TFI International Inc (TFII) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the TransForce, Inc. conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Thursday, October 30, 2008.

I would now like to turn the conference over to John Lute. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. Thank you for joining us today to discuss the results for the third quarter and the first nine months of 2008 for TransForce, Inc. A news release detailing the results for the periods ended September 30, 2008 was issued by a Canada newswire earlier this morning.

Alain Bedard, the Chairman, President and CEO of TransForce, will discuss the highlights, and then Sal Vitale, the Chief Financial Officer, will review the Company's financials. Following their comments, we will open the lines for questions from analysts. Analysts and portfolio managers are welcome to ask questions over the phone and the Operator will be providing instructions.

Business media and shareholders are welcome to listen to this call, and media are free to use management's comments and responses to questions in any coverage. However, we would ask that they do not quote callers, unless that individual has granted their consent.

If any media want to ask follow-up questions, please contact me after this call. My number is 416-929-5883. It's also in the earnings release. Shareholder questions should be directed to Sal Vitale. A recording of this call will be available until midnight on November the 6th, and that recording can be accessed by using the dial-in and reservation numbers listed in the earnings release.

As always, before Alain begins, I need to read this statement. The following discussion will include a review of developments that affected TransForce's performance during the third quarter and nine months ended September 30, 2008, and may include forward-looking statements and estimates. Such comments will be affected by and involve known and unknown risks and uncertainties, which may cause the actual results of the Company to be materially different from those expressed or implied.

Now I'd like to turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of TransForce. Alain?

Well, thank you, John, and good morning to everyone joining us today. As usual, we're going to keep our remarks brief. Sal and I will move quickly through the highlights and financial results, and then we'll field your questions.

First off, let me provide some context for TransForce's results in the last quarter and year-to-date. As you all know, our economy is experiencing some challenges that haven't been seen in a generation; yet the business of TransForce continued to deliver strong results.

In the last little while, we've seen the subprime mortgage crisis in the US spill over into the financial markets. Credit disappeared overnight and interest rates were slashed. The exchange rate of the Canadian dollar has moved rapidly, along with the price of oil and natural gas. We all know what happened to share prices. Through it all, TransForce has stayed the course and produced solid results for our shareholders. Guided by our operating principles, TransForce is diversified in position to weather whatever comes next.

Of course, none of this would be possible without the continued efforts of our people, who I always say are among the best in the business. Of course, some of our businesses have had to adjust along with our entire industry. I can't tell you how long the current economy climate will persist, but I can tell you that this is a good Company with strong operation and people.

Let's take a moment to review what TransForce accomplished in the third quarter when the Company was able to deliver significant year-over-year increases across key financial performance indicators.

TransForce increased revenue by 22% to CAD595 million from CAD486 million in the third quarter of 2007. This increase was partially due to significant acquisition made over the past year that accounted for CAD45 million in additional revenue in 2008. While the overall increase in revenue is positive, it is only part of the story. We were also able to increase revenue across each of our four operating segments, while maintaining the abruptly contribution percentage from each segment year-over-year.

In the third quarter, TransForce LTL segment retained its position as the Company's largest, contributing 29% of total revenue or CAD171 million compared with CAD134 million in the third quarter of 2007. Part of the increase was the result of significant acquisition, including Thibodeau acquisition, that contributed CAD19.4 million of new revenue in the third quarter.

The package in quarter segment increased revenue to CAD76.6 million from CAD46.2 million in the third quarter of 2007. This represents 13% of overall revenue in the quarter. The Specialized Services segment is TransForce's second largest; third quarter revenue grew to CAD166.2 million from CAD133.7 million in 2007 and represents 28% of overall revenue.

Revenues in the Specialized Truckload segment also increased to CAD83.5 million from CAD80 million in the third quarter of 2007. This accounted for 14% of overall TransForce revenue in the quarter. Growth in this segment was a real accomplishment, considering how rapidly some of the industry's service by the segment have changed recently.

Finally, revenue in our Truckload segment increased to CAD98.2 million from CAD92.7 million and represented 16% of TransForce total revenue in the quarter.

With each of our operating segments making a positive contribution, TransForce is better positioned than many others to continue to generate value for our shareholders. Some businesses are now moving to review their strategies and contain costs in light of the tougher operating environment.

The reason why you won't hear anything special in that regard from TransForce is because we do this all the time -- it's our religion -- regardless of the operating environment. We are disciplined in our approach and detailed in execution regardless of what is happening in the industry, in business and in the economy.

At this point, I will ask Sal to give you an overview of the other quarterly and year-to-date results.

Thank you, Alain. In the third quarter of 2008, TransForce increased revenues by 23% to CAD595.5 million from CAD486.2 million last year. As Alain said, CAD45.6 million of this increase was due to significant acquisitions.

The Company also increased EBITDA, which is earnings before interest, taxes, depreciation and amortization, to CAD82.3 million from CAD65.1 million last year -- a 27% increase. Significant acquisitions accounted for CAD8.1 million of the increase with the balance coming from organic growth.

Earnings before income taxes is the best bottom line indicator for year-over-year comparison, given our corporate structure change in Q2. Q3's earnings before income taxes were CAD38.4 million, increasing from CAD29.2 million last year. The Company's earnings per share came in at CAD0.31 compared to CAD0.33 last year, despite the corporate tax change that happened in Q2 of this year.

As Alain said earlier, conditions through the first three quarters of 2008 have been challenging. Despite this, TransForce is on track to deliver solid annual results, and recently reconfirmed its 2008 year-end EBITDA guidance of CAD275 million to CAD280 million.

