US Xpress Enterprises Inc (USX) 2005 Q4 法說會逐字稿

Good day everyone and welcome to the U.S. Xpress Enterprises Inc. conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Tripp Sullivan of Corporate Communications. Please go ahead, sir.

Good afternoon. Thank you for joining this U.S. Xpress conference call. On the call today will be Max Fuller, Co-Chairman; Ray Harlin, Chief Financial Officer; and Jeff Wardeberg, Chief Operating Officer. Before we begin, I would like to cover the Safe Harbor language. Certain statements made in this conference call may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and Section 27A the Securities Act of 1933 as amended. You should consider carefully the risk and uncertainties described in our press release issued last night and various disclosures and filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statements to reflect actual results or changes and [the facts] affecting the forward-looking information. I will now turn the call over to Ray Harlin. Ray?

Thank you, Tripp. Good afternoon and thank you for attending our fourth quarter conference call. We will briefly discuss the results of our operations for the fourth quarter and the year, and following these comments we will be glad to respond to any questions. In the fourth quarter of 2004, we set an all-time record for our Company for the highest earnings per share. We're pleased to note that we were able to exceed the mark with a new EPS record this quarter of $0.46 per share.

For the quarter, consolidated revenues increased 1.8% to 318 million. Excluding the effect of fuel surcharge, consolidated revenues decreased to 4.8% to 275.1 million due to a 20.1 million decline in revenue of our Xpress Global operations due primarily to the sale of the airport operations in May of 2005. For the year, consolidated revenues increased 5.3% to 1.2 billion. Excluding the effect of fuel surcharges, consolidated revenues decreased less than 1% to 1 billion in 2005.

Net income for the fourth quarter ended December 31, 2005 was 7.1 million or $0.46 per share compared to 5.9 million or $0.40 per share for the fourth quarter of 2004. In summary, our earnings in the fourth quarter reflect strong performance by our truckload operations, a decrease in the operating loss at Xpress Global of 2.3 million or approximately $0.09 per share compared to the prior year quarter, and earnings from our 49% equity interest from our initial year of ownership of Arnold and Total.

Truckload revenues excluding the effect of fuel surcharges increased 2.3% to 254.5 million. This increase was driven by a 6.9% increase in revenue per loaded mile offset to an extent by 3.7% decline in total revenue miles. The reduction in miles reflects a flat average tractor comparison and a 4% decline in miles per tractor. A number of factors contributed to our 6.9% increase in rate per mile, included our dedicated operations and regional type freight, which generally provides for a lower length of haul and a higher rate per mile continue to grow as a percentage of our total truckload revenue.

Our dedicated operations represented approximately 23% of our truckload revenue versus 19% in the prior year fourth quarter. For the quarter, the average length of haul of our truckload operations declined 2% to 695 miles. Additionally, since the first quarter of 2004, we have continued to achieve necessary rate increases from our customers as annual freight contracts are renewed. In addition, the increased price demand and resulting shortage of truck capacity in many geographic markets during the quarter dramatically increased market rates for noncommitted freight. And finally, we gained increases in both our tractor and trailer retention revenue.

As many of you are aware, over the last few years, we have significantly increase our rate per mile as we continued to execute our strategy of shifting trucks assets from our heritage longer haul market to markets that we believe offer a greater opportunity to achieve a satisfactory return on assets. The success of this shift is demonstrated in part by the following summary of truckload revenues, excluding fuel surcharges and other miscellaneous revenue for the year, along with growth percentages compared to the 2004 year. Dedicated revenue 204.9 million, growth of 47.2%; expedited rail 130.7 million, growth of 31.5%. Expedited team 182.1 million, growth of 17.7%. And our regional and over the road solo trucks 393.9 million for a reduction of 20.4%.

Operating income for our truckload operations decreased to 17 million in the fourth quarter of 2005 from 18.1 million in the comparable 2004 quarter. On a year-over-year basis, our truckload operating ratio net of fuel surcharge increased slightly from 92.7% to 93.3% in the fourth quarter of 2005. It should be noted that in comparison to our peers, our operating ratio was negatively impacted by the fact that a significant portion of our revenue equipment is financed with operating leases, which in effect results in interest being recorded as an operating expense. We estimate that if all revenue were financed with balance sheet debt, our operating ratio would be reduced by approximately 150 basis points.

