TFI International Inc (TFII) 2008 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by. And welcome to the TransForce Inc. fourth quarter 2008 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 March 12th, 2009. 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 to discuss the results for the fourth quarter and 12 months of 2008 for Transforce Inc. . A news release detailing the results for those periods ended December 31 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 financial results in more detail. 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. We ask that you please only ask one question at a time followed by one follow up question, if necessary and then go back to the queue with subsequent questions. This will allow for all participants to get questions answered in a timely manner. Business, media, and shareholders are welcome to listen to this call and media are free to use managements comments in responses to questions in any coverage. However, we would ask they do not call quote callers unless that individual has granted their consent. If any media want to ask follow up questions contact me after this call. My number is 416-929-5883. It is also in the earnings release. Shareholder questions should be directed to Sal Vitale. A recording of this call will be available until 11:00 a.m. on March 19th. And that recording can be accessed by using the dial in listed in the earnings release.

Now, before Alain begins I need to read this statement. The following discussion will include a review of the developments that affected TransForce's performance during the fourth quarter and the 12 months ended December 31st, 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 than those expressed or implied.

Now I will 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. To start off Sal and I will move quickly through the highlights and financial results. I will also spend some time discussing the current economic climate and how that affects our business. Following our remarks we will field your question and wrap up.

The obvious place to start is with the declining economy. There may be a rebate how long the difficult operating environment will last and what governments should do. But it is clear to everybody that we are currently moving through an economic downturn of historic proportions. TransForce conservative management of its business will have the Company emerge from the downturn stronger. Our business is diversified by service, industry, geography and clients. The breadth has served us well in the past as a edge against negative industry specific or regional business cycles. The result of TransForce has been an extended track record of steady growth both through acquisition and organic.

As you have seen in the financial markets when a correction is system wide there is no short-term solution. These are tough times and expect them to persist for a while. If there is a silver lining it is that TransForce has always taken a disciplined approach to managing its business. While we were able to produce solid results in the fourth quarter, and the year, okay we are well aware of what was happening around us as we headed into 2009. We took the appropriate steps to prepare. Following our review of the fourth quarter and annual results I will go in to more details on some of the initiatives we implemented in the past few months. Despite the challenging economic environment TransForce delivered year-over-year increases across key financial performance indicator in the fourth quarter 2008.

For the first -- for the three months ended December 31st, 2008 the Company increased revenue by 10%, to CAD544 million, from CAD493 million, in the same period of 2008. This increase was partially due to the inclusion of results from significant acquisitions including ICS Courier courier [Thibodeau]. The revenue increases were spread across three of our four operating segments. In the fourth quarter TransForce LTL contributed 28% of total revenue or CAD153.8 million compared to CAD128.6 million the same period of 2007. Like I said before, part of the increase was due to significant acquisition which contributed CAD16.6 million in new revenues. Revenues from the package and courier segment also increased in the quarter to CAD74.5 million from CAD65.8 million in the fourth quarter of 2007.

ICS acquisition contributed CAD9.2 million in new revenues for the full year contribution. Package and courier were 14%, of overall TransForce revenue in the quarter. TransForce increased revenue in its specialized services division to CAD138.8 million from CAD110.7 million in the fourth quarter of 2007. Small acquisition as well as organic growth account for the increase in specialized services which is 25% of TransForce overall revenues in the quarter. TransForce's truckload segment is now our largest by revenue, okay because it includes our specialized and regular truckload operation. So quarterly revenue were CAD177.4 million compared to CAD188 million in the fourth quarter of 2007. Which is 32% of overall TransForce's overall revenue.

At this point I will ask Sal to give you an overview of the other quarterly and 2008 annual results.

Thank you, Alain and good morning. In the fourth quarter ended December 31, 2008, TransForce increased revenues 10% to %544 million from CAD493 million last year. The Company also increased EBITDA, which is earnings before interest, taxes, depreciation amortization. We treat it as equivalent to operating income on our financial statements and we increased it 21% to CAD73.8 million from CAD61.1 million last year. Significant acquisitions contributed CAD2.8 million in the quarter. The remaining increases were the result of efficiency gains and cost containment efforts.