Through the first three quarters of 2008, TransForce increased revenues to CAD1.72 billion from CAD1.45 billion last year. The Company also increased EBITDA to CAD206.1 million from CAD181.9 million last year. Excluding non-recurring charges related to the conversion earlier this year, EBITDA totaled CAD214.8 million. Earnings before income taxes increased to CAD80.7 million from CAD78.6 million last year. Before non-recurring items, earnings before income taxes came in at CAD89.4 million. Earnings per share came in at CAD0.75 per share or CAD0.87 per share, excluding non-recurring items, compared to CAD0.88 last year.

I'll hand it back, Donny.

Okay, thank you, Sal. So these are trying times for investors. There are a lot of opinions and analysis out there. I have nothing to add regarding the broader outlook, but I do have some opinion on this Company. Let me tell you that what I know to be true.

TransForce continues to deliver solid results for shareholders. Our operations are adjusting to the evolving environment, but our diversified approach means that we are not dependent on any one industry or region. Shareholders can continue to trust in our disciplined approach to managing this business. It is difficult for us to predict with any accuracy what the economic environment will look like in 2009.

The economy is changing rapidly, but there may be some positive developments for TransForce. For example, a trend toward a lower Canadian dollar, okay, should be good news for this Company in 2009. Our focus is to create, as always, value for shareholders today and tomorrow. This is a good company with top talent working in our business.

I thank our employees and their continued effort, and our shareholders for their belief in TransForce. At this point, I'm going to turn the call over to the Operator, so that we can take your questions. Operator?

Thank you. (Operator Instructions). Aleem Israel, Cormark Securities.

Good morning and great quarter. Can you maybe start off by providing some more details on the trends in each segment? And maybe comment on where pricing and volume is going for each of your segments.

Are you talking about the Q3 or what's our feeling for (multiple speakers) --?

Well, yes, what we saw in Q3 and then where you've seen that go since the end of the quarter.

Okay. So, you know, one area that's always been troublesome for us in the last two years is our Truckload. And what I could say is that I think that we saw the bottom of the barrel in that Truckload. Our Specialized Truckload has increased a little bit in terms of our flatbed, so we see more of a pricing power. There's a few small players that have abandoned the industry.

Our Parcel is doing very good. We had some volume growth within Canpar year-over-year and ICS. Our LTL out West is still growing. In the East, our traffic with the US have been increasing from the Northbound, but the Southbound has been decreasing. So total transport business is up a bit.

On the domestic side, I mean, in the East, we see a lot of softening -- I would say since July. When I say a lot, a few points of softening in the Ontario market and the Quebec market, because of all of the industries are closing down and people being laid off. So it's a little bit softer in Ontario and in Quebec.

Our Specialized Services business, like Matrec, is doing fantastically good. As you notice, we just invested a lot of money into a landfill in Quebec. Our Brokers division, our Logistics division, are growing every month, single-digit growth. Our bottom line is always very good in that.

So basically, we are very happy with Q3 in terms of growing in general. But organically, there was small growth across the Company. But more important, we were able to preserve and improve our margin due to a fantastic job that our guys were able to do on the cost control side.

So, on the -- you said on the Specialized Truckload side, you're seeing some pricing power there?

Yes, yes. We see our dumptrucks, our flatbed -- I mean, there's less players; there's much less business, for sure, okay? But there's even more less of the trucking, the small four, five truck guys. You know that financial crisis is a major disaster for the trucking industry because now it's very difficult to have credit. So, on one hand, nobody really -- being small with a lot of debt is able to replace this equipment. So that means that in my mind, in the next 12 months, we'll probably see less and less of these small guys on the road.

So how much would you say pricing was up in the quarter on that the Specialized side?

I would say pricing was up by a few points, but more than that is our utilization that was better. Okay? Because there was -- I wouldn't say a shortage of trucks, but there was less availability. So we had better usage with a little bit of a better price.

Okay. So pricing up a few points and then sounds like volume was up --

Volume is up because, you know, I'll give you an example -- if the average miles per truck, okay, let's say the first six months was CAD1,850 a week, okay, we were able to bring that up closer to CAD2,000. The optimum would be CAD2,200, CAD2,300, okay, which we did in 2006. But it was pretty difficult to do that, let's say, in '07 and '08; so we'd improved our revenue per truck, okay, on Q3 versus whatever we've done -- and the pricing was a little bit better.

Okay. And on the van truckload side, are you seeing pricing power there too? Or has that stepped off?

No, no. The market is still very competitive, okay. But what we see is less and less of that stupid pricing, cutthroat mentality of small, medium and some large Ontario and Quebec-based trucker. We don't have that problem out West. Okay? Over there, people are doing very good. But in the East, we still see some stability but there's less and less trucks. So it's more stable. Volume is more stable. There you still a few, but not as bad as we saw, let's say, in Q1 and Q2 of this year.

And so where would volume be down year-on-year and where would pricing be if down year-on-year in that truckload segment?

For that sector? I would say what we'll see in Q4, okay, is probably the same as what we saw in Q3 -- no growth on pricing power; no growth and volume, until -- the only bright light is that let's say the dollar stays around -- the Canadian dollar stays at what, [CAD0.85, CAD0.90], Canadian. There may be some Canadian manufacturers that will be in a position to ship more to the US, the ones that are still alive. And that could help us but we'll see. Because don't forget that maybe the Americans are not buying as much as they used to buy.

Okay. And then on the LTL side, can you just go into a little bit more detail there? You said it has weakened in Eastern Canada. Where would pricing have been in the third quarter and where would volumes have gone on both Eastern and Western?