The relative strong performance in the fourth quarter of our truckload operations was driven by freight demand [at] comparable levels we experienced in the fourth quarter of 2004. On the cost side of our truckload business, our driver pay and benefits increased approximately 13% on a per mile basis due to significant increases in driver pay initiated in the fourth quarter of 2004 and early 2005, along with increases in health-care and workers' compensation expenses.

Although fuel prices remained at historically high levels and averaged 31% higher than last year's fourth quarter, the declining trend of fuel prices during the quarter along with improvements in our fuel surcharge program positively impacted operating income for the quarter by approximately 1.3 million or $0.05 per share. However, for the year, fuel prices generally increased throughout the year and averaged 32% higher than 2004, resulting in a negative impact of approximately 6.5 million or $0.21 per share. Finally, insurance and claims expense as a percent of revenue increased 7% on a per mile basis related to our provision [for] liabilities claims.

Finally, with regard to our truckload operations, we were pleased with the results of both Arnold Transportation and Total Transportation in which we have a 49% equity interest. The majority owners who are essentially the management of these companies more than met our expectations during this initial year. Contribution to our pre-tax income from these investments was $980,000 for the quarter and $2.8 million for the full year. Revenue on a combined basis of these entities was 317 million with a combined operating ratio of approximately 94.7%.

Turning to our explosive Xpress Global operations, as a result of the sale and shut down of our airport to airport operations during the second quarter of 2005, revenues for the fourth quarter decreased to 22.5 million from 42.6 million in the prior your quarter. On a more comparable basis, our floorcovering distribution revenues were down approximately 14.2% or 3.1 million during the quarter. Operating loss for the quarter was 2.2 million versus an operating loss of 4.5 million in the prior year quarter.

With the airport-to-airport business out of the way in the quarter, the issues for us at Xpress Global were exclusively related to the floorcovering business. The loss of Xpress Global was impacted by lower volumes in our floorcovering operations and delay in achieving necessary rate increases.

From a balance sheet perspective, our long-term debt, including current maturities and our securitization facility, totaled 177.2 million at December 31, 2005 versus 149.6 million at December 31, 2004. Our liquidity remained strong with over 105.6 million available borrowings under our revolving credit and securitization facility. Our cash flows from operations for the year were approximately 65 million while our net capital expenditures were 81.8 million as we shifted the number of assets in lease to own to meet certain tax objectives. Further, during the year we have repurchased 948,686 shares of common stock at an average price of $13.33 for an aggregate of 12.4 million.

At December 31, 2005, the average age of our over the road and trailer [piece] was approximately 25 months and 57 months respectively. As we discussed last year in anticipation -- last quarter, in anticipation of 2007, we will be taking delivery of additional 2500 tractors during 2006, which will substantially reduce our tractor fleet age and significantly delay our need to purchase tractors with a new 2007 engine. Further, we expect to take delivery of approximately 4000 new trailers in 2006. We currently anticipate our balance sheet capital expenditures to total approximately 80 million in 2006.

Looking forward to operations in 2006, we have the following expectations. For Xpress Global Systems, we expect the first quarter to be suppressed by normal seasonal (technical difficulty) rate softness in the floorcovering industry and that necessary rate increases will not be fully completed until the end of the quarter. Although the first quarter may result in a loss, we expect the full year to generate operating income at Xpress Global. This compares to an operating loss of 10.7 during 2005.

For our truckload business, we expect the first quarter to be a typical -- first quarter operations in the trucking industry. This includes seasonally slower freight demand and somewhat higher cost of operations. We expect our truckload business to be profitable in the first quarter and to more than offset any loss currently contemplated at XGS -- or Xpress Global.

On a full year basis, we believe we have the opportunity to improve truckload margins, assuming as expected a continuation of favorable freight market and constrained tractor capacity in the industry. This should allow for improved pricing, while we expect the significant increases in cost per mile we have experienced in recent years to moderate and 2006. These expectations could be adversely affected by a trend during the year of significantly rising fuel prices, a deterioration in our claims experience, or the need for higher-than-expected driver pay increases to react to market shifts in driver pay.

