projecting normal seasonal and sequential trends in tonnage and shipments for the year. Longer-term, we remain fully confident of the potential for the OD business model to drive solid profitable growth.

As our experience through the economic cycles of the past 10 years have proven, Old Dominion has outpaced the industry's rate of growth through strategies that have minimized the impact of the more challenging periods of the cycle, while preparing the Company for more rapid growth in the stronger economic environments.

Because of our inherent structural advantages as a leading regional and intraregional provider, our single source capability, our strong financial position, and the strengths of our people, both our flexible, innovative, non-union workforce and our effective management team, we are well-prepared to pursue our long-term objectives.

Again, thank you for being with us today and for your interest in OD. And now here's Wes Frye to review our financials.

Good morning. Old Dominion produced fourth quarter revenues of $358.7 million, which is up 12.3% from the fourth quarter of 2006. This growth reflected the combined impact of 5% growth in shipments for the quarter and a 7.5% increase in the revenue per shipment. The increased revenue per shipment was a result of a 5% increase in the weight per shipment plus a 2.4% increase in the revenue per hundredweight. Excluding fuel surcharge for the quarter, revenue per shipment increased 3.5%, and revenue per hundredweight declined 1.4%. To an extent the revenue per hundredweight decline was caused by an increased weight per shipment, as well as a decrease in our length of haul, both of which causes a downward effect on the revenue per hundredweight.

The impact of this revenue per hundredweight decline was a major factor that increased our operating ratio to a 91.6 from a 90.1 for the fourth quarter of the prior year. The 150 basis point operating ratio increase for the quarter was also a result of higher operating supplies and expenses and appreciation and amortization. These increases were partially offset by lower salary, wages and benefit as a percent of revenue, as well is a continued improvement -- improvements in insurance, in cargo claim experience, and also our uncollectible receivable allowance which are reflected in miscellaneous expenses.

During the quarter we also experienced an unfavorable $1.5 million charge in nonoperating expenses primarily due to a decline in the value of investments in our deferred compensation retirement plan.

Our effective tax rate for the quarter was 38.3% compared to 37.3% for the same quarter of 2006. As a result of the above discussion, our net income was $15.7 million for the quarter, down 11.9% from $17.8 million for the fourth quarter of 2006.

Our net capital expenditure for 2007 was approximately $190.5 million, consisting of $68 million for real estate, $103 million for equipment, and $9.5 million for information technology initiatives. For 2008 we plan to spend a net expenditure of approximately $155 million to $165 million, with roughly $40 million to $45 million for equipment, $95 million to $100 million for real estate, a portion of which is to complete projects began in earlier years, and $10 million to $13 million for information technology.

We remain pleased with the strength of our balance sheet at the end of 2007, which provides us with ample flexibility to continue implementing our growth strategies during 2008.

We completed 2007 with cash and short-term investments of $31 million. Our ratio of net debt to total capitalization was 32.3% at year-end, below our target of 35%. For 2008 we expect free cash flow from operations to be marginally positive, without giving consideration to acquisition or expansion opportunities that might become available during the year.

Turning to our guidance and based upon our cautious outlook for 2008, we have established a range for earnings per diluted share of $2 to $2.05 for 2008. Consistent with the approach taken by most of our industry peers, effective for the first quarter 2008 we do not plan to provide quarterly -- provide guidance on a quarterly basis. We do intend to update annual guidance at the appropriate time if any quarter results or circumstances create a material change in our expectation for the full year.

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

(OPERATOR INSTRUCTIONS). Justin Yagerman, Wachovia.

I got a bunch of questions here. A couple you answered during your prepared remarks. I was curious, as you continue your expansion, given the current environment in the rest of the country, not affecting New York real estate, but are you finding real estate easier to come by? And you sounded like you want to fill out 10 states with full state coverage. That is pretty aggressive. Are you finding that is it a little easier to find terminals, given what is going on in the broader market?