Yes, what we see is we are growing our business based in the East with our company like at [PAC Overland]. But what is what we see over and above that is that the shipment weight is less. The customer -- it's not that you lose the customer when he ships, he's got less shipments because he's got less activity. So we have been growing our customer base in Ontario with the [TSC] and with the Daily Select and those guys. But our business base is eroding a little bit now, I would say over the last three, four months, and even in October, based on the fact that the guys are shipping less weight per shipment and less shipment per stop. So that is what is affecting us now. And we anticipate that 2009 based on what we could feel in the market is not going to be better off in the East.

So the average shipment weight is down a bit and the number of shipments per stop -- let's say a guy used to have ten shipments a day, now he's down maybe to eight or to nine, or to six, whatever his business is.

And in the US, we're seeing some capacity reductions starting to happen on the LTL side. Are you seeing anything on the LTL side in Canada that you can talk about?

No, not yet. I mean the US is very different because you look at the results of all the good US companies, they were down a bit, but not much, in terms of volume and in terms of activity.

What we see in the US I mean there is a major player that is going through very tough times right now. So over there that is a very different market than I would say in Canada. But that being said, us, we have extra good partners in the US that are just waiting to see what is going to happen. And we're working very closely with them to see what kind of an opportunity that could represent.

Okay. So it sounds like in the east we could see pricing maybe weaken a little bit over the next couple of quarters, is that fair?

Could be. Could be. It is always tough to say. Because don't forget that there's not that many players that could do the job. So if those guys as smart, they should go that way. But don't forget, they get the pressure from the customer like we do. Bid the business -- bid the business. So the pressure is there.

But us, what we say, it is the same thing as what we had been saying in the truckload -- guys, don't let the devil eat into the pricing because it is very difficult to come back. So stay consistent, improve productivity, try to save money for the customer by being more efficient, not by lowering the rates. Find a better solution for your customer. But not just lower the rate acting stupidly.

So that is what we try to do with our customer. Is yes, fine, you want to save money? Let's sit down and let's see what we can do. What can we change to be more cost-effective? But not do the same thing like we used to do ten years ago and try to bring down the rates. Because now we are all going to lose.

Right. Okay. On the parcel side, can you just comment on how much EBITDA ICS would have contributed in the quarter? Do you have a sense of that?

EBITDA of ICS in the quarter would be about -- I don't have that information, Aleem, with me. But I can tell you on a yearly basis that the EBIT of an ICS will be something in the -- when we bought the Company, if you remember, trailing 12 was about -- if you adjusted for Mr. Jeff Davis' salary and things like that, was about in the neighborhood of CAD10 million to CAD12 million. What I can tell you is that this year, 2008, we will be closer to CAD14 million to CAD17 million range with ICS.

What I could tell you also is that we are still in the works of implementing the NL Computers at ICS, talking to the management there. We anticipate that all of that should be finished by the end of this year. It was a [2 point something million dollar] investment that we are doing on ICS to improve customer service and being more efficient.

We are in the midst of just closing down the head office at down to Toronto and moving a lot of our employees into [AMIR], close to London. Our customer service has move a move from Toronto to London, Ontario. And the rest of the head office employee are being moved to the Canpar office. So that is taking place right now. So that should help us let's say, in 2009 again.

How many dollars do you think that will help you buy in 2009?

Well, the head office in terms of -- we are stuck with the lease, so the effect is not going to be 100% in 2009. But if we could sublease that space -- I mean that is CAD1 million that's just hanging out there that if we can get rid of it, fine. If not, I think the lease expires something early in 2010 -- a major saving for us. And moving our employees into the London area again -- we have top-quality employees there; very proud, very satisfied with that move.

Okay. All right. That's all I have for now. I'll jump back in the queue.

Jason Granger, BMO Capital Markets.

Just a few questions here. Looking at the transactions in your waste management division that you announced last week, how much did you invest there? And could you give us a sense of what we should be looking for in terms of incremental revenue?

You see, Jason, this is a site that has a capacity of just around 7 million ton that we're purchasing. At the same time, we just finalized yesterday we bought more land which is neighboring that site. We don't have a certificate of authorization to use that land. But it will be available, let's say, for future needs.

As you may know, Montreal has got a major issue with garbage right now. One of our competitors have a 1.3 million ton landfill in that Montreal area that has got the certificate of authorization that has been issued for just a year, as an emergency because there's lots of complaints. This site has got a certificate of authorization that is being tapped right now. The 150,000 ton locally -- not by Quebec but by the regionality, the region of Granby. But the potential is to go to 250,000 tons.

So right now we are talking in that site, just for the site, because we have a roll-off operation in there, we have some commercial ICI operation that will be run out of there, but just on the landfill side, you're talking about a CAD7 million revenue with an EBIT contribution of around 40%.

Okay, good, that's helpful. And in terms of acquisitions that we should be expecting in the next few months, could you just give us an update on transactions in the pipeline expected for Q4?

Yes. We had a major company that we're looking at buying in Ontario. This is a very good LTL company. And we have postponed this investment for one reason. I mean, we were not -- we were feeling unsecured because there's a major customer there that could be at risk. So we said to the vendor, we will wait and see.

What we're trying is -- I was in western Canada last week -- we're still looking to grow our footprint in Alberta and NBC in our LTL business. We have very good density there but we have some potential targets that we're talking to. But they don't compare with the size of the one that we're looking at in Ontario. They're probably half the size. Still very good investment.

We're looking at a few -- company, we're buying a small trucking company in Ontario that is about CAD8 million, CAD9 million of revenue. Should close by the end of November. We are buying a small trucking company in Montreal area in one sector that is our specialized transportation.