We will now be glad to respond to any of your questions.

(OPERATOR INSTRUCTIONS). Rhem Wood, BB&T Capital Markets.

Could you talk a little bit about your OR and what the biggest opportunities are to bring that down going forward 2006?

Okay. Number one -- I think -- the number one opportunity is what I talked about. We believe that there will be the ability to continue to raise prices in the marketplace. And with moderating cost, that provides the opportunity to improve the operating ratio. We believe as we focus on our solo and regional trucks that we have the opportunity to improve the utilization and improve [deadhead]. I think those are two of the major areas. And we expect our dedicated operations to have market opportunities that provide for growth.

Okay. Thanks.

And obviously, the turnaround at Xpress Global significantly affects our consolidated operating ratio.

Okay. Then with fuel being where it is, how about your -- how are you guys doing as far as negotiating base rates?

Yes, I would tell you that we have been very successful at negotiating base rates as well as changing the fuel surcharge programs that we felt were inadequate to make them more adequate.

Okay. Thanks. And lastly, you guys have kind of a -- you have been bringing down your length of haul. Do you have a -- kind of a sweet spot you'd like to get to?

No, because it really varies by our service offerings. So I think an overall sweet spot is tough to say.

And if you look at rates, you know obviously it will not be probably below the 500 mile range, so the guy can load -- pick up a load each day. But then when you look at our team operations and rail operations, they're going to be much longer. And it's going to typically make our length of haul probably longer than what the bulk of our trucks will probably be operating, so I agree that is probably a little bit tougher to answer.

Tom Albrecht, Stephens Inc.

Glad to see you finish 2005 on a really strong note. A couple of questions. Number one, in your average rate per loaded mile, very impressive -- 1.739. Do you include the drayage rates within that, or is that purely the truckload rate per loaded mile?

It includes our -- everything includes our mile that we generate ourselves in the drayage (indiscernible) in the related revenue. Large, large majority of our drayage is really servicing our own rail accounts. So we're essentially hauling our truckload freight on these drayage operations.

Okay, so I guess -- then if you didn't have intermodal in the drayage, because I mean drayage is a cheap rate. It's $2 a mile. You may have stuff --

But that's an intercompany charge, so really our -- the rate that shows up here is actually the rate for the full [pro] that we get from our customer, so all of the miles including the drayage miles. And really the rate has nothing to do with drayage rates. It has to do with the rate we get for the pro from the front end -- (multiple speakers) from the customer. For example, if it's an L.A. to Milwaukee and we take it by train to Chicago, and we dray it to Milwaukee, we include all of those miles. But the rate we receive is really the rate from L.A. to Milwaukee.

Right. I guess what I am asking is I can't tell if in that $1.739 if it's being overly distorted by what you would allocate to the truck portion of that, or if it's just sort of inconsequential when you view it within the whole rate -- or the whole freight movement.

It's inconsequential because the rate and miles are really based on the revenue we collect from the customer.

Okay. Then I guess that sort of begs another question then, and I do not want this to be taken the wrong way, but when I look at your average rate per loaded mile and you had a 93.3 I believe OR, or just in the truckload business, -- yes, 93.3 versus 92.7, and I look at that and Knight just hit $1.70 for the first time and JB Hunt is around $1.75. What's the major impediment to having a much better truck OR when you already seem to have the rate? Or is that too simple of a question?

No, that's a reasonable question. We've made significant progress on the growth rate side. The opportunities for the -- additional opportunities -- or many in the item and they include -- and I think we've said that we'd like to have a modest increase in seated trucks. That would have a substantial impact on our margins if we were to achieve modest increases, because we have the infrastructure to support that.

We would do -- there are opportunities in deadhead on our regional and lower -- slower length of haul trips, so there is a number of opportunities that don't require a significant increase in average rate per mile.

Okay. And how much variance is there in the segment operating ratios between dedicated and regional and expedited, and I guess solo? If the quarterly was -- consolidated average was 93.3, are any of those divisions operating in the '80s? Is there one that is really a laggard?

We have said -- to give in separate operating areas is difficult because of the substantial allocations that have taken place, but we have said that dedicated rail and teams all contribute to the lower operating ratio, whereas some of the regional solo business is at a higher operating ratio.

