Saia Inc (SAIA) 2007 Q4 法說會逐字稿

Good morning. My name is Tierra, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter earnings release 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 session. (OPERATOR INSTRUCTIONS).

Thank you. Ms. McKenzie, you may begin your conference.

Thank you, operator. Good morning. Welcome to Saia's fourth-quarter and 2007 earnings call. Hosting this morning's call are Rick O'Dell, our President and Chief Executive Officer, and Jim Darby, Vice President, Finance, and Chief Financial Officer.

Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical fact are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ.

Now I would like to turn the call over to Rick O'Dell.

Good morning, and thank you for joining us. Considering the weak economic conditions, I'm relatively pleased with our topline growth in 2007. Revenue was $976 million from continuing operations, which is an increase of 12%. Our revenue growth was due to acquisitions, synergy revenue to and from our expanded geography, and our strong service offerings.

However, our earnings per share from continuing operations declined to $1.22 from $1.74 in a very difficult economic environment. For clarity, all comparisons are from continuing operations.

A few 2007 highlights include our operating ratio deteriorated to 96.1% from 94.3%. Our LTL tonnage per workday increased 9.2%. Our LTL yield increased 2.1%, which includes the impact of higher fuel surcharges.

Saia's fourth-quarter revenue reached $244 million, which was an increase of 11%. Our operating income was $3.9 million.

For the quarter, a few key points would include our operating ratio was 98.4% versus 95.2% in the prior year. Our LTL tonnage per workday grew 2.4% as a portion of the quarter overlapped the Connection acquisition. Our LTL shipments were 5% over prior year. Our LTL yield was up 7%, which includes the impact of higher fuel surcharges.

On a pro forma basis, which includes the results of the Connection and Madison Freight acquisitions for the prior-year quarter, our revenue was flat, our shipments were down 4% and our tonnage was down 8%. On a pro forma basis, our LTL weight per shipment was down 5%. Our pro forma LTL yield was up 8%, due primarily to increasing length of haul and a declining weight per shipment.

While acquisitions and our expanded geography provided topline growth, reduced bills per pickup, weight per shipment and a difficult environment challenged our ability to achieve targeted productivity and cost performance. Our margins were also impacted by accident severity and a commitment to service lanes to and from our expanded Midwest geography.

Despite the challenging economic environment, our achievements for the quarter would include 11 of Saia's 14 sales regions had positive revenue growth. Our synergy revenue from the Connection and Madison acquisitions is now at an annualized run rate of over $60 million. Additionally, the account turnover and the transition of the acquisitions are behind us. Customers clearly see value from our expanded coverage. We expect to grow revenue and improve our margins from this investment going forward.

We continue to have success with our industry-leading Xtreme Guarantee product, and in the fourth quarter we introduced a new product, The Long Run, which provides service in the three-plus-day lanes.

We believe Saia's broad coverage and our best-in-class service provide a solid foundation for long-term profitable growth and shareholder value as we capitalize on our recently expanded coverage and improved margins. Again, while I'm relatively pleased with our topline growth, I'm particularly disappointed in the second-half results, during which margins were challenged due to the weak environment, higher accident and health plan expenses, and our commitment to service new lanes.

While the near-term economic environment remains challenging, I'm cautiously optimistic about 2008. Our focused strategy of building density in our recently expanded network and numerous engineered cost initiatives should improve these margins and provide shareholder value.

As we have previously mentioned, after making three successful acquisitions to expand our footprint to cover the majority of the U.S., we turn our focus to building density and improving performance in our current geography. This will be through efforts to increase productivity, enhance automation and target marketing efforts while focusing on cost improvements to improve our operating ratio.

Some of our current cost initiatives include our line haul routing optimization is 30% complete in January, and it's already yielding improvements, with expected full implementation by March 31. We have $50 million in purchased transportation which was placed out for bid and expect a 6% savings. We are rolling out our wireless cross-dock, which will cover 70% of our cross-dock moves by May of 2008. This is up from 30% last year. We've enhanced our weight and inspection program. It was completed in January, targets $5 million of additional revenue annually. This effort is meeting our expectations.

Saia's exception-free delivery focus with numerous process improvements is paying dividends and should improve our claims ratio. We do not expect a repeat of the significant accident severity which we experienced in 2007 into 2008.

The current environment requires we better align costs, both fixed and variable, with volumes. We believe these initiatives, combined with increasing our density and our market share, will enhance Saia's financial performance going forward.