So we have a few small deals here and there. But with the credit crisis and the fact that we don't know really what will be in 2009 -- just six months ago, we thought that '09 would be better than '08. But now we don't know. The energy sector out West, Suncor reducing their investment in 2009. So we are more conservative, let's say -- the payback is to be sure on the investment that we will be in making in the next six months, I would say.

Okay. And so Q4 of this year, say CAD30 million to CAD50 million in acquisitions -- is that sort of the ballpark we are looking at now?

Q4 of this year?

Yes, with the western acquisitions and the smaller acquisitions?

No, Jason, because what we are looking at, why I say will be a 2009 acquisition. So the year 2008, what you're looking at is small acquisition in Ontario and in Quebec but nothing major. So what we were saying about this CAD100 million of potential acquisition, a major one in there has been postponed.

Okay. And you were just talking a little bit about Suncor there, the oil patch, how has your oil field services business been doing and where do you see things lining up in that business over the next couple of quarters?

A very good question. I mean in Q3 of this year we have done way better than in Q3 of last year. Now an area where we are doing very good is our US operation. We have opened up this year the northern Dakota area for us. We are looking up at opening for 2009 another satellite operation in Utah, very close to Colorado.

So on the US side, we are very happy with the prospect of 2008, the end of 2008 and 2009. The dollar, as you know, at what? [$1.25 or $1.20], I don't know where this is going to end. But the dollar will be helping us on the US side.

On the Canadian side, it is more -- we are not very certain what is going to happen there. I mean I just finished reviewing our budget for 2009. And the energy sector, we have postponed that for another few weeks. We are meeting right now, our customer in Alberta to understand exactly what's their plan for 2009 so that we could review what will be our plan for 2009.

Now our business model has shifted a lot into the US so we are downsizing -- we have done better in Q3 of this year versus last year in Alberta -- fine. But our footprint is getting smaller compared to the general environment in the energy sector. So we are growing more in the US side than on the Canadian side.

Okay. And turning from the energy sector there to the fuel price retreat here in Q3 and your fuel surcharge mechanisms, we look at your Less Than Truckload fuel surcharge mechanisms versus your Truckload mechanisms, there is a difference in calculation there. One based on a percent of revenue, the other based on mileage.

In the US, the LTL and truckload carriers have spoken about the -- in the LTL space, the retreats in fuel prices has actually been a bit of a headwind given how they were recently factoring in pricing into fuel surcharges and what not, whereas in the truckload sector it was more of a tailwind. Could you speak to that on your LTL and truckload business in Canada?

Yes, you are right on that, Jason. You are right that truckload when fuel comes down, because the component of energy within truckload is way higher than versus LTL. And the lag will always help you -- I mean be against you so when prices come down with the truckload division, it is more like you said of a tailwind. It should help more the truckload than the LTL.

And it's true about what you're saying about the LTL is that if you have the density and if you put in place the proper mechanism to collect the fuel surcharge, it could be some kind of a small headwind if you are efficient and if you have lots of density. Because don't forget, this surcharge is the same or generally the formula is the same for everybody.

So the more density you have got per dollar of revenue, so the less fuel you are going to be using to provide the service. So less fuel you are using, so your costs is much -- I mean in revenue, percent of revenue will help you if you are collecting fuel surcharge full force. So take that to TransForce being that we have very high density across our service, being that we are efficient. So reducing fuel costs is a little bit of a headwind for us.

But don't forget that, Jason, we have customers like GM, like Ford, where these guys, we never collect 100%. So we gain somewhere, we lose somewhere.

Okay. So the net impact on your business, is it fair to say it was positive west of Retreat?

It is tough to say, because don't forget that now we are heading into winter. And the energy that we use in winter is always higher. So let's say energy prices are lower in the winter versus last year, we get less fuel surcharge but we burn way more fuel in the winter to provide the same service as we do in the summer. So our loss last year was a lot because it was high fuel price, even if we were collecting 100%, we were using more fuel than normal because it was winter.

So let's say that this winter, fuel is low -- yes, we won't be able to collect as much as we were, but we still spend a lot of fuel in the winter compared to what we do in the summer. So it is tough to say. It is not a full 100% proved recipe on that. So we have to see.

Yes, okay. And last question here. Just looking at your taxes for the quarter here -- so your effective tax rate I am showing 31% for overall taxes, but just looking at the cash taxes, I come up with a rate of 9% which seems somewhat low to me. How should we be looking at modeling out our tax rate in Q4 and into 2009?

Yes, I will let Sal answer that one because we've got deferred taxes in there, right? Would you say, Sal?

Yes. For the rest of the year, Jason, you can model it the way you see it in Q3. And I would tell you to do the same for '09.

Okay. And so for our 2009 for the full year effective tax rate is in the range of 30%, 31%?

Yes, that's fair.

Okay. And cash taxes about 10%?

Maybe a little higher than 10%. A little higher, between 10% and 15%.

Okay, excellent. Thanks, guys. That's it for me.

Walter Spracklin, RBC.

Just on the -- I was wondering -- just to make sure I have this right, for the acquisitions that you announced just last week, is it seven? I know you just increased your stake on one and bought Roland Thibault (multiple speakers) -- yes, is it CAD7 million? Is that the revenue total?

Yes, CAD7 million is just Thibault. What we are saying in that press release is we did two things. But Lafleche was done in prior months. Okay?

Okay. So that's fine on that. Just wondering in terms of your acquisition program actually, this is just more of a commentary. I think what I am hearing from you is you're being more diligent in, given the environment, in sort of kicking all the tires on all the acquisitions you're doing.

And I think even though we are asking always a lot of questions about your pipeline, I think it's a good thing what you are doing in walking away from an acquisition that might have a bit more risk to it of a customer departure. I think that is a good thing.