It has not really changed. It is still a struggle in many markets. It hasn't really changed from what we have said in the past.

That is one reason our CapEx for real estate was under what we originally forecasted earlier in the year -- is just the ability to find real estate, even finding the land to construct real estate is still an obstacle.

Do you have any preference when you're looking out at those expansions as to whether or not they would be organic or through the continued tuck-in acquisitions? I guess piggybacking on that, would you consider larger scale acquisitions when looking at the current landscape?

I don't have any real good comments on that. We always keep our eyes peeled for acquisitions. And the larger scale ones have a lot of -- lot more things to consider and a lot more risk in the equation. We're not really thinking about real large-scale acquisitions, to be honest with you. But we just keep our eyes peeled for both ways of growing.

On the weight per shipment, obviously that moving up is a positive sign generally for what you're seeing at least from economic activity. Were there any specific areas where you saw weight per shipment moving up more? Was there any specific vertical where you felt like shipment size was increasing? Can you give little bit more color around what you were saying and I guess the progression through the quarter on weight per shipment?

We did see a fairly more, larger growth like in our spot quotes, which weigh about 9,000 pounds a shipment. But the spot quotes still only represent about 2% of our total tonnage, or maybe less than 2%. So it wasn't a material effect on the weight per shipment.

Even when you looked at our contractual customer, which makes up the major portion of our overall revenue, that was still up 5% as well. And we don't see what -- we haven't looked at, or been able to see, at this point specifically which areas of the country or customer base that it has, other than overall.

In terms of market share gains you talked about that a bit. Can you give a little bit more color around that, where you have been gaining share? Is that also across the board or are there specific regions? One of your competitors talked about gaining traction in the Upper Midwest, in the regional market this quarter. Are there areas specifically where you are seeing your product gaining in terms of market share?

For several quarters, and maybe even years, we have always seen a higher growth in the Midwest and in the Western portions of the country, simply because it is less mature for us. Whether that is traction from any consolidation or, etc., I'm not sure. But we're just going higher in those just by virtue of the fact that we have a lower market share base.

Last one, and I will turn in over to someone else. I am curious to hear I guess comparisons between the integration of Priority and the integration of Bullocks, and how you felt those drag or didn't drag on your OR over the last couple of quarters.

It has been -- actually we did not go through that measurement before this conference call, like we had in previous calls. But it did not -- the last time we looked at it, it did not appear to be measurable. Maybe a couple of tenths. The main thing, but (multiple speakers).

But anecdotally both of those are more strategic acquisitions. From a revenue base they only provide maybe 1%, maybe a little bit more percent of our growth this year. The ratio would have had very minimal impact.

The Bullocks acquisition was primarily an overlay of existing territory. We really did not take on any -- except for Farmington -- any new rent. It all kind of rolled into OD. We did have a little bit higher rent in Albuquerque because we moved into their facility, which was twice the size of the one we were operating from, and that gave us more capacity for growth in that market.

Tom Wadewitz, JP Morgan.

I wanted to ask you a little bit on the cost side, and also get your thoughts about the impact from what the union carriers do. YOC has got a new contract. It looks like Arkansas Best is going to have the same thing. And within that contract the wage increase component is lower I think than you would typically see. They are allocating more to the benefit increase. How much competition in terms of the wages that you pay is directly versus the union carriers? And if they end up paying a lower wage increase the next five years does that affect how much you have to increase your wages? How should we think about that?

Our wages are real -- the per hour are real comparable with the union wage levels across most of our network. They might be a little lower in a couple of our regions. But due to the fact that we have a higher level before you earn overtime, our drivers and dock workers tend to make more money, or can make more money, than the union folks who are cutoff at 39 and 40 hours. But we're not really thinking about that the contract that had been signed will have any material impact on our decision as to what we do in the future with our pay increases.

You don't have much sensitivity to that, and you don't necessarily base your wage increase -- you don't factor in what others are doing, at least not on the union side in terms of wage increase when you consider your own?