Fourth quarter earnings before taxes were CAD18.5 million compared with a loss of CAD30.2 million in the fourth quarter 2007. As a result of TransForce good will impairment charge of CAD56 million. Excluding the loss on interest rate swaps of CAD11.7 million in Q4 2008, earnings before taxes were CAD30.2 million, compared to CAD25.8 million last year, again if you exclude the good will impairment charge. Earnings per share came in at CAD0.17, compared with a loss of CAD0.36 last year. Adjusting for the loss on interest rate swaps and goodwill impairment charge earnings per share came in at CAD0.26 compared with CAD0.29 last year.

As Alain said earlier, economic conditions have deteriorated to unprecedented levels. While our business will certainly feel the affects of the fiscal economic conditions going forward, in 2008 TransForce was able to increase top line and bottom line results. Looking at the year 2008 TransForce increased revenues to a record CAD2.3 billion from CAD1.9 billion. Significant acquisitions accounted for CAD160 million of additional revenues. Company also increased EBITDA by 15% to CAD280 million, from CAD243 million. TransForce increased adjusted EBITDA 19% to CAD288.7 million before one time conversion costs booked in Q2 of CAD8.7 million.

Annual earnings before income taxes increased to CAD99.2 million from CAD48.4 million last year. Adjusted earnings before taxes, excluding the loss on interest rate swaps of CAD13.8 million increased to CAD121.7 million from CAD104.4 million, in 2007 if you exclude the goodwill impairment charge. TransForce also increased earnings per share to CAD0.92 per share. This year versus CAD0.52 last year. Adjusting for the loss on interest rate swaps, and the goodwill impairment charge earnings per share came in at a CAD1.14 in 2008 compared with CAD1.17 last year.

I will hand things back to Alain.

Well, thank you Sal. So it's difficult to overstate how dramatically many of the industry we service have declined . We know it's a challenging time for investors, our employees and our clients. I wont speculate on how long indeed this environment will persist. What I would like to do is review some of the steps we have taken to protect TransForce and position it to ride out the storm.

Controls on Cap Ex, okay have been implemented across the organization. We implemented a hiring and salary freeze across the entire organization. Some of the specific discretionary expenses that we have targeted to reduce includes travel, marketing, advertising, consulting and certain telecommunications expenses. We remain confident about TransForce long-term prospect, but the short-term picture is less clear. We remain focused on controlling costs and positioning TransForce to continue to meet obligations to our employees, customers and shareholders for years to come. Our strategy has not changed we must deal with the immediate challenges and we are.

At this point I'm going to turn the call over to the operator so that we can take your questions. So, operator?

(Operator Instructions) Our first question comes from the line of Walter Spracklin with RBC Capitals. Please proceed with your question.

Thanks very much. Good morning, guys.

Good morning Walter.

Just on the -- I guess the first question if you were to look at and you touched at the very end, Alain is Cap Ex and if we are looking into 2009 understanding that you have not as much control over the top line even on variable based on where your revenues are going to come in, but where you do have a bit more control is like you said on capital expenditures. And on your SG&A. Can you give us a bit of guidance maybe just compared to last year? You've done great cost cutting here and give us sort of sense of where you see your SG&A and Cap Ex coming in in 2009.

Yes. Sure. Very good question, Walter. On the Cap Ex side, remember what I told you I would say probably a year ago is we took really advantage in 2008 of the wave of discounting by truck manufacturers. Because they sold so many trucks in 2006. If you read the statistic, they sold 260,000 trucks in 2006 in the US, and only 100,000 in 2008. So they had to discount their price, so we took advantage of this in 2008, this is where the Cap Ex is heavy in 2008. Plus the other thing we took advantage in '08 is the fact that the Canadian dollar was close to par or above par, okay with the US dollar. And as you know all the trucks are bought in US dollars. So we really took advantage of -- TransForce in 2008.