And in fact, when we see you paying down debt, I think in this environment, investors like to see debt come down and doing an acquisition really if it is a great opportunity. That's more (multiple speakers) --

Thank you, Walter. I agree with you. But it is always difficult, when it is such a good company. But this case it was better for us and everybody to step aside and wait.

Turning to your business model shifting more to the US, it sounds like you are growing that organically or sort of greenfield kind of approach. Have you thought about acquiring in the Dakota/Utah area to bulk up your business there? Or you just going to grow, like you said, opening up satellites offices and growing more organically?

Yes, well, we were having discussion. For instance, in Utah, we are having discussions with a family -- if it works, it works. If it doesn't work, we will be opening up a satellite. We see a lot of opportunity in those states close to Alberta and Saskatchewan like the Dakota/Wyoming. So we are talking to some small company at the same time as we are opening our own. So all the time. But again, you've got to make sure that the price is realistic and it makes sense.

Now the beauty is that there's lots of small companies there with I would say their CapEx budget for the last ten years was probably very, very limited. So lots of opportunity for us to grow, operating in a very safe environment. And cost -- management team at costs is really the management team that we're using to build into the US. And those guys are doing a fantastic job for us.

So yes, if there is a small company, let's say a CAD15 million, CAD20 million revenue -- for sure, we're looking at that right now. But at the same time, we see opportunity opening up satellite because we take some power off Canada and move that into the South.

So it's more of an optimization of your fleet on the (multiple speakers) energy, right.

Right.

Okay. Next question just on your capital expenditure, I saw that CapEx popped [at] CAD31 million. I know there was about CAD7.5 million on land and buildings in there. Sal, I don't know, or yourself -- if you could give us a little bit of a sense of -- is this just a seasonally strong quarter? Or should we expect to see a little bit higher CapEx than we did last year?

No, I think what happened, Walter, is we took advantage of pricing. If you remember the story of buy the truck now because the new engine -- all that stability -- we didn't budge. So we kept on buying in 2006 the normal rate of buying of what we do normally.

In 2007, the market was slowing down. And in 2008, nobody was buying any trucks no more. So the pricing power for a buyer was fantastic in terms of power, in terms of trailers. So that is what happened in 2008. And you will see our Q4 will be also heavy in CapEx, because with the dollar it was helping us -- the fact that nobody was buying. So we are really investing a lot of dollars into our LTL companies out West -- buyers for instance which these guys were leasing a lot of short-term equipment. So returning that and replacing that with our own.

So we are taking advantage of pricing and dollar. Now the dollar has changed lately, but 2008 will be a heavy CapEx year for us -- more than normal.

The pre-buy that happened, people just bought too much and then the economy hit them and now all that is coming into supply and dropping the price on trucks.

Yes, well, this was very good timing because people were paying too much money for the truck. And at the same time, the economy slowed down in our truckload. A little bit everywhere. So the guys got stuck with too many trucks. So nobody was buying, really. So, us, what we did, we didn't anticipate any buying when these guys were chanting this story. But what we did, though, this year, when nobody is buying is us, we're buying more at a way better price and we are taking advantage of what used to be a high value Canadian dollar, up to just a month ago.

So just to stay on this for a bit -- so if we keep a high level in the fourth quarter, we could run up to CAD100 million in CapEx?

Yes.

Going into '09, you're indicating to me that this CAD100 million is sort of a temporary spend that you are doing. How should we look at our 2009?

Well, you will see that 2009, the focus should be closer to CAD60 million to CAD65 million to CAD70 million.

Okay. That makes sense. And is that gross or net of proceeds?

It's always gross. It's always gross.

Okay and then we can make our estimate. Okay, perfect. So that's great color. Let me just see (multiple speakers) --

Now the other thing, Walter, that you will see with us that nobody's really see it yet, is we are switching our truckload division from leasing into buying our own with a residual value guaranteed by the manufacturer.

So you will start to see some of that in 2008 and even more in 2009. (multiple speakers) So as you look at our rentals, long-term rentals, you will see that coming down. Because in our truckload we are buying more trucks now than we are leasing.

We used to lease. Now we are buying these trucks with a guarantee from the supplier, the manufacturer, that this truck will be valued, let's say, at 30% after five years. Okay, fine, so -- if it's worth that, fine, if it's not, you take back the truck. So that is a little bit of a switch from let's say what we used to do in, let's say, 2003, 2004, 2005, 2006 because we see better pricing possibility and better financing doing that versus leasing now. And I'm sure you see what happened with the leasing, with GM, with Ford -- a lot of these guys are moving away from leasing. Right?

Yes. Absolutely. I hear you on that. Last question, though, is actually kind of related. Your owner/operator base, I know you have tended to go a little bit more on the company driver focus, but could you touch on a little bit the labor situation, of course before it was a shortage? Can you talk to us about the labor situation? And have you in this environment shifted your labor strategy toward more owner/operators? Or are you focused again more on company drivers overall?

Yes, it depends on the business, Walter. First of all, the LTL on parcel, it's a business that, if you look at the companies that are highly successful, like the guys in the US, like UPS for instance, it is mostly company drivers. So we are the same at Canpar and ICS. Although we have some owner/operators but let's say 85% of our workforce would be company drivers.

Now if you turn back to our specialized truckload division, like we have Westfreight in Calgary -- highly specialized. It is 100% owner/op. Now the market is very different out West versus these. The market is still tight in western Canada for employees or owner/operators. It's a different story.