We look more at where we are and how the performance of our Company doing to drive our decision as to what we grant each year in our wage increases.

If you look on a calendar year basis, if you're looking at '08 and the wage inflation you might have versus what it was in '07, what would that tend to look like?

For '07, about 3% on a per hour basis.

What do you think '08 would look like?

Probably similar, depending on what the Consumer Price Index does at the time and how, as David mentioned, what our performance looks like for the year.

I guess the restructuring activity seem likely to come out of YRC. And I apologize for spending a little bit of time on the union, guys, but they are so big in the market. And if they do some restructuring activity I would think there's potential for additional opportunity for you. How much do you run-up against them in the market? And is that a pretty big opportunity, if they stumble a little bit, or --?

We obviously -- due to the fact that we compete in long-haul, medium length of haul, interregional and regional, we obviously can gain share if they are stumbling operationally in any of their companies, because we are an alternative to any one of their companies in any of the markets that they serve.

So it does present a pretty big opportunity. Last question and I will pass it along. Can you give us a few more thoughts on what your view on the market? It sounds like you think it is stable or you do feel like it is -- any signs of it picking up at all?

Here is the way we feel about this thing. The fall of '06 less kind of -- was a real strange fall where our tonnage and shipments dropped off unusually in maybe the last week of September, but especially so in October. From that point forward it is like a slice of the economy, 5 or 6% of our tonnage growth and shipment growth was just sliced away. Our growth rates from that point forward, and our sequential trends, have followed normal seasonal sequential trends. And we have continued to experience a normal amount of acceleration in our business that is attributable to the strength of our business model and the attributes that allow us to gain market share.

As the year has progressed through '07, that is what we have seen. Our weight per shipment has stayed up. There has been a lot of talk about recession, and we are in a freight recession. And we agreed it is true that the slice of the economy went away, but from that point forward we haven't seen any real things that point to a freight recession.

That sounds pretty constructive. Thank you for the time.

Ed Wolfe, Bear Stearns.

Was there an extra day in the quarter, 63 versus 62?

No, they both had 62 days.

We have that in our model for some reason. Can you talk a little bit -- in the report you talked about pricing weakened, or were remained weak, at the end of '07. What is your sense for direction of pricing, if you had to look at that right now going forward? And how does fuel being up year-over-year help that scenario of getting -- between fuel and price getting what you need to get?

We saw sequentially reduced pricing percentagewise month over month for each quarter each month in the fourth quarter. So that we averaged the 1.4. And as I said in my comments, part of that reduction -- and we are probably one of a few LTL carriers that experienced an actual increase in weight per shipment, which as you know, will tend to reduce that revenue per hundredweight on its own. We're encouraged in January at this point that even excluding the fuel surcharge, that we are -- at least in January -- we are seeing a positive revenue per hundredweight growth year-over-year.

Is the weight still growing at the same level in January or is it accelerating or decelerating versus fourth quarter?

The weight per shipment at this point is up off of January about 2%. So it is a little bit less than it was in the fourth quarter overall.

But the last few days of the month shipments tend to get larger and that -- well, we only have one more day, I guess. It probably won't change much actually.

But still positive. Of course the positives in on a much stronger comparison now, because January of last year the economy was in better shape than the fourth quarter of '07.

If you look into your crystal ball of upcoming negotiations and what is going on in the marketplace, do you think that net of fuel that that trend improves, stays flat, gets worse over the next two or three quarters?

We're going to continue implementing all of our revenue quality improvement processes during the year, which involves renegotiations of all of our contracts and bids. It involves our general rate increase that we're getting ready to take, the ongoing examination of the profitability of our accounts, and doing what we need to do to make sure our accounts are generating the appropriate return.

And so I sort of feel that the pricing environment -- my crystal ball is that if we go into a recession it could get worse. But if we do not, and the economy does not dip down in recession, that pricing will be -- not up a lot this year, it will still be competitive, but I don't think the pricing environment will get worse.