So this is why for 2009 what we have done is we had originally intended to spend to invest in our real estate about CAD8 million to CAD10 million, so all these projects for expansion, so all this CAD8 million to CAD10 million has been shelved until we see clearer, okay, what is going to happen let's say by the end of 2009. For instance, we are spending CAD2 million in Toronto expanding our TST over land terminal. So that's put on ice until the fall, until we see exactly what is going to happen there. So that is number one.

On the equipment side, I mean already, okay we had lots of new equipment coming in. And in Q1of this year '09, all the equipment coming in, okay our equipment that were booked at the old prices in late 2008. So this is why we will have Cap Ex in 2009, okay, which is an overflow of orders that was taken in 2008, late. So we are buying those equipment at a very aggressive and advantageous price for TransForce. So all in all our new forecast for the year is -- will probably be closer to CAD50 million, okay, if our plan, okay, is what is going to happen. So our plan for 2009 on the Cap Ex side is really just shy of CAD50 million.

Is that CAD50 million maintenance and growth, on a net basis?

Yes. On a net basis.

Net basis and it's include all of your Cap Ex, maintenance and growth.

All of our Cap Ex, yes, sir.

Okay, so that's down from 103 I'm looking at here for 2008 is that the right number?

Absolutely.

Okay.

Yes. Okay? Like I said before 2008 was a heavy year, okay, because on the equipment side, plus on the real estate side, okay?

Right.

So that being said, on the SG&A, okay, we are really okay, like all the time, this is a ongoing process at TransForce as a group of companies. This is not something new because we have a storm, we are use to storm being in the trucking industry. So like I said for many years, okay, really the trucking industry started to drive some difficulties in 2007. The last very good year we had was 2006. Now this year 2009, okay, we think it's going to probably be even more challenging, so what we've done late in 2008 is again put more pressure okay, to see what can be done and faster. Okay?

So this is a ongoing process that we put more emphasis. So for instance, Alain's focus, myself, has being over last five years to grow the Company mostly through acquisition, and make sure that my team that manages all the Company were doing according to the plan. Now my focus as you seen in the press release and what we are talking, acquisition for 2009 will be very, very limited. So my focus now, this year is really to work even closer because I'm nearly out of a job on the acquisition side. So now I'm going to spend more time working with my guys, okay, really to make sure that every dime, every penny, every opportunity though, let's say we invest a million and we can save two million.

It's not, we're not we will definitely look at that, okay, every project that's got a pay back of less than a year, no question that we are going to lock at that for sure. To tell you a number, Walter, it's difficult. But what I could tell you is our plan, okay, even in a very difficult environment, we would like to be as good this year as we were last year.

Okay.

Okay?

Got it. Now on the -- on your investment and acquisition I've got two question just around that. First is you announced NCIB, I thought your focus would be more on debt repayment rather than buying back stock.

You're right. Our main focus is really debt. But when we see an opportunity like your stock being under CAD3, or our stock being under CAD4, we think, okay, and we've made all kinds of calculation based on what we see, what we are going to do, okay, that is more advantages for us. We are not going, we are buying back maximum of CAD5 million, so we're not going to spend CAD50 million on that, okay? So we see that long-term, okay is going to be very advantageous, okay for the remaining shareholders.

Got it. Okay, that makes sense. And then you had CAD40 million in acquisitions on your cash flow statement in the quarter. What was that?

It's the Thibodeau Land sale. Remember we bought Thibodeau sometime in October I think, okay. So that's the major acquisition that we've done in that Q4.

Okay. So that's for a prior acquisition. Okay. Got it. And then last question just on your overall what you are seeing Alain in terms of your competition. We are hearing a lot of bankruptcies, capacity -- the shippers I'm talking to or actually worried about trucking capacity. You're not seeing the excess capacity now, because the volumes are down. But are you seeing a big drop in the number of competitor and the competition for new business? How is that shaping up? Maybe talk to us about how that is going to translate if we see a turn around in the economy how you are positioned to take advantage of that competitive dynamic?