Okay. Right. So on the regional front then, we all know the size of the market and a terrific volume opportunity is there. Do you believe you can get to a low '90s OR, or is there still too much of that solo kind of intermediate business that's not true regional stuff?

Tom, I'm not sure -- obviously our objective, and we've said this before that with our position in the industry and being the fifth largest truckload carrier, and with our customer base, that we should have the opportunity to approach ORs that are equal to many of our peers. That would mean lower '90s, high '80s, and that's our objective. (multiple speakers)

But that will take -- we've continued the transition from that long haul operation that has been part of our business since day one and was substantially all of our business four and five years ago.

Right. Let me ask this too. I don't know if you're getting an echo on your side, but about a year and a half ago -- or excuse me, two plus years ago, end of '03, you started to get comfortable with giving guidance. And in hindsight, that was a tremendous bullish signal. You had a rough year last year -- a roller coaster; still not willing to give guidance right now. Just kind of curious if that's because it was a humbling year or is there some other factors that would keep you from giving some sort of an annual guidance at a minimum?

I think to answer that, we -- I believe we've given some guidance that can be used. We have said that he Xpress Global will be turned around from a $10 million operating loss to profitability. We're not prepared to say at this time exactly how much that will be, but it's historically had -- in the profitable years in the carpet business, it would run anywhere from 2 to 5% to 6%. We don't expect that overnight obviously, but we do expect it to be a contributor. I think --

And I know you gave some framework, but I think you also know what I'm saying when you actually gave said EPS thoughts. And while I appreciate the general outline, there's so much leverage in our model that --

Tom, that's another reason there is a lot of leverage in -- if I were to -- if we improve the operating ratio in the truckload end of our business, you're talking about almost $0.40 per share change in our operating results. So I think we believe we will have a good year with the turnaround of Xpress Global and that we have opportunity to improve our performance in the truckload side, assuming that the favorable market continues.

Right. Just two more questions. First, a housekeeping one. I want to make sure I've got the right segment numbers. Dedicated 204.9, rail 147, I think.

130.7.

130.7. And that was up 51.5%?

31.5%.

Okay. And then was the next category expedited 182.2?

Yes, that's team operations.

Right. And then regional OTR 393.9?

That's correct.

Okay. And then where do you stand with drivers -- number of unseated trucks? I realize on the driver pay front it will depend on how you perform there and what your competitors do, but at least as of today, how is the unseated portion of your fleet?

Basically today, Tom, we are actually having to juggle trucks to find enough to seat all of the drivers that we have going through orientation. Turnover during the fourth quarter dropped into the 80s and has continued to stay relatively good over the last several weeks, so were having to juggle trucks right now just to come up with enough to keep drivers -- all of the drivers that we're hiring seated. So this is something different than what we've seen over the last three or four years, but it is pretty exciting to be to this point.

Okay. I'll turn it over to someone else and I look forward to hopefully a little less of a roller coaster in 2006.

Fuel prices would help that.

Yes.

[Dan Moore], [Scopist].

Hey guys, congratulations. It strikes me that if you were to give guidance, it would probably be somewhere between $1 and $2 which is a pretty fat range. I don't blame you. A couple of questions. I wanted to at least kind of thumb through here, maybe to touch on first the insurance line. Ray, there seems to be at least a trend here in the last year or two where you see a big jump in insurance costs third to fourth quarter. Could you give us a little bit of visibility on what's driving that?

Yes, as you would see, the insurance cost in the fourth quarter is a little bit higher run rate than the third quarter for example. And what that is driven by is that we had growth in claims in both years and we had some growth this year in prior year claims. And so we had -- when you first go on a high deductible program, which we went to a $2 million program two years ago, you're making significant estimates about losses and your growth experience, and so forth and so on. So we had some adverse growth in the current quarter related to the claims. But that comes and goes, in goes both ways. So --

Part of that is actually insurance policies that (indiscernible) need it in September. If the deductible is higher on the new policy, then obviously your reserves have to go up on that new policy.

So I guess I'm right in hearing you that that's not necessarily a trend we should always anticipate.

No, we would expect it to approximate the numbers for the year.