Obviously, I think the signal is from looking at our peers is that the fact they have gone early with rate increases is a signal that we all look to try to improve our return on invested capital. We're a little bit later than the others, but still we're earlier than we were last year. I know that the question is, how much of that would you hold given a continued sluggish and recessionary environment? But I think the idea is that we all know that we need to improve the pricing, it seems to me.

Being that you did it all, the same thing last year, it doesn't feel like there's a lot of pressure that that matters.

But we can change.

Somebody asked on another color, and we have certainly written it, the idea once upon a time in 1997 was to move the GRIs back from -- first quarter back into fourth quarter, so that you ask for them at a time when things were tighter. Now we have come all the way full circle back to February. Is that a concern as you think about that? I know you guys aren't the price setter in terms of picking the time for these things, but is that an issue?

I would think so. I guess we have probably picked up a year over what -- ten years.

Was there any incentive comp that was changed year-over-year because of the tougher year this quarter versus a year ago in the report?

No, there wasn't. The plan and how we calculate it all is all --.

It is the same.

Can you look at -- give a little more guidance on the $2 to $2.05 in terms of what is the assumptions for new centers, for tonnage, for pricing? What are some of the underlying assumptions in there or just general direction?

We haven't really -- we don't plan on giving guidance on tonnage or margins, as we haven't in the past. But obviously through January, just as a platform, we're still seeing our tonnage in January up in the high single digits.

How about if you only get that specific, what are your assumptions about the economy or oil prices to get to your $2?

Generally we are of the opinion that the economy will remain very sluggish in the first half, and maybe some modest improvements in the second half.

And oil flattish from here?

We think flattish, yes, pretty much flattish. Maybe spikes here and there during the year, but overall up slightly, maybe $0.05 to $0.10 a gallon, but relatively flat.

The operating days in the first quarter, are they the same year-over-year? Can you just give me those if you have them?

I can. The operating days are the same. It is 64 days each, there being a leap year February.

So you gain one leap year and you lose one on Easter, is that how it works?

That is exactly right. Because Easter occurs in March of this year compared to April of last year.

Do you have cash flow from operations there for the quarter by any chance?

For the fourth quarter?

Yes.

For the fourth quarter it was roughly $36 million.

The CapEx that you talked about, $190.5 million, was there that gross or net of proceeds?

That was net of proceeds, which is about $10 million of proceeds from sale of equipment and real estate.

The guidance was net of proceeds too, I am guessing?

Yes.

Jon Langenfeld, Beard.

I guess on the pricing side if you think of the contracts you are renewing today, what sort of price increases would you be getting on them?

I hate to say it, but I don't know. The overall average that we're gaining on that.

Would you guess that it is flat or up or down? What --?

It has been up. But I can't remember the exact amount.

That's fine. But you think it would be positive. Okay. That makes sense. What does Easter do being in the first quarter versus the second quarter? Does that have a meaningful impact on you in terms of your operations or costs or loss of a day?

I would say not meaningful when you look at the quarter as a whole.

I'm assuming the leap year helps with the extra day.

Correct.

And then some of the P&L items. On the miscellaneous line can you -- you talked about that a little bit in your prepared remarks. What was the add back there?

That is where that favorable experience in our call it bad debt reserves occurred.

So reverse that. And then on the ops supply line is the run-up there are primarily fuel or is there something else?

It is fuel.

Entirely?

90% of it is fuel.

What sort of tax rate should we think about for '08?

Right now we're using 39%.

Do you have any planned divestitures, bigger ticket items that we should think about or charges, tax gains that are inclusive of your guidance for '08?

No, not really.

Just general operations.

Correct.

Jason Seidl, Credit Suisse.

David West. A quick question. I know we touched on before with some other questions, but the relations to the pending reorganization at YRC's regional group, have you started to see customers shift freight from some of those carriers that may be impacted by a reorganization of their mapping to your business?