If you listened to what Mr. Buffet said the other day, he said the economy is like it fell off a cliff, and I see inflation when it comes back. Definitely, there is less trucks on on the road today than six months ago and two years ago. It's going to be when the machine -- when the shipper starts to ship again, there is less stupid trucker today than four years ago and two years ago. So inflation on the rates and on a lot of things will come back, no doubt about that, okay? We touched the bottom of the barrel, maybe not but I think that we are very close to it.

Because with tight credit, with the US dollar being expensive so its more expensive today to buy a truck than six months ago, right, with tight credit, I mean the GE and all these guys the banks, they are not too keen on lending money to a trucker today. The petroleum company that have reduced their payment to seven days, so this is a big issue when you have a customer that pays you at 60 days, so you need a lot of cash flow to support that. So you see less truckers. So the minute this industry restarts, you will see guys like my good competition like Contrans and Mullen and all these guys are not stupid truckers. Those guys you think they will add more trucks, I think that they will add more money to the rates. If they are not stupid and they are not.

Got it.

So for sure, you have to get ready, okay, because yes, '09 is going be tough. But TransForce is solid like a rock. We will go through the storm, again, but when the wind starts to pick up again, this is going be a different game.

Okay. That's great color, appreciate that, Alain. That's all my questions.

Pleasure.

Our next question comes from the line of Aleem Israel with Cormack Securities. Please proceed with your questions.

Hi, good morning.

Hi, good morning, Aleem.

I just wanted to touch on LTL first can you give us a sense of where volumes and pricing was trending in the fourth quarter and where you seen it trend in January and February thus far?

Yes. The fourth quarter, Aleem was the same as the year 2008. For us. In the LTL. Okay. West was okay. And the East was still no growth but about stable.

Now, the difference is really the start of the year, 2009 is like everything come to a stop. I would say January has been slow for us and not just in the East, I mean East and West. Now February is a different story, it's like we were stuck in the month of January like in ice. Nothing moved. Now we are starting to pick up again in February of this year. Now don't forget that we have fantastic companies like TST; it's a sale and marketing machine. Even in the very difficult environment these guys are get more business, okay, For instance like a Lowe's opening up more stores in Canada. And with all the stimulus package on renovation of current houses I'm sure that these guys will do good.

We have CF out West that for sure it's the first time that we see a drop in volume out West, we've never saw that before. Okay, now what's the situation there, it's the winter. It's the first quarter, it's always been bad. If you look back 2008, we started the year slow and we finished the year strong. I think the same thing will probably happen in 2009. So to answer your question out West we drop in volume. Okay. To a level that we -- excuse me, a level that we've never seen before. Okay. Drop of 5%, 6%. Which is a lot.

Now, again, CF is a fantastic company, they have good management there. We're solid, so those guys took them a few weeks probably to come back from holiday and to say, hey, is it possible, yes my friend it's possible. So let's adjust ourself number one and let's see what we can do to get more business. These guys are working day and night to correct the situation that we saw really in January.

On the parcel side, well did you ask me on the parcel side, no, but I will tell you. On the parcel side, ICS is growing again, this is a diamond for us. On the [camper] side a different situation, our volumes start to drop in November, because we are big in retail there, so November was okay, not great but okay, should be great but it was just okay. December was not good, January was bad, and now February we are back on track.

Okay. I have been talking with a couple of national private players on the LTL side, I am hearing volumes in January and February were down in anywhere between five and 15% depending on the region, is that -- similar to what you are seeing in your business?

Oh, yes. 15 is a lot. But 5%, no doubt about that, we have 5% drop, five to seven to eight in January. Not in February, in January.

Okay. The comment from industry has been we haven't really seen much too much pricing pressure on ltl yet, but it seems like we are starting to see pricing pressure is that a fair comment?

Depends. I mean it's been two or three years Aleem that everybody is trying to bid their business because they think they will save money by doing that. Okay, so this is not something new, okay. So yes it's a fact, but it's not something new. Is it worse now, not yet. Could it get worse, I don't know. But I could tell you is that what we are doing us, for instance, we bought Thibodeau about a year ago, if I remember about eight, nine months to a year ago. So as of Monday of this week, we shut down completely the Thibodeau operation in Ontario. And now Kingsway services the Ontario for Thibodeau.