Now I would like to have Jim Darby review our 2007 and fourth-quarter results.

Thanks, Rick, and good morning, everyone. For 2007, earnings per share were $1.22 from continuing operations compared to $1.74 per share last year, and revenues were $976.1 million, with operating income of $38.2 million. Operating income for 2007 included a gain on sale of real estate of $1.7 million and a benefit of $3 million from equity-based compensation. We also experienced an increase in accident expense of $8.3 million over prior year, primarily due to severity.

For the fourth quarter 2007, earnings per share were $0.05, which included charges of $0.04 per share resulting from an employment-related matter. This compared to $0.36 per share last year. All comparisons to prior-year fourth quarter are versus results from continuing operations for that period.

For the quarter, revenues were $243.7 million, with operating income of $3.9 million, which includes $800,000 in expenses from an employment-related matter. This compares to prior-year reported operating income of $10.5 million, which included $2.4 million in integration and restructuring charges. Estimated operating losses from the expanded territory were higher than original expectations, due to continued difficult market conditions.

As we have noted before, our self-insured structure of $2 million retention level will result in accident expense volatility. In the fourth quarter, accident expense was $1.1 million or $0.05 per share higher than prior year, due to increased severity. The renewal of our insurance program, which expires on March 1, is well underway. We expect to renew at a reasonable rate due to our long-term safety record, solid safety program, and this year's double-digit improvement in accident frequency. We will retain the same $2 million deductible.

Our consolidated effective tax rate from continuing operations was 39.8% for the full year of 2007. Our effective rate from continuing operations for the quarter was impacted by a tax credit. For 2008, we expect our effective tax rate to be approximately 40%.

A quick comment to clarify discontinued operations. In the quarter, we recorded a tax benefit of $1.3 million or $0.09 per share related to the 2006 sale of Jevic Transportation, which was a former subsidiary.

At December 31, 2007, debt was $172.8 million, with net debt to capital of 45.3%. As a result of the Company's $6.7 million cash balance and $37 million of unused credit facilities, Saia had approximately $43.7 million of available capital for future expansion and acquisitions. Debt balances were impacted by $23.2 million expended for the year for share repurchase.

Our net capital expenditures for 2007 were $89 million, which is slightly different than we anticipated, due to the timing of the closing of two real estate acquisitions. This compares to $91 million in the prior year. As we have noted before, we continue to look at real estate in tight markets, and in the fourth quarter spent $19.3 million on properties. This follows Saia's strategy of owning strategically located facilities that are integral to our operations.

The Company is planning net capital expenditures in 2008 of approximately $56 million, which includes $39 million for real estate projects. Planned expenditures for revenue equipment show reduction from the prior year based on current slower economic conditions. The amount of capital expenditures for revenue equipment may be reevaluated as tonnage growth improves.

On January 28, 2008, we entered into a new revolving credit agreement, which replaces our prior facility and extends the maturity to January 28, 2013. The new agreement includes an increase in size from $110 million to $160 million, improved terms, enhanced pricing and favorable conditions to support the Company's financing needs.

Now I would like to turn the call back to Rick.

Thank you, Jim. Before we open up the call to questions, let me say that while I'm concerned about the current economic environment, I am encouraged by our progress with engineered cost initiatives and the potential they have to contribute to margin improvement. Due to seasonality, the first quarter is generally the weakest quarter of the year, and normally our operating ratio worsens from the fourth quarter to the first quarter. Because of current initiatives that are well underway, and a few of which I outlined previously, I expect that we will perform better than what the historical fourth-quarter to first-quarter trends might indicate.

While our near-term performance has been impacted, we feel our investments in our expanded geography will pay off over time. We believe that Saia is well-positioned to ride out the short-term economic difficulty and provide long-term profitable growth and value for both shareholders and customers. As the economic environment improves, we anticipate our cost initiatives, combined with a growth rate faster than the general economy, will result in our ability to achieve density benefits and close the gap between our operating ratio and those of our peers.

With these comments, we're now ready to answer your questions. Operator?

(OPERATOR INSTRUCTIONS). David Ross, Stifel Nicolaus.

First question, Rick, is going toward the line haul routing optimization cost initiative that you put in place and improving the productivity through the line haul model, you said that's 30% complete now in January and should be done by either March 1 or March 31?

March 31.

And when you say 30% complete, is that it's been applied to 30% of the network, or it's just 30% of the way there, and then once it's complete it will be applied to the whole Saia network?