That's a pretty big number in EPS. So -- okay, good. With respect to driver pay, if I remember correctly, this time last year you were kind of struggling through a driver pay increase that you implemented in the fourth quarter. It sounds like you really didn't have to go through that this year or you're not having to experience some of those pains this year. What is -- what's at root there with the improved retention, Max? Is it the dedicated side of the business? Is it that you're -- you got increased to exposure to the regional market? Is it E, all of the above? Can you give us a little bit of color on what's occurring there?

I think some of it is all of the above. Part of it is the mix that we have. The regional operations, we get drivers have more often than we did in the long haul. I think we did a lot better job of giving the drivers reasons to stay at U.S. Xpress. Obviously the dray operations, the growth in it, drivers are home just about every night, so that has an effect. So I think there's quite a few things that we're doing that's actually created a lot of improvement.

Plus we have put in some special programs here to make the drivers' lifestyle a lot easier when you work for U.S. Xpress than maybe some of our competitors. The type equipment that we operate I think sometimes makes a big difference. We're a big buyer of Volvo trucks this year and I think that's helped a lot. But I think it's no one silver bullet. I think it's just a lot of small things that really adds up to an equation that really works.

Historically as we've gotten into the spring period, that -- I'd venture to speculate that the trends you're seeing right now would probably -- probably diminish a little bit just as drivers typically move to construction jobs and things of that nature. How are you planning to manage for that if you are planning on bringing on a lot of new equipment too? What's it worth there?

A lot of the new equipment is being brought on as replacements, but the flipside is that yes, we do see -- this industry does see an excess of drivers in the spring months and typically the summer months. We're really addressing the driver lifestyle issues probably more so at this point than we have in the past. And part of it is if we can improve the driver's lifestyle while he works here, it probably will make him think twice about jumping over to another job. Can we get him home every third day as opposed every five or six days? And that's some of the questions that we're trying to answer, and I think as we get those answered, we will see better results as we can retain drivers as we go forward.

Can you give us a little bit of color as well on percentage of the fleet that is now dedicated relative to where you were this time a year ago? I know there has been some growth in that side of the business.

The number of -- are you talking about on the dedicated truck?

Yes, Ray.

As I recall last year -- (multiple speakers)

Either units or percentage growth or both -- whatever is easiest and if you're in the process, (indiscernible) I can get those numbers --

I think we were about 1250 to 1300 when we were [at] 15 -- almost 1600 trucks at the end of this year in dedicated.

So you got around 350 units of growth in that side of the business? Am I hearing you right?

Yes, that's about right.

Okay. Well, I could probably go on here for awhile, but I will let somebody else have it. Great quarter guys.

Chaz Jones, Morgan Keegan.

I didn't hear you guys really talk about January demand. Could give us a sense for what we're seeing so far the first three weeks of January here?

Actually, if you look at the first three weeks, it's been probably a typical January. We would like to think that it will be better, but it's typical. The West coast was extremely soft so far here in the month of January. Markets like Atlanta, Dallas continue to be soft, but when you get into the Midwest it's pretty strong. The Northeast seems to be somewhat uncharacteristically stronger than normal. So it's kind of a mixed bag, but all in all January is tough and it is just about every year.

Is it fairly consistent with maybe what you experienced last year?

Kind of yes and no. The west coast is probably more severe this year than it was last year. But we're seeing a little bit softer market, say, in the Southeast to than we did last year.

Okay. And then maybe, could you give us any update on where Xpress stands in terms of maybe evaluating whether to purchase the remaining stakes in Arnold and Total. I know there are some options out there. But I'm sure you guys have been extremely happy with them so far, and maybe if you could talk about that.

I guess what -- the options on -- obviously we have the option at any point in time, and with Arnold it runs through December of 2007 -- up to December of 2007 as I recall, and it runs into 2008 on Total. We're working closely with the majority owners and the management of those companies to enhance their results and work with them, and we had no plans in the very near-term to exercise those options. But by saying that, I can't exclude [that] won't happen before the options -- the date of the expiration. So I guess the answer to that is we evaluate that as we go along in working with the majority owners and we have no plans at this point.

Sure. Understood. Are either one of those companies growing their fleets materially at all, Ray?