Okay, so what have we done? So we've cut an operation that was a small operation 23 trucks in Ontario for Thibodeau. We took the volume and put that in to Kingsway. So this is a double not jeopardy but it's a win/win situation. So more cost saving for Thibodeau and big benefit for Kingsway. Now, we announced our employees in [Valdore], Quebec that Kingsway is shutting down and Thibodeau is going to take over the volume. So us, because we are so big, okay because we have so much density and because we have so many business unit, okay we are able to make those changes.

We are not going to do like a Yellow/Roadway, trying to merge Yellow and Roadway, this to us is not the way to do it. But in some very specific region, this is what we are trying to do to get more density because when the market slows down, like you said 5%, 6%, 8%, I mean you need more volume in the pipeline. But if the shipments are not there, what are you going to do? And this is us, what we are able to do to really cut the loss.

Okay, and on the truckload side, I think in the second and third quarter seemed like that part of the business was stabilizing a little and Q4 now looks like that's going to come off the table again, can you comment on volume and pricing there?

Which one?

On truckload.

Truckload. No. Truckload, truckload we are doing fine. In Q4 are you talking about?

Yes.

Q4, no, we have done very good in Q4 with our truckload division. And Q1 of this year, yes January was slow, but February we are back on track. I mean the big issue is mostly, Aleem in Ontario. Okay, because of the automotive business there is dead and is dying. So I mean in terms of revenue fine but in terms of profitability, we are there.

Okay. So when I look at the revenue number, down say CAD10 million or CAD11 million year on year, you are still seeing improvement in the actual percentage margin in the business?

No. Our margins are stable, okay. Because what we are doing us is we are not stupid truckers that we will run the truck for nothing. Okay. So what we are doing is we are just staying to the customer find somebody else, okay, because us we are taking the truck, the truck, okay up the road. That's it, good-bye. So yes if you take for example [Bestner] which is a fantastic company for us in our truckload division, I mean the guy makes more money in 2008 than 2007, but he has 30 trucks less. So 30 trucks at CAD200,000 is CAD6 million, so his revenue probably dropped six but profit is up 15. See?

So that is what we are trying to do. Now some carriers, okay, private fleet, don't seem to understand that yet. I think that they are probably waiting for the business to come back to adjust their fleet. That's their approach, maybe. But us, is no, no, no, no, we are not keeping any trucks if the guy is not paying.

Okay. And then last question and I will jump back in the queue. Just on the specialized services segment request can you give us a sense of revenue in EBITDA for roll in Thibodeau and what you are thinking there for 09?

Well, Thibodeau, when we bought Thibodeau, okay the guy has a permit of 150,000 ton per year. And Thibodeau will be in the very near future like another Lafleche. Lafleche does 300,000-ton a year, okay, right now, permit. It's about the same size. I mean it's a sell that's got about 6.5 million-ton total. Okay, Thibodeau. And in terms of gate price average revenue per ton, okay it's about the same as what we have in Ontario, although Moose Creek we are way below market. Moose Creek our average revenue per ton is probably something around CAD55, which is about CAD15 to CAD20 below where it should be, okay. But slowly getting closer because as you know six, eight months ago we only 37%. Now we own 50% of Lafleche. So [Mark Fox] is more active trying to get our price closer to the market.

Now at Thibodeau, we have the same situation, it's a family company, that we bought. Those guys were about the same CAD50 a ton, which is -- could be better. So we are working on both sides of the equation on the revenue side, on the price side per ton on one aspect. And like I said before we are trying to increase the volume that we are allowed, we have over six million-ton, we have land excess land and we bought at the same time that we did the deal to double the size of Thibodeau if need be,. We have the same situation at Lafleche, okay? We could double the size at Lafleche if need be.

So that's the plan slowly. Now I'm sure you're aware we have one, okay big player in Quebec that under an emergency decree here for 12 moths. This guys had got 1.3 million-ton out of which 400,000 comes from us. So you understand that there may be something happening there. So lot of things will happen in the next year or two, okay, in that sector, Aleem.

Okay. And Thibodeau you said is currently running at 150,000 tons.