Yes, sure. We have been talking about this externally for four to six months, and we have identified this as an opportunity. We applied some external resources as well as internal resources to recalibrating our optimization tools. Essentially, we have completed the analytical work, and the actual implementation started in late December and carried through January. We have about 30% of our network is completed. What you have to do, obviously, is you reroute some freight and then you have to put the schedules and assign drivers to it. It takes some time. It is certainly not an automated process. So, again, we're about 30% complete, and we expect to be finished by the end of March.

Does that mean maybe in the Southeast region you started optimizing the regional line haul there and then it's going to go to the Midwest and then out to the West, or, I guess, am I thinking of it correctly in that it's improved the line haul model and parts of the network, but not other parts yet?

That's correct. That's what you do; you have to pick certain lanes and regions, and you optimize those in terms of the direct opportunities and put those schedules into place, and then you move to another region.

And then how dynamic is this new line haul optimization model, considering the fact that you are going to be, I guess, adding synergy lanes and growing the inter-regional lanes over time, especially with the new product, The Long Run, that you introduced?

There would be two comments to that. First of all, when we get through it one time, the first time, to optimize, then you just don't stop. You can constantly use the tool. And obviously, with the growth we expect, there will be additional opportunities going forward. We have applied the resources and the expertise to put that in place and keep that going.

Secondarily, we continue to work with Georgia Tech on a more dynamic modeling capability, which would be more sophisticated and more responsive on a more current basis, including by day of the week and some of the sophistication that we don't have in today's model.

And then you also mentioned another cost-saving opportunity, putting the purchased transportation out for bid, and that from that you expect a 6% savings. Is that almost all truckload, or is that kind of what you see in the truckload market right now, the rate softness is about 6% lighter than it was a year ago?

It's a combination of truckload as well as some opportunities to use intermodal where we haven't done that in the past with our length of haul going up. So it is a combination of those items. It's an estimate based on the first pass of bid responses that we've received in January, and we expect a February implementation of that.

And then you also talked something about -- and I was writing quickly; I didn't get this down -- the cross-dock moves. There was something there about productivity improvements, and I just didn't catch that, if you could talk about that again?

Yes. We have a wireless cross-dock system that's implemented at many of our major terminals, but it only covers about 30% of our moves currently. So we are rolling it out at some of our additional terminals, and we expect to have that available at 60% of our terminals by May -- I'm sorry, 70% of our cross-dock moves will be handled at a facility that has wireless cross-dock by May.

And then can you just talk in general about the pricing environment out there in LTL? How competitive is it? Is it more competitive by region, and then I guess how the pricing trended through the quarter and into January?

I would say that it's increasingly competitive. I guess our comment would be that, obviously, we had a number of contract renewals each month as we go through the year. Our comment would be that our fourth-quarter weighted average increases on contract renewals were positive and they were pretty consistent through the quarter.

Jason Seidl, Credit Suisse.

A couple quick questions for you. To go back to the purchased transportation, if you were to exclude your intermodal new contracts that you're getting bid for and just looked at your pure purchased transport per truckload, what would you say your rates are down in terms of the bids you're getting back for just pure truckload?

I don't have that number in there, but --

You guys can get back to me later in the day off-line.

That would be fine.

If I'm looking at just the overall economy and how your fourth quarter went, it looked like there was a definite softening from Q3 in both your tonnage and also your weight per shipment size. How are the trends looking here in early 2008? Are we seeing the same sort of trends, or is weight per shipment picking up at all?

I'll let Jim give you some details, I guess, on the monthly trends through the quarter and what we're seeing in January. He's indicated it was -- I would call it choppy, I guess I would characterize it.

I'm going to give you pro forma numbers because we think that's the best comparison.

Absolutely, that's perfect.

So for the fourth quarter, LTL tonnage was down 8% year over year on a pro forma basis, and that was comprised of 4% LTL shipments and a little more than 4% on weight per shipment. It did get a little bit worse as we went through the quarter. December was particularly bad because of the fact that December was a short month for workdays, and the way the holidays fell and particularly the last day of the year fell, we had very weak tonnage in December.

But those are the numbers for the quarter. The weight per shipment is down a little over 4%. As we go into January, what we're seeing so far is it is slightly better. The tonnage is down about 4% year over year, and the weight per shipment is only down about 3% so far in January.