I guess nothing real specific. But as Wes indicated, our length of haul reduced in the fourth quarter a little bit. I don't know how much --?

About 1%.

About 1%. Maybe we have had some shift there.

I know you said that the weight per shipment is up about 2% here in January. Is the length of haul down a little bit again year-over-year?

It is down slightly, but it is still in that 1% range.

You mentioned a little bit that you were sure that you are getting positive increases on your contractual renewals. Has the lengths of the contracts still stayed about a year a piece, or is anybody looking for two-year contracts in this market?

Just generally still on a year, year by year.

I apologize if this haven't one has been asked already. But in terms of any more acquisitions on the tuck-in side have you see an increase in the number of companies coming across your desk, given the sluggishness of the economy?

Maybe a little bit. Maybe a little bit of an increase, primarily with just very small carriers. Sometimes they are too small to even consider.

Tom Albrecht, Stephens Inc.

Congratulations on a good quarter. Let me just ask a few basic questions. Depreciation, what is your rough guidance for 2008?

Our depreciation probably would be a little bit lower than it was in '07 for 2008 due to we're holding -- we were able to extend the lives of our equipment for the year. And so we will be, as you can imply from the CapEx, that will serve to reduce depreciation slightly. Maybe 10 basis points.

Also, we probably bought -- we did buy a little bit more power equipment and maybe trailers too in '07 than we -- for higher tonnage growth than we actually experienced. So we believe we got some fat in the fleet right now, and we are hoping to absorb most of our growth with the existing fleet for the year.

Then I want to just get a few operating statistics. What was the change in your load factor, your shipments per hour, and your dock pounds per hour, just in the fourth quarter.

In the fourth quarter our pounds per hour was up 6%.

That is the dock pounds?

Yes, platform pounds per man-hour was up 6.4%. On the P&D side our stops per hour was up about 1.4%. On the laden load average side it was actually down 2.4%. But that was as a result of protected and even improving our on-time service, which improved about 2%.

I'm sorry, which one was down 2%, the load factor?

The laden load -- average laden load factor, yes.

Shipments per hour, is up the same thing as stops per hour?

Shipments per hour -- shipments per stop. The shipments per hour was up about the same. Both of those, stops per hour and shipments per hour, were up about 1.4%.

This is just more for my own recordkeeping. I think you described the tonnage trends throughout the quarter as relatively even, but I would just like to have it for a year from now, October, November, December, the approximate changes in your tonnage for each of those months?

Sure. For October we saw a tonnage increase of 9.1%. It accelerated to 10.1 in November, and further accelerated to 11.8 in December.

Good. Bullocks is what, maybe 1% of that?

I would say probably less. We didn't --.

It wasn't even a full month?

Until mid-December.

We only have about two weeks.

It probably wouldn't even around.

We had one week before Christmas, one full week, but then we rolled into Christmas with it.

Instead of 11.8, it was probably without Bullocks 11.79.

I like that precision. You have had good trends with cargo recently. I think it was 1.2% of revenues in the third quarter. How about in the fourth quarter?

In the fourth quarter our cargo, we continued to have good results there. The average for the quarter was about just under 1%.

You would have been, what, 1.6, 1.7 a year ago maybe?

A year ago we averaged about 1.6%. So quite an improvement. And we have been putting a lot of focus on that, so we are seeing good results there.

Let me just see, I had a couple of questions. Bear with the just a moment. I wasn't clear from one thing. You made a content that the other expense net, that was due to a decline in the value of investments in your deferred compensation plan. But the miscellaneous expenses net was way down. Was that a decline in bad debt? I would have thought if anything --.

Yes, a favorable experience for the quarter in our reserves for bad debts.

Of like over $1 million, I would assume?

I don't know what the dollar --. Yes. You mean $1 million over what it was last year?