The only change then in your strategy is a function of the relative activity level? You're still (multiple speakers) --

Activity level and depending on the business. So if I take my TST expedited business out of Windsor, it's owner/operator only. But if I look at my truckload business at Highland, I've got a mix. I've got a mix of 75% owner/op, 25% company drivers.

I guess where I am going with this is that in this environment, to me, it would sound like an owner/operator much like you were saying with the smaller trucker, would be little more stretched if they're let go or whatever, that they might be -- there might be some more opportunity to get owner/operators in this environment? Or am I wrong there? Is there still a tight market there?

No, you are not wrong, Walter. The only problem is that if the guys do stretch and he doesn't make money -- and a lot of them are not well paid and they just quit the business because they couldn't keep up with what was going on.

So the issue is always turnover. My philosophy, Walter, is I don't want turnover. So if you are trying to pay employees cheap, you're going to a lots of turnover. And this is a lot of hidden costs that you don't see, that costs you a fortune. The turnover costs you a fortune. So us at TransForce, what we try to do is being an employee or being an owner/operator, we want the guy to be paid fairly so we don't have turnover. So our turnover ratio is very low.

So on that -- and this will be the last question -- in this environment, obviously you're talking about the smaller players getting hurt, the high debt leverage, and this economic shakeout is really flushing out I would say to a certain degree so that -- my question is, based on what you've seen in the past and looking forward to how this period of weakness might be more difficult, will there be a different way in which people come back into the business?

In other words, will we see a large inflow of new entrants if the economy turns around? Or is there a reason why, in your view, we might see a little bit more, call it, sophistication, a little bit more strength and tightening and tight conditions in the industry going forward, even if we do see an economic recovery?

I think, Walter, that the next recovery that we are going to have -- we'll still have the same problem of having some guys coming in, but it is going to be much less of an issue as it was in the past.

First of all, because they're young guys, the 25, the 30-year-old guy, they don't want to join and they don't want to be a driver. Because right now, although, us at TransForce, we pay them fairly, I believe that it's still not enough money to attract more people in our business.

So let's say now we are going through a downturn or a slowdown -- for the last two, three years in Eastern Canada, it's been slow, fine. So we've got a lot of people retiring from the industry, not too many people moving in. It's not a problem because the demand is less. So the next time we have more demand from the shipper, it is going to be in my mind, a big problem. Because yes, maybe some new guys will try to join in; maybe the small guy will try to add more trucks. But it's not going to be as stupid as it was probably in 1992 or 1998.

So -- because you've got to pay those guys properly. And the old mentality of paying cheap and having the guy to work -- overwork the guy, it's finished in my mind.

Okay, that's, as always, very much appreciated color.

Nav Malik, Scotia Capital.

Just a couple of follow-up questions here. I was just wondering on the acquisitions -- I wonder if you have a plan right now for '09 in terms of how much you're going to spend? I mean I know it would depend on the opportunities and things, but do you have sort of a budget in place or a ballpark?

Yes. Well, like I said, Nav, as a corporation, if we do our plan of 2009, according to our plan, we will generate more than CAD100 million of free cash based on the CAD0.40 dividend, et cetera, et cetera. So that dollars will be applied either towards reducing the debt, depending on the environment, or if we see some very good, attractive potential high accretive acquisition.

So is that sort of range about CAD100 million is what you --?

About CAD100 million. Because with that environment in 2009, we can't think about increasing our debt too much for acquisition.

Okay. Yes, that was basically where I was going with that. Okay, next question then in terms of with the waste management business, are you looking to further expand that?

Absolutely.

What sort of --?

We are looking at some small tuck-in in the -- in Ontario, we have a super landfill now that we own 50/50 with a partner. But we don't have any collection in that area, so that could be a potential. Now that we have a landfill in Granby around Montreal, so there could be some potential small collection acquisition that we could do on the south shore of Montreal.

So yes, we're still on the lookout of what we could do to bring more in terms of profitability within Matrec. You see Matrec next year will do just a little over CAD150 million of revenue. So we still have lots to do to bring that probably to a CAD200 million, CAD250 million company within the next few years.

Okay. I guess what sort of multiples are you seeing, are you paying on the waste management side? I would imagine they're a bit higher than the trucking business.

It depends what they do. If you are buying a guy that has got municipal contract, it's not high value compared to a guy that has got four or five runs of ICI commercial in let's say Montreal. So the evaluation is always different. But we try to be fair with the guys that we are buying. And the payback has to be within the three, four-year range like it has always been.

Right, okay. But I guess I mean if your strategy really to be -- my understanding is that multiples in the waste management business might be sort of in the maybe the four to six range, maybe higher than that at certain times, but right now probably in that range. Are you paying those types of multiples and then looking to get synergies or (multiple speakers) or --?

No, Nav. We never buy a company based on synergies because this is a big unknown. No, us, we're so poor as a trucking company being traded at five times EBITDA -- forget it -- I am not going to buy somebody at six. It is impossible. No, I can't do that. Because don't forget, TransForce is valued as a poor trucker.

Okay, then just my last question here is so it looks like you're obviously on track here to take your EBITDA guidance for the year. I'm wondering if you can provide an outlook for '09 -- or EBITDA guidance for '09.

Not really, Nav, I mean, what we could say is that to us in Q4 this year, the people are working like slaves really to accomplish the target that -- our team is working very hard, so that is our goal, to finish the year -- okay like we said now, we are working on a 2009 budget. I was in western Canada last week, meeting our fantastic management team that we have there. Those guys are very aggressive. They see lots of potential. But 2009 is way too early to say anything about that. I mean it's unbelievable what we have seen over the last two months.