Yes, it is 150,000 tons, okay that's our plan for the year '09.

Okay. Would the run rate be at that level right now or is it below?

No, no it's at that level now.

It is there now.

Yes.

Okay. Can you remind us if there was collection assets with that acquisition as well or was it just the land?

Small, small. Out of the price we paid there is about CAD2 million that was for rolloff division, which is small. Those guys are based in Granby, so they were servicing Granby, [Bolmo] small towns in and around Granby. So this is -- I don't remember the revenue probably a million dollars in revenue. That rolloff. But nothing domestic on the collection side.

Okay. Alright. That's all for now, thanks.

Okay. Thank you, Aleem.

Our next question comes from the line of Jason Granger with BMO Capital Markets. Please proceed with your question.

Thanks very much. Good morning, Alain, good morning Sal.

Good morning.

Good morning.

Just question here turning back to the pricing front briefly. A theme that seemed to emerge Q4 results that the US -- a number of the US companies were talking about something that emerged there was that of unprecedented amount of shippers putting their business out for bid as they were looking to capitalize on the weak market. Can you speak to whether or not you guys are seeing much in the way of that? And in relation to that, could you also remind us how your contracts in your less than truckload business rolled over throughout the year?

Yes. First of all Jason, contract in trucking, I mean this is like -- it's not worth the paper it's on. Okay?

Yes.

Because if the customer has got the opportunity to get a better price, he is going to forget about the contract. Now if the price goes up, he is going to put you to bed with the contract. So he is going to hold you to your contract because -- so that has been the trucking industry in Canada. In US, I don't know. I'm reading same thing as what you read. Okay, but is there some excuse. Is that the reality? I don't know I'm not in the US.

But what I could tell you is in Canada, for sure, a lot of -- because the shipper, because if the phone rings all the time, with truckers that are calling in, and want volume, those guys they say hi, wow. So the truckers are hungry. So let's put your business up for bid. Now, you put your business up for bid, for instance, take Wal-Mart which they did. But Wal-Mart wants the price and wants the quality. So I mean for instance there is a carrier in and Quebec that went belly up. The minute the guy went belly up, they kicked the guy out. Because they want quality and quantity. So, it's -- you've got to be careful because, yes, sometimes the trucker says I will give you a 15% discount on your actual carrier. But the guys got to do the job, okay, in a very difficult environment like we are living the shipper is he going the take a risk or is he going to switch to a carrier that's not going to provide the right service? No. So he may take chance and if the other carrier is good then he is going to save money.

But in Canada like I said to Aleem before, okay, we see a lot of bid, okay, we see some pressure on the rates, yes. Now, is this worse now than it was for last two years? Probably not because we have been going through that since 2007 like I said before. It was even more difficult in our truckload because of our Canadian dollar that appreciated so much, the plant closing in Canada et cetera, et cetera. LTL was not as bad but we went through the same kind of problems, okay situation in 2007, 2008. Now because of that slowdown, okay, it's a fact, but don't forget that for LTL you need the network. There is not that many clowns like you have in the truckload that could do the job. Because you need the network; you need a partner in the US. So it's not that easy.

And what we are trying to say is that price is good, it's fine, but you got to make sure okay, that the guy provides the right service. So sometimes the guy comes back to you, okay after two months we see that. Now our job, us we can really fight the market, we have to adjust ourselves. This is what we are doing. But what we can do, us, is work 28 hours out of a day, that's an expression, okay to really adjust ourself in terms of cost, what can we do, where can we save, how can we be more efficient.

I will give you an example, we have a customer -- big customer, okay that we are servicing now. It's a CAD8 million account for us, in one of your LTL division, but we took the advantage of sitting down with them and say guys you know what if we do this, if we do that, okay you guys will save money. We didn't wait for them the try to go on the market and try to get a bid. We said we will change the way we do things so it's going to be less costlier for us, and you guys will save money and your service is going to be as good. So we don't wait, we are proactive.

Okay.

But at the end of the day, okay, Jason, we have us to adjust ourselves to market price. No doubt about that. But what we can do is really cut the cost out of the system as much as possible and try to be even more efficient as we were the day before.