Are those more indicative of October/November numbers? I'm just trying to get the seasonal holiday period out of it and look at it that way.

Actually, we had -- if I look at November, tonnage was down more than 5%. Then it went to double digits down in December; but December, we think, is an anomaly with the workdays. So I would say it's improved from that.

It sounds like it's an anomaly. As I'm looking at '08 versus '07, you guys had, what, $0.30-plus a share in accident costs for all of '07? Am I calculating that right?

You're talking about differential?

Increase over the prior year?

Yes.

That's about right. It was $8.3 million year over year, and most of that was due to severity because our frequency actually improved significantly.

One thing is you would expect some expense increase just on a percent of revenue due to some incremental miles, but nowhere close to that number.

Rick, could you guys walk me through the logic you are using in retaining that $2 million insurance deductible, self-insurance deductible? Why not just lower it to start smoothing the earnings out going forward?

Well, we have looked at that several times. When we do, what you end up is the premium goes up so substantially that it's not worth the trade-off for us. Really, 2007 was a very difficult year from severity, but it's not the normal year.

No, I remember in prior calls you talked about that.

It's not economically viable. Again, we've gone through it, we've [added] for bids several times. It's just not economically viable.

You talked about the fact that you think all the choppiness with your customer rollovers is sort of done. Can you point to trends in The Connection Company, which I think was what you were referring to, where -- are you starting to gain back some of the stuff that you lost initially when you took the company over?

We are, both in terms of some specific customer accounts and then some turnover. And then we're growing synergy revenue in those lanes. We actually have two sales regions up there, and one of the regions is actually showing positive daily revenue comparisons. Now, some of that business goes to and from areas outside of their original geography. So we are regaining share and building our volumes there. Again, over time, that will contribute significantly, because they have a lack of density in that region compared to the rest of our geography, and their productivity numbers are more challenged than our Company averages.

Thanks for the color. That helps. And my last question, and I will let somebody else have at it -- obviously, the CapEx number -- huge cut. You can't really maintain these levels for more than a year or so, I imagine. So as we're modeling out into '09, can I anticipate a large increase in your CapEx?

I would say replacements will probably be more in line with depreciation over a period of time. There's a couple factors there. First of all, over the last couple years, we have invested a lot in equipment, in anticipation of growth, some of which didn't occur. So we've got some opportunities there. Then we basically deferred some trailer purchases, which have minimal maintenance or cost impacts.

Then on the tractor side, our philosophy was to say, well, what do we need to keep all of our line haul tractors under five years or less, because that's where most of the miles are run. So we don't think there will be any near-term impacts from our decision, and obviously we're managing for cash flow in the current environment and looking at opportunities for strategic real estate investments.

Art Hatfield, Morgan Keegan.

Just a couple quick questions. First, I know you've talked a little bit about the insurance issue, but just as a clarification, there's no tail to the accidents or the severe accidents with regards to expenses or additional accruals in future periods?

No, that's correct. We book it for the ultimate when it occurs.

So the only possibility going forward is that you may end up reversing some accruals if you had overaccrued in that period. Is that correct?

It's possible, yes.

That's fair. I just wanted to make sure that there was no expense tail related to that.

We take our best shot at it and try to book the ultimate as it occurs.

Secondly, just on some of the costs in the fourth quarter, and I think you've talked about, Rick, some of the things that you are doing, but you had mentioned specifically in the release and you talked about it in your prepared statements, health plan costs. Can you talk a little bit about what they are and if that is something that is new that we should expect to work at a higher rate going forward?

Then on the new lane investments, is that predominantly just the interregional moves, and is that something that gets rectified with regards to what you are doing on the line haul side?

Let me make a few initial comments, and then Jim can maybe respond to your health and some of the other ones. First of all, I guess I would say that, just like when you have a particularly good quarter, it's not usually due to just one or two items; you get a lot of things going well. We obviously had the opposite of that in the fourth quarter. Several of the major factors were volumes were choppy through the quarter, and December was particularly weak. Our density benefits were challenged. In spite of the fact that we're getting some synergy revenue, even on the pickup side, our bills per pickup were down 2.7% from the prior year. Then, as we commented, our miles grew faster than revenue. That was partially due to a lack of density in the synergy lanes, and part of it, I think, too, is due to we're also growing some other of these longer-haul lanes, and our network needs to be reoptimized. We again believe that's a significant opportunity for us.

So, Jim, do you want to comment on a few other items?