No, fair, no, I understand that it's an uncertain period, I'm just wondering if at this point in time, obviously subject to how things progress as we go forward, but I'm wondering if you have sort of a -- where you see yourself right now, with the information we have now, where you see yourself (multiple speakers) --

It's tough to say that; very, very difficult to say. I mean we don't know what is going to happen. The only thing I could say like I was saying in my script is that we have the full force of TransForce management team, which is a fantastic team, working like day and night trying to do better in 2009 versus what we will accomplish in 2008. That I could tell you that.

Now, whatever is going to happen, for sure those guys are operating at 150% capacity. Like my previous boss used to say, I mean in tough times we have to get up probably half an hour or an hour earlier every morning. And that is what is happening at TransForce.

Okay, that's great. Thanks very much.

Nema Billeau, The Bloom Investment Counsel.

Just wanted to look at the debt for a second. Looking at the maturity schedule. It was nice to see that you guys are paying down CAD30 million this quarter. Of the CAD447 million in debt in one to three years, how much of that is sort of the one-year timeframe?

On a one-year timeframe, you mean -- of that debt?

Yes.

Okay, well, if you look at that, on the next 12 months, we've got, if I remember correctly, about CAD66 million of debt to be reimbursed, right? So in there, you've got about CAD3 million a month, on average, CAD3 million to CAD4 million that is equipment that's debt, that is related to equipment, which we pay down every month. And there is a -- because in the next 12 months, there is also a mortgage situation where we have a mortgage on buildings -- I think it's two buildings if I remember correctly -- one in Edmonton -- it's four buildings -- one in Edmonton, one in Toronto and two in Montreal, if I remember correctly, that is due sometimes in the summer of 2009 with the CIT, if I remember correctly.

That's perfect. That's correct.

That's right, Sal? Okay. So that is something that has to be renewed next year.

Do you know how much that is? How much that is --?

In dollars? I would say it's about [30 some million].

In terms of any sort of large debt maturities over the next 12 to 24 months, are they related to buildings as well? I mean just to get a sense of refinancing and how well it's going or if you are already talking to bankers in light of the current credit environment?

No, we are not talking to them because you see our spread over the swap used to be 185 and now because our pricing grid, we're going to be moving down from 185 to 150. So they're not very happy with that. So we're going to save about CAD2 million, so. But the banking deal, if I remember correctly, Sal, it's due in 2010 -- is it October 2010?

Our next and largest commitment is part of the banking syndicate and it is in fact October 2010 for the four-year revolver.

And how much is that in dollars, Sal?

As at the end of September, it was about CAD400 million.

Got you. Okay. So really the next largest maturity is not for a ways off -- you guys are more than able to have enough time to let it --?

Oh, absolutely. Absolutely.

And on the question it's great to see the ICS acquisition working out better than expected. What drove the CAD14 million to CAD17 million? Was it just greater volumes? More efficiencies that you identified? What drove the improvement?

Well, first of all, I think like I said before, head office, so we scaled down the head office, so that was a major saving of approximately CAD1 million a year. Still another million to go when we get rid of that lease.

Investing in technology, which we are doing right now, has helped us. Better volume, better pricing power also. Identify opportunities. Cross-selling with Canpar. A little bit more volume. So it's a number of things. And we have a fantastic management team over there at ICS. I mean it's lean and mean and it is getting leaner -- just moving the call center from Toronto to [Elmer], Ontario, this is fantastic. Major saving for us in terms of rent, in terms of people, et cetera, et cetera. And high-quality people over there. So we are very happy with that.

And in 2009 -- see, we have some kind of a niche there with that business because we service financials, insurance, medical, dental, hearing aids -- so it is a very special niche that we're servicing. Plus those guys are doing a fantastic job in terms of density. So what we are trying to do all the time is, as soon as we deliver something, we try to pick up at the same time, which is pretty unusual. Because normally if you look at Fed Ex, they deliver but they never pick up.

If you look at us at Canpar, we deliver but we -- 95% of the time we don't pick up anything once we are delivering. But this is what these guys have been able to do. So high density, even better density than I have ever seen in my life.

Okay. No, it's great. It's worked out much better than expected.

Absolutely, yes.

A quick question -- what was the organic revenue growth, in dollars?

Organic in dollars, it was very small. If I remember correctly, it was CAD5 million, CAD10 million, CAD15 million in the quarter. It is more the EBITDA growth that is about CAD8 million if I remember -- hey, Sal?

Yes, that's right. CAD8 million roughly.

CAD8 million, okay. And final question -- I guess you -- as you'd mentioned, I mean this quarter you chose to pay down debt, which is great. I'm sure it will make the lenders even more comfortable. Over the next little while, are you just planning these sort of small tuck-ins where they make sense? Or you continue to pay down debt where prudent?

Yes, absolutely. We are doing the small tuck-in at the same time that we're paying down debt. So anything major for now, it's out of sight. So we did that landfill thing because it was a must for us. But besides that, we had a major deal in Ontario, it's been put on the side for now. We are looking at small things here and there, like I said, a small CAD8 million company in Ontario, a small CAD12 million in Quebec. We are looking at another CAD6 million in Edmonton right now, that should close. All three deals would close before the end of the year. But this is small.

So for 2009, definitely in Q1 nothing is going to happen there. Maybe in [Q2]; we have to see the color of the year first. As we normally do, CapEx will be low in Q1. Again, we have to see what's going to happen in 2009. Like I was saying to Walter, our CapEx will be in the neighborhood of CAD60 million to CAD70 million next year, which is normal. But it is not going to be done in [Q1], probably late in [Q2], and more towards the end of the year because we want to see again, the color of the year. And we'll know more, let's say, early in 2009.

Great. Thanks very much.

Kelvin Cheung, National Bank Financial.