Okay. So if we look at base price in less than truckloads, today versus 12 months ago could you give us a sense of the percentage difference?

There is not much Jason, not much yet. Now all that world in the US, is it true over there, I don't know, I can tell you for us yes a little bit here and there. But on average, okay, like in your truckload our revenue base, okay or our rates, if you want to call it that, have not changed. But we walked away from business though, because we can live with cheap rates, because we won't make any money.

Yes. Okay. So I mean in terms of your market share have you guys been seeing a pronounced up tick in new customers, new accounts?

No.

Even in spite of this difficult environment. No? Okay.

No. The only areas where we are gaining, okay is for instance, in our TST, like I said Lowe's is opening up. Another customer that wants better service okay, calls us but just we are always knocking on doors don't get me wrong, but just to get more business at cheap rates we are not going to do that. Because we are not the trucker that likes to have trucks. We are truckers that like to make money. So I'm not going to invest in the truck in the trailer to make zero because I'm a slave, okay?

Okay. No, very good. Just turning over here to some of your cost cutting measures, could you give us a sense or even a range in dollar values that we could see in terms of potential cost savings in 2009?

Listen, Jason, we -- it's very difficult to say yet, okay? But our range, I would say easy, probably, CAD5 million to CAD15 million to CAD20 million. Don't forget that the executive at TransForce, okay, the salaries of the executive at TransForce have been frozen since 2007. So there was no increase on salary in 2007, 2008, and now 2009. Now what we are doing in 2009 is not just the executive, but everybody in 2009 on the salary increase.

Yes. Okay.

Okay? So we didn't start last week on the executive side, the high paid guys, we started in 2007.

Okay.

Because I said that since 2006, 2006 was really the last good year that we have.

Yes.

In '07 and '08, to me, were good because of the environment. But TransForce could do better than that, way better than that in a normal environment.

Okay, okay. Just turning over to your debt covenance. Appreciated the color in your press release there. You talked about the two key covenants, trailing 12 month basis is that on a pro forma basis to reflect the impact of acquisitions?

Yes, yes, yes, yes.

Okay. And rents for 2008, could you give us a number there for what the expense was?

The expenses in 2008 was CAD67 million. But going down. Okay, going down. Okay and why is it going down? Very simple, it's because of now with the truck manufacturer -- the trucks that we were leasing were mostly the truckload trucks. And if you look at our numbers our revenue is going down because we need less trucks. Okay. Today than a year ago. So, that's why it's going down for one.

And in 2008 we started buying these trucks okay because now we are getting from the truck manufacturer because they were in a bind to sell trucks, residual, not confirmation but how would you say that, Sal? They confirm the truck is going to be worth after four years x. So, residual value has been confirm by the truck manufacturer. Do you understand what I'm saying?

Yes. Okay

Because in the past when we were leasing after four years, we just give the key back to the lessor and forget it. So we were not stuck with value. Now I'm not stuck with value because I got the confirmation by the truck manufacturer that it's worth at least x.

Yes. Okay. No, that's good. So for 2009, would we see that number go to, I don't know, CAD60 million or can you give us a sense or where that should go?

Yes. It is going to drop probably under CAD60 million.

Under CAD60 million. Okay. Okay and last question here foreign exchange in Q3 there, your MD&A was making reference to your net US denominated cash flows, approximately CAD130 million. Has that changed much?

No.

Okay.

No.

And in terms of your hedge, there you had about CAD30 million hedged or that was at the beginning of 2008?

Yes. We ended the year with about CAD40 million odd of contracts to go.

Okay. So every one cent decline in the Canadian dollar, how would that translate into annual earnings?

About CAD1.25 million.

Okay. Okay, yes. That's it for me, thanks, guys.

Thank you, Jason.

Our next question comes from the line of Nima Billou with Bloom Investments Council. Please proceed with your questions.

Good morning.

Hi, good morning.

Congratulations on a very good quarter.

Thank you.