Sure, I'll be glad to do that. In addition to what Rick mentioned about driving more miles, other items that went up -- the health plan went up, and that's a combination of inflation in the cost of the claims and then also in the rising headcount. That cost us about 0.5 points quarter over quarter, fourth over fourth. The bad debt expense was about 0.3 points, and legal expense was about 0.2 points. So those three together cost us about 1 point, fourth over fourth.

Do we see those continuing going forward? I would say we should -- hopefully, we will be growing the revenue faster than the health plan inflation goes up as we go forward. I don't think it would necessarily go up from there. Bad debt expense -- that's really in relation to the fact that our receivable balance has gone up, and we're getting a little bit stretched out on our DSO. So we bumped our bad debt reserve to reflect that. Legal expense going forward -- I think we had some unusual expense in the quarter, and I think that will more normalize as we go on.

We identified for you a couple of other items that were specific to the quarter, and that's the employment matter. That was about 0.3 points, and then accident expense, the $1.1 million over fourth last year, was about 0.5 points.

And then in relation to what Rick said about running more miles, of course, when you do that, your maintenance goes up. And that was about 0.7 points, fourth over fourth. Purchased transportation was up more than 1 point; it was almost 1.5 points. But I think those last items, the maintenance and the purchased transportation, will improve as our density continues to improve, particularly in the synergy lanes, and as we put in our line haul optimization and that gets implemented, those numbers will get more back in line.

That's very helpful. Thank you.

Thom Albrecht, Stephens Incorporated.

Let me get a couple of housekeeping questions out of the way, and then I want to ask a few other maybe more strategic questions. First of all, what was the length of haul in the quarter, and what was it a year ago?

Length of haul went up about 4%, went from 623 to 648.

And then, Jim, can you go through by month the pro forma tonnage performance? I know you gave us the quarter; that was very helpful. And I know you said December was down double-digit, but I don't know whether that means 10% or 15%, kind of October/November/December, just in terms of LTL tonnage. I don't need the shipment weight breakdown, but just --

Sure, Thom. October was down 8%, November was down 5.25%, and December was down a little over 12%. But again, that was, we think, a reflection of the short month, the way the holidays fell and all that. so that's why we think it's a little bit of an anomaly. So it was down 8%, down 5% and then down 12%.

That's total tonnage or LTL tonnage?

That's LTL tonnage.

And then you mentioned that you had saw a double-digit decline in accident frequency. Approximately what was that percentage figure?

It was 15%.

That's good. And what about a couple of other key productivity measurements? You mentioned, I think, bills per pickup were down 2.7%, I think is what I heard.

Correct.

What about things like bills per dock hour? There's only about 100,000 statistics in this business, but maybe two or three others that you could share with us that would be helpful?

I don't have the specific numbers in front of me with load average, but I would tell you that our load average declined, which, obviously, that goes with the additional miles that were run, and again, part of the focused initiative that we had. Our P&D productivity and dock productivity are pretty much flat year over year. So we're not making any headway and adding costs at the rate of bill changes, which isn't good.

So how does flat reconcile with that 2.7% figure you shared a little while ago? I think Jim gave that. That sounds like that's actually down, not flat.

Well, that means on the pickup side, if you're measuring productivity, saying that my bills per hour are essentially flat but you lost some pickup density, at the end of the day, that creates, certainly, some cost challenges.

And then, Rick, you mentioned that you felt that the historical relationship between the fourth-quarter and first-quarter operating ratios would be a little bit better this year, but I don't know that I can read a pattern into that. Over the years, there's good parts of the economy, bad parts. What specifically are you thinking about when you offer a statement like that, that the OR would only slip 50 basis points, that it might be even comparable? Can you just -- because otherwise I'm inclined to think you could lose money.

Yes, I think that's the reason we put the statement out there. I think, obviously, at this point in time -- well, clearly, we don't provide guidance. It's January; I'm not sure how much you can read into January. While we're encouraged by the trend, we're encouraged by some of our cost initiatives, some of the things in the fourth quarter we don't expect to repeat, and some of our cost initiatives are showing some legitimate progress at this point in time, and we expect to advance further through the quarter. Some of the challenges, obviously, that you -- we could still have weather issues, and we do still have accident things. So I think beyond the comments that we're making directionally, I don't think we can really provide any more direction there.