Just had a couple of questions, most of my questions have been answered. I was wondering about parcel. Previously you talked about 5% growth as sort of more of the target. Just wondering, Alain, if that sort of view has changed in light of --?

Yes, very good question, Kelvin. For sure, what we are seeing -- not in ICS; ICS, like I was saying, it's a different animal. But within Canpar, looking at October, not September, not really last three months, but I am looking now at October and we see some volume that is less than what we anticipated. So we are not growing the business at Canpar right now at a 5% rate. So something happened. We're still looking and trying to understand what's going on there. But we don't see growth no more. So, a very good question.

So this is why -- and I haven't talked about that -- sometimes probably in 2009, we have identified two potential targets in that sector, that -- not in '08, but some times, it may be in the summer of 2009, would be a fantastic fit for Canpar to bring -- you know that. Because Canpar operates at about 60% capacity at Montreal and Toronto's hub. So we have to bring that thing up. So we need more volume.

And this will have to go through an acquisition of a CAD25 million to CAD30 million company. Hopefully, I'm looking at two, but hopefully one will materialize sometimes in the summer of 2009.

But organically, growth at Canpar right now -- I mean, something happened just lately. I don't know if it's people that are very quiet for Christmas or something is happening there.

Okay, great. Appreciate that detail. Also looking to your guidance, amazing how you could keep it maintained over the course of the year. Was wondering about, I guess, fuel -- perhaps now having come off its peak, how much that would perhaps helped EBITDA over Q3 and Q4?

Well, [Q3], not that much. I mean, [Q4], I think that was one of Jason's questions. I mean, definitely fuel coming down helps our truckload and our specialized truckloads because of the high component of energy in there versus LTL and parcel.

So it's again -- we'll have to see what is going to happen in Q4 because that what's affecting us when we get into Q4 and Q1 of next year is the temperature. Because it is cold, we burn more energy, we use more fuel than when it is the summer. So what will be that affect versus last year where price was high, very high, we were paying CAD1.25 a liter, compared to now we're down under CAD1.00.

So yes, we will lose probably a little bit of the edge on the fuel surcharge within the parcel and LTL company because we are so high density. But at the same time, being the fuel is so low, it is going to help us on the cost side. We're going to lose on the revenue side but it should help us on the cost side having very low fuel -- very low fuel price.

Okay, great. Just moving over to some of the real estate transactions. I guess things have changed very quickly and to a great extent. I guess it's safe to say that the real estate transactions are probably -- no update there?

A very good question. I mean, nobody asked us that. Yes, we are still working with an investor in Vancouver. As a matter of fact, we should be in a position to get some kind of an agreement subject to due dil. So we're just finalizing that, as we speak, this week. But again, we don't want to talk too much about that because the market is so, so unpredictable.

But we're talking to a very serious group. We would be signing the lease and the asset purchase agreement this week and subject to due dil from the investor -- financials of the deal of that property.

But we don't want to talk too much about that because things have changed so fast over the last two, three months that maybe the investor could pull out. He's got 45 days for his due dil.

Right, okay. Thank you. And then just lastly, could you give us a sense with the Canadian dollar moving the way it has, what type of lag effect do you typically sort of see with this foreign exchange -- shippers I guess would start -- or at least purchasing patterns may take a quarter or two to perhaps adjust to figuring out what they -- say sourcing more from Canada in terms of southbound traffic? Is that fair to say -- it takes a while to kind of (multiple speakers) --?

It takes awhile. It doesn't happen overnight. What happens overnight is whatever is being shipped is more secure today than a month ago because of that dollar. So that we could say. It's more secure, okay, fine.

Now are we going to ship more because the dollar is worth $0.80 or $0.85? Yes. But it's never going to be like it was in 2004, '05 or '06. And it will probably take at least three to six months before we start to see more action. And we don't know. I mean, is this thing with the dollars going to last? That's the other big question. Is this going to last? Do we see that dollar at $0.80 at the end of 2009 or at $0.95? That's another big question.

Right. Okay, great. I appreciate that. Thanks very much, Alain.

Aleem Israel, Cormark Securities.

The [Elton] plan was extinguished when you converted to a corporate -- should we be modeling anything for comp or incentive expenses for '09 because of your new plan?

Yes. Yes.

How much should we be modeling?

You could look at something between -- you know, it is pretty difficult to say, but between let's say a CAD3 million to CAD5 million.

And will any of that start accruing in Q4? Like will there be any --?

No. No, nothing in 2008; would be only for 2009 and after and beyond.

Okay, great. Thanks.

(Operator Instructions). Michael Simpson, Century Select.

Could you comment on any fuel shortages in Western Canada that are impacting any of your divisions?

Yes, a very good question, Mike. Yes, it has been affecting us to a certain degree, more on the off-road operation that we've got north of Edmonton. So to give you a dollar amount of the [cutting], the increased costs, I wouldn't say it's very significant, but it's more like time for our people, losing time, et cetera, et cetera.

And I was there last week and meeting with our guys at Cost. And they were saying that this should recede, talking about this week. But I haven't talked to them this week to see if it's really now back to normal. But this is what the guys were saying; it was on the way out. It was --

Sorry -- it's not impacting any of your operations in the cities? The LTL business?

Not, not at all. No, no.

Okay, thank you, Alain.

We have no further questions at this time.

Well, thank you, Operator. And since there are no more questions, I want to thank everyone for participating in this conference call. And for any of you who joined while the call was in progress, a recording will be available until midnight November 6, 2008. And you can access that by calling 1-800-558-5253 or here in Toronto, 416-626-4100 and entering pass code 21397316. Thank you all. Bye bye.

Thank you.

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