Yes. An improvement or a reversal, however, you want to word it. The year-over-year change was about $1.7 million in your favor, but it is a book of business you're constantly looking at. I wouldn't imagine it all turned positive. There are probably one or two accounts that --.

It is on average about $0.5 million.

In your operating supplies and expenses, obviously that is up primarily because of the increase in diesel fuel about $18 million, $19 million. But of that $68 million you spent in the fourth quarter, how much of that line item approximately is diesel fuel versus maintenance expenses and other categories, of the operating supplies?

I'm just getting to the number. Hold on a second. Our fuel runs about -- of that roughly 17% for the quarter, 19% -- excuse me, fuel runs about 14 percentage points to that, 14% of the 19%.

That is helpful.

So it was 75% of that line cost.

I think that's it. I just mostly had statistical stuff today. You guys are doing a good job and keep up the good work.

John Larkin, Stifel Nicolaus.

I got a couple of maybe bigger picture questions here. The Teamsters, I know that is not one of your favorite words, but they have been a little more active out there in the marketplace with a couple of different trucking companies. Just wondering if you have seen any increased activity levels at any of your service centers?

No.

The next question I had, UPS Freight seems to be doing an awfully nice job of bundling its services with their package and parcel, generating a lot of growth as a result of that. We have also heard that FedEx, particularly the former Watkins operation, has pretty aggressive pricing out on the marketplace. Are you seeing any increased level of competition from those two players out there in the marketplace?

It hasn't really changed much in the last while. We haven't heard all that much in the last several months from them. There was some aggression earlier as UPS Freight started up from in this bundling approach. But we don't see that it has gotten any worse. And we haven't had all that many recent reports of anything that might have flowed down in aggression.

That is helpful. Nothing unusual out of FedEx per se?

No.

You restated your goal of hitting a $2 billion revenue runrate I guess by 2010. And that has been a long-standing goal. I guess you probably didn't anticipate this little downturn that we have been through the last 18 months or so, starting somewhere in the October of '06 I guess you mentioned earlier.

According to my calculations you need to grow at about 12.5% on the top line over the three years '08, 09, 2010 to get there. But it looks like maybe 2008 will be off to a somewhat slower start, just by virtue of the economy not recovering. Does that imply that you're quite comfortable you can get back to 15% or thereabouts in terms of topline growth in '09 and 2010 to meet that objective?

Looking at the total for the 3 of a 12.5% CAGR, we think we can do that over this period of time. As far as '08's revenue growth is concerned we're not giving any guidance on that right now, but we have certainly taken what we predict for '08 into consideration in our feeling that we can achieve that 12.5 to 13% CAGR in under three years.

That's helpful. The next question relates to the 1.4% reduction in revenue per hundredweight. And clearly the increased weight per shipment factors into that, as does the decrease in length of haul. I know sometimes, Wes, you have been capable of somehow netting out the impact of those sorts of changes.

My capability extends to just a wild guess. Unfortunately, we do have an algorithm that accurately does it. Just know anecdotally that it has an effect, but I just can't give a number on exactly what that effect is. But I would say, given that effect, and the fact that many of the peers had reductions in their weight per shipment, is that that would probably for the most part put us in line with everyone else on orange-to-orange basis.

Maybe something like half of that is related to mix change and the other half --?

That is as good a number when in doubt, go half. Yes.

If you look at the $1.5 million write-off I guess due to the insurance contracts, I think you mentioned, is that the right number, $1.5 million?

They are not insurance contracts. It is just that our nonqualified plan has investments that we record and book to the fair value of those investments -- investments by our participants. If you may or may not recall, we had a positive adjustment from that in the third quarter. Unfortunately, as you also know, the stock market went the other way in the fourth quarter so we had a negative adjustment in the value of those investments.

Without that negative adjustment, your earnings per share would have been $0.02 or $0.03 higher?

Don't know the number. Haven't calculated the number, but that seems a little bit high.

One thing to just --.

I think that is the way it works out.