So if I were to model a small loss, even though two-thirds of the quarter is ahead of me, you might say that's not totally crazy, but it might be premature? I know that's a difficult question, and you're probably thinking I'm trying to be a smart-aleck here. But I just feel clueless after this quarter. I was low on the Street at 15, and I told people don't even believe my number. And then we get $0.05, and I feel like we're throwing darts.

I know. That's why we felt like we needed to make some directional comments, and I would hope you could tell from the tone that we are encouraged by some of the initial volume things we're seeing in January and some of the cost progress that we are making. But I think it's a little early to make too bold of predictions on the quarter.

Well, that's fair. At least I pushed you a little bit there.

It wasn't unanticipated.

Okay. Jim, I think you said that you had losses or a disappointing performance in the acquisition companies. I don't remember exactly the phrase you used, but if we strip out TCC and MFS, and I know increasingly you are not doing that, but if this were just Saia ex-those, do you have a sense as to the negative contribution from MFS and TCC?

It gets increasingly difficult to break that out. The reason we made that statement, Thom, is that when we purchased The Connection, we told everybody that because we were bringing on $70 million worth of revenue at essentially breakeven, that we expected it to have a slightly negative impact on our operating ratio in 2007. And we quoted 50 basis points to 60 basis points. And with the amount of revenue of the book of business that we actually let walk in second quarter of last year because of the difficult pricing environment, it got a little bit more of an impact than that.

And I'll clue you in on top of that. We would have expected it to begin to turn positive by now, and I don't think it has. You kind of lose your measurement while we have revenue trends, and we have productivity by terminal. Once the freight starts moving across regions, you lose the separate accounting for it. So like you said, I know you're asking for a feel. It's very difficult to estimate.

I guess I either was not paying attention or writing down other stuff. I didn't quite understand the discussion you were having on purchased transportation being up so much. There was intermodal; there was a truckload reference. Are those future-looking comments, or those were elements in the PT increase from $16.5 million to $20.2 million?

In the fourth quarter, some of the comments were -- we made both, I guess. The reference to increase was really in correlation with our miles increase. A portion of that was in purchased transportation, and there was a significant increase in the quarter year over year.

And then secondarily, on an annualized basis, we spent about $50 million in purchased transportation. On a forward-looking basis, we've put that business collectively out for bid. We've got the proposals back, and we anticipate a reduction of about 6% in rates that we should benefit from this year, due to putting that out for bid.

And that's rates on the TL side, primarily?

Yes, the truckload plus some movement to intermodal. We've got some freight that we are running even on teams or on PT that we can -- we have some good -- on some of these expedited trains, we can put the freight on there, particularly over the weekends, and then obviously free up some of our -- either reduce PT or free up some of our teams to take other purchased transportation out.

I don't normally think of you guys as being a big rail user, but what percentage of your miles would have been on rail, like, last year, 3% or 4%?

I don't have that in front of me. I'll have to get back to you.

I'll get you that number.

Yes, I'd just be curious. And you said about $50 million, but you actually spent $76 million. Are you just talking about the portion that you're actually putting out for bid is about $50 million?

$50 million is really the line haul portion. We actually have some agent, some city things during that entire number, as well as equipment rental, which equipment rentals are a small portion of that.

That makes sense. I guess the last question would be, Rick, do you feel like you are managing your labor as aggressively as you need to be? I know that's kind of an easy yes/no question, but what I mean is in the past you've talked about, I've been through downturns, I know how to downsize the daily workforce. When you have a 98.4 OR, it always seems like you could do more on everything. I can't tell whether you should have been doing more on the labor downsizing or not.

We did a reduction in the fourth quarter of about 2.5%, and that's what we thought we could do and still certainly maintain the quality service offerings that we need to do from a customer standpoint. Our focus, really, on the labor side is not only by reducing the miles, but we also have a number of initiatives in the city and the dock focused on taking out unproductive terminal time, for instance, in the city operation. And we can expand, I guess, at a later date of some of those other opportunities. But I really think we need to do it through effective management as opposed to just a simple let's go out and cut.

I think that's really our opportunity, and I think we have a robust technology platform. We have good industrial engineers and some opportunities to really institutionalize some of our process improvements through our Company. That's, quite frankly, I think, our -- we decided middle of last year before our margins deteriorated to what they are today that we needed to really optimize the network that we have, both from a building density out as well as our cost execution standpoint. At this point in time, I believe those are our best opportunities, and I'll tell you we have essentially 100% of our technology and engineering resources allocated to those engineered into some of those various cost initiatives in various stages. But a large portion of them will be rolled out, certainly, through the first half of the year.