No, problem. Just some questions surrounding the operating expenses because when you look at fixed costs general and admin as a percentage of revenue that was relatively flat. But you got the savings on the op expense side. Was it fuel because that's not -- or would that be salaries of individual people, where were the opportunities where you are able to kind of pair back?

It is always on the density, okay? So it's really the employees doing more with less. This goes back to what I was talking about the move we did with Thibodeau last week or this week the move we are looking at [Valdore] okay of doing I think it is March 23rd, it's all of that. So what we are trying to do is with lower volume okay and let's say 5% or 6% we are recreating density in some areas. Now on the SG&A, you will see a shift also in early 2009. As a percentage of revenue, yes.

As a percentage given the initiative you are under taking. A while ago obviously the economy was a lot different and more robust. But do you think once it does turn that you have enough people to handle the business or are you keeping people idled on the sidelines? Because a couple of years ago there was problems with recruiting truckers and what not, do you see that problem emerging again when it does turn or do you have enough people right now that can handle a higher level of business without a ton of hiring?

No doubt about that. No, we don't have the right people. Let's say what we are doing now is always adjusting our staff to the level of business we have. So let's say in general, okay, the business is down in general in Canada 5% or 10%. So this goes back to one of the questions I had before is it's going be very difficult to find the truckers and to find the drivers. Because those guys some have retired some have left because they are sick and tired of all this nonsense of -- don't forget that a trucker that run as truck for us, and we pay one of the best. Let's say his salary is going to be CAD60,000 a year, and he has got to be away for a week, the young guys are 25, they say I'm not going to do that for that kind of money, forget it. Okay. So that is going to be a big issue.

So what is going to happen, the stupid trucker, he is going to try to find drivers. And if you go back to what I always been saying to Paul and to yourself, is us, we are different. When the demand comes back, instead of trying to look for people we are going to try to look for more money from the customer, okay? Try to value okay the service that we give to these guys which is a fantastic service.

Also I guess --

Excuse me, this has always been our plan. Now, don't forget we have also a special division where we lease people to other people. Okay? My [boudrie] and my unique I've got in there about 2000 people, okay, that are being leased all over. So these are an asset that could be used if ever for instance I need more people within one of my division, okay, I could say to the guy that's using them today well listen, okay, this is what you are paying me today, now I've got an opportunity elsewhere. So do you want to pay me the right opportunity price or do you want to lose the guys? Okay?

Appreciate that. When you look at your long range planning, Alain are you planning for obviously a recovery eventually, but a lower level of business like it's not going to hit what it would have in '05 or '06, they call it a lower reset level for the economy in general?

Probably. Probably, because, probably but it also depends, the Canadian consumer, we are a very different consumer than the American consumer. Canadian consumer didn't go crazy like in the US, borrowing tons of money on the house that today's house is worth nothing. Okay? We don't have that kind of issue here in Canada. We have a different system. So I think the minute the consumer feels more at ease that the commodity prices are back up so we have more people back to work, I think we should get closer to where we were.

Now, that being said, there are some industries that they will probably never go back to where they were, like the automotive business like the forestry, et cetera, et cetera. So we will have to the just ourselves to what level we come back to. But then again, okay, we will still have the opportunity because let say it's in two years, okay then our debt will be reduced, okay? We will have other opportunities and we will adjust ourselves okay like we did all over.

Okay. And final question, you just mentioned are you making debt priority -- debt a priority for next year and do you have a target range that you want to get down to again?

Yes. Like we said, our target is to be around 700. We are today at 800, okay? We want to drop by 100.

Okay. Thanks very much, Alain. Appreciate it.

Pleasure.

Thank you.

We have no further questions on the line at this time. I would like to turn the call back over to you, sir.

Thank you.

Operator. Since there are no more questions I want to thank everyone for participating in this. conference call. For anyone who joined while the call was in progress, a recording will be available until 11:00 am March 19th, 2009 by calling 1-800-558-5253 or in Toronto 416-626-4100 and entering passcode 21413858. Thank you all, have a good day.

Thank you.

Yes.

Ladies and gentleman that does conclude the call for today. We thank you for your participation and ask that you please disconnect your line. Have a good day.