One point to make though in looking at our guidance for next year, we certainly have not tried to predict the stock market, or whether we're going to have ups or downs with this particular type of adjustment. we have no idea where the market is going.

Nor do we. Then lastly, the weight per shipment issue, historically as a couple of the analysts have mentioned, when weight per shipment increases that is usually an indicator that the economy is in a recovery mode. It seems to me that in the past we have talked about this with you all, and you had suggested that it may be more a function of customer mix as you become more of a national player. You have really worked to develop relationships with bigger accounts that by their very nature have larger shipments. Is that still the way you're looking at it with respect to this increase in weight per shipment?

Yes. Obviously, the larger contractual accounts does have a weight per shipment that is higher than our weight per shipment overall. But even that increased on a contractual increase for the quarter 5.1% on weight per shipment. So that would eliminate the effect of demographics.

What you are saying is your tariff customers also had an increase in shipment size?

Slightly. It was more flattish on our tariff customers. It was up about 1%. Though much of our increased from that standpoint came from a larger contractual. Now having said that, the economy is one factor, but marketshare is another factor.

That is all very helpful. Congratulations on another terrific quarter.

David Campbell, Thompson Davis.

Just a few little questions left. I could not hear your CapEx for 2007, or I missed the amount. The total amount is $155 million, I think, net of sales. I guess that is net of sales?

No, that was '08. Is '07 or '08 what you're asking?

'07, yes.

'07, our net capital expenditures was roughly $191 million.

$191 million net. Okay. The '08 number is --.

Put it in a range of between $155 million to $165 million.

Right. That is net of sales?

That is.

And includes how much for tractors?

That would include about $40 million to $45 million, and that is a net number as well on equipment, tractors and trailers. And also $90 million to $100 million on real estate.

The other question I had was numbers of days for each quarter this year in 2008, do you have that handy?

I do.

I got the first quarter, but I didn't --.

First quarter is 64, 64 in both periods. The second quarter it is 64, 64 both periods. Third quarter is 64, the current year is 63 compared to 63 in '07. And in the fourth quarter it is 62 and 62.

I've got that. The last question I had is the decrease in insurance expense in the fourth quarter seemed very good. Is there anything unusual in that expense item?

Not unusual in that much of that was good experience, both on our liability insurance as well as our cargo claims experience, both of which we have been focusing on quite strongly this year.

Right. I know that.

We have had sequential improvements in both of those categories.

It is going to be tough to keep doing any better though in future years. Or do you disagree with that?

We're still -- we're never satisfied with cargo claims. You are always working on that, and always working to reduce accidents as well. So can it get better? We hope so.

The general rate increase is February 4 this year, is that right?

Ours is February 11.

February 11. Last year it was in April, right?

Last year was in mid April. Correct.

How do you explain --.

Mid March.

How do you explain the fact that not only your Company, but others, are increasing rates in February, supposedly in a weak demand. I mean, is there -- how could demand be weak and shippers accept rate increases?

One thing you've got to keep in mind is we are an asset-based industry. In order for us to be viable we have to have a decent return on invested capital. During a rating environment that presents itself, that tends to have a negative effect on that. At some point you have got to get back to that return on invested capital and do what you need to do. If it was caused by a pricing scenario, it can only be improved by a positive pricing scenario. I think that is where the circle is at this point. Where we hold onto that as an industry it remains to be seen, but certainly that has got to be the force behind the initiative.

Well, it certainly is a good indication. Thank you very much for all your answers.

(OPERATOR INSTRUCTIONS). Greg Oliff, BB&T Capital Markets.

I just have two quick questions. One is a margins question. It looks like you were able to offset fuel increases here pretty well, better than some of your peers. Is there any way you could take any more out -- or without volume increases, or it is this pretty much where it is going to be?

We are continually focusing on improving efficiencies on the platform and in pickup and delivery operations, just generally in speaking out in the field. I think we have continued opportunity to improve that way.