Thanks for the time. Hang in there.

(OPERATOR INSTRUCTIONS). Edward Wolfe, Bear Stearns.

(technical difficulty) expenses and supply line. How much of that -- I can't imagine that fuel itself was up $17 million year over year, so it feels like there's something else in that line. Can you break out fuel from what else is there and talk about that going forward?

Other expenses that would have hit? I missed the first part of the question; I'm sorry.

Sorry, we only got part of your question there.

On the expense lines, the fuel operating expenses and supplies line, that's up it looks like $16 million, $17 million. I can't imagine all of that is fuel.

No. Bad debt would flow in there. The maintenance expense that we talked about would flow in there. The legal expense that -- and that employment matter, those would all fall in there as well. Does that help?

That helps, but what is the employment matter?

That's an issue that we had that we settled that was an employment-related matter that cost us about $800,000.

There's $800,000 in this quarter that won't be there again from that?

That's correct.

How much of the uptick year over year, give or take, is fuel expense? Is it about $10 million?

I don't have that. I can get that for you. We haven't really broken out that expense or fuel surcharge anymore because it becomes so much a part of our revenue that we don't identify it separately.

I understand. It's just, at 25.5% of revenue, this line -- I don't tone this down -- the numbers are going down very quickly. So I'm trying to understand, outside how much of this is fuel and hopefully, with timing, you make it back with surcharge, and how much of this is stuff that's going to take awhile to get out of here.

Let us get you some fuel information off-line. Again, what Jim had commented on, some of the things that added up to some numbers there -- there's about 0.5 points in bad debt and legal. There's the employment-related matter that was in there. And then there's about 0.7 points of maintenance expense increases that were in there, too. Again, a portion of that obviously correlates with miles.

And the legal -- how long do you expect that to continue?

We think that will more normalize as we go forward.

(inaudible) normalizes, or gradually, over the next several quarters?

I think it will, over the next couple of quarters, go down.

You talked, Jim, and wrote in the release about the new revolver. Can you talk a little bit about what those new credit terms are in terms of what the cost is to you above LIBOR right now, relative to the old one?

I think if we're looking forward, we would show a slight improvement in the interest rate going forward, maybe 0.25% going forward. Some of the covenants we had, which were more restrictive in the past, have been eased a little bit.

What were you paying at the end of '07, just to give some context on that 0.25%?

7.3, I think, around there.

So that comes down closer to 7, in other words?

Right.

And then what were the covenants? What are the main ones that we should be looking at?

I can get you that. I don't have those in front of me, but I will get you those. When we did our initial revolver several years ago, at the spin, we had a little bit more restrictive covenants. But I can talk to you about those. We can do that off-line.

I appreciate it. And then just finally, with the reduction of CapEx, should we assume that acquisitions are frozen at this point as well, or does the lower CapEx allow you to go make tuck-ins, if you see them?

This is Rick. Obviously, I think our focus is on improving the network that we have. We think there are so many opportunities there at this point in time, we are putting a hold on it. We would take a look at -- if there was one that you just couldn't refuse, we obviously would have to evaluate it. But I think until we make some progress in our margins and our cost initiatives, we're on the sidelines right now.

That makes sense. Thanks a lot for the time. I appreciate it.

(OPERATOR INSTRUCTIONS). Jason Seidl, Credit Suisse.

This is more for Jim. Jim, your stock in the quarter fell almost 20% from the end of 3Q to the end of 4Q. I know you guys have a mark-to-market component. What sort of an impact positively was that on your P&L?

We didn't comment on it because, fourth versus fourth, it was about the same effect. I think the actual number was about $700,000 favorable in the fourth quarter of this year, and a year ago it was $900,000 favorable.

So it was less favorable of an impact than you had in the prior year?

That's correct.

On the share repurchase program, where do you guys stand on that right now? I'm not expecting you guys to do a lot, but just curious what you have left.

We've exhausted the last share repurchase with the shares that we bought last summer. We haven't -- there's not a new share repurchase program approved at this point.

At this time, there are no further questions.

Thanks for your interest. I guess in closing, we're confident that our strong balance sheet, our expanded coverage and our increased market position and our margin improvement focus will allow us to weather some of the near-term economic challenges and certainly emerge as one of the strong players in a consolidating industry.

So, again, thank you for your interest.

This concludes today's conference call. You may now disconnect.