And secondly, with continued tonnage shipments, revenue growth across the existing network, that in itself provides additional leverage against our operating ratio as well. Thirdly, would be our focus on some new areas of business and logistics. And our truckload brokerage areas, our expedited freight areas, those two should help us continue to improve our margins.

Awesome. Lastly, you have previously stated that you were in the process of revisiting service centers to retrain on some technology issues. Has this been completed and have you seen any benefits for this, if so?

The focus on service centers for improved efficiency never ends. I started working on that back in 1978 when I got out of college, and it hasn't quit yet.

Awesome. Thanks a lot guys and congratulations.

Ed Wolfe, Bear Stearns.

You mentioned that depreciation schedule change that you're looking at the asset lives different. When did you do that and what is the impact for '08 over '07?

As David mentioned, we have taken -- first of all we probably have a little more equipment then we needed because we based our equipment acquisitions on a little bit higher tonnage growth, plus we had a couple of acquisitions that provided some equipment. As a result -- and the last thing, we took some of the older equipment and decided that we could run that equipment another year or so -- one more year or so.

So all those things combined reduced our CapEx that we have implied in the $40 million to $45 million this year. And since we have reduced that CapEx, the depreciation on used equipment and older equipment -- obviously is less on newer equipment. So that serves to reduce that depreciation expense as a percentage of revenue.

As a percentage of revenue, but I thought you were saying on absolute dollars it was going to be down in '08 over '07?

If I said that I was not correct. We don't anticipate it being down from absolute dollars.

What, for the equipment?

For depreciation overall.

If I look at depreciation overall in '07 at $80 million, it should above $80 million in other words?

It should be, yes.

Do you have an estimate on where that should be?

As I told Tom Albrecht, we still assume that our depreciation will drop as a percentage of revenue maybe 10 to 20 basis points overall.

That is a lot more helpful. Thank you. One last thing. The tax rate of 39%, should we assume the propane credit is going away?

That is part of that being 39 as opposed to something higher. So that still implied in that rate.

Why does it seem that these are going away from everybody? Has the law changed, or what is going on with that?

The law hasn't changed, but I think it expires this year.

That is what I'm saying. So it expired in '07?

No, in '08.

You are getting it, or you're not getting it in '08?

We anticipate getting some of that in '08.

So why is it -- what is driving the tax rate up from this year at a little under 38 up to 39 next year?

We had some other advantages in '07, that I don't want to go to detail, that we don't think will apply to '08.

So for '09, without the propane, should we be going to 40 or should we -- 39 is pretty good going forward at this point?

I'm not ready to discuss what we should look like in '09.

Fair enough. I'm not ready to discuss what it is going to look like next week. I understand. Thank you very much.

Tom Albrecht, Stephens, Inc.

I had meant to ask this earlier, and John asked a little bit about it. But I was looking at your weight per shipment, it is actually up nine of the last ten quarters, which is astonishing for the environment we have been in many of those quarters. I am wondering have you made a strategic decision to fill your network with more of that truckload spot business?

I know in the beginning, Wes, you mentioned 2% of your shipments are averaging 9,000 pounds, or something like that. But is that just accidental or is that okay? This is what our network needs so we can maximize productivity.

We have made no strategic decision to go after heavier weight shipments. I think maybe it is just a result of our general process for going after freight. Then the fact that we can do short haul, medium haul, long haul. Whatever the customer needs, we can generally do it. Maybe it is just a natural thing that has occurred in our customer base. It is not strategic -- not a strategic decision or a change of course.

At this time we have no further questions. I would like to turn the call back over to Mr. David Congdon for any additional or closing comments.

All I want to say is thanks for your participation today, and some great questions, and your interest in OD. Please give us a call if you have any further questions. And we want to wish you all a very prosperous 2008 out there in the stock market. I hope everybody makes a lot of money.

That does conclude today's conference. You may disconnect your lines at this time.