Yes. Arnold had -- I forget the exact percentage, but last year they probably grew in excess of 5 to 8% on their fleets as I recall. And I know Total, which it has a smaller base of 500 trucks, their objective is 10 to 15% fleet growth this year.

Okay. And then maybe one last thing here in regards to Xpress's fleet, when you talk about maybe getting the seated truck count up some, maybe give me a better sense of -- are you talking about a total fleet -- certainly owner-operator attrition is something that most folks across the industry are having to deal with, and it's a struggle just to raise the company fleet to offset owner-operator attrition. Are we talking about total count going up?

We're talking about total fleet, whether it be owner-operators or Company trucks. We would like to grow the owner-operator fleet. (multiple speakers) But we like to do a lot of things. It's a tough market. So we would like to add this year a couple hundred trucks to our total fleet on a seated basis.

Okay. That's all ahead. I appreciate it guys.

(OPERATOR INSTRUCTIONS). John Larkin, Stifel Nicolaus.

Question on -- just a follow-up on the decision-making process around whether to exercise the option to acquire what you don't own already of Arnold and TTM. Given that you're accelerating the fleet renewal process in advance of the 2007 engines being mandated, would you have enough flexibility on your balance sheet to actually effectuate both of those acquisitions?

We could do it, John, if we wanted to. We might have to redo our bank facility, but it could be done.

Okay. Second question related to Xpress Global. I guess when I look back at my notes from the third quarter conference call, it looked like you had plans to eliminate a lot of the excess overhead that was left behind after you sold off the airport-to-airport operation to Forward Air, and also got the impression that within the fourth quarter, a lot of the pricing would be put into place with the carpet manufacturers. I guess some of that has been delayed at least.

Well, the overhead part has been completed. And that was not a very big drag in the fourth quarter. There was some, but it was not a big drag. The price increases were delayed and it's taken longer with some of the major customers to get to where we need to get to.

What gives you comfort that, say, by the end of the first quarter that will all be wrapped up?

Most of it is one significant customer and we are close.

Okay. That's very helpful. I wanted to ask maybe you, Max, the railroads -- are beating their chest a little bit about how successful they have been in [taking] up pricing on the intermodal product. And that have any impact on the relative competitiveness of your product?

Yes, actually, we got one of the railroads that got highly aggressive on their rates to us, and it's almost taken as out of the market in a couple -- two or three markets because the rates have gotten pretty high. But we've got other markets that we shifted assets to, maybe with other railroads that we're still performing pretty well.

So it's not that were out of the business, but in certain markets it's been pretty tough. Their increases have been, in a lot of cases, a lot faster than what we can see in the truckload side and a lot higher, and I think that put a lot of pressure on that one segment. And it's hard for those customers to sit there and say well, if the truckload rates are going up X, why is the rail rate going up this much? So it's really been an issue. And to a certain extent, we just shifted the assets to different directions.

Would you more or less give that freight to somebody else and continue the strategy of moving into the shorter haul markets or would you consider trying to reclaim some of that traffic displaced off the rail and put it back on the road again?

There's all kinds of options and the two you mention are a couple of them.

I have a question about the longer run strategy of moving equipment into the dedicated, the regional, I guess the expedited rail and the expedited team markets would be the four. That's been underway now for a number of years. Do you get to a point where you're finished with that transition because to go any further would downsize the solo driver fleet to the point where you start to make that network inefficient?

I think that as you continue to transition out of that long haul market into those other markets, we're enhancing profitability of the Company as we do so. But what we also think is that we're in enough different markets, and as the economy goes through different changes, as it goes through different cycles here, different parts of our Company will perform better than others and we can shift assets to those that are performing better.

So today we may be shifting out of that long haul market into the regional, but we may find that regional all of a sudden is not as profitable maybe as dedicated, so we shift more towards the dedicated. So we'll build options into our business plan that we didn't have when we're basically riding the one horse. Today, we've got multiple horses that we can ride so we can jump from one to the other depending on where the profits are at.

Okay. One question as long as you [mention it], the driver seem to like the new Volvo trucks. I read in one of the industry journals here the last couple of days that they just instituted a big recall. Is that going to affect you at all here over the first quarter or the second quarter?

I think it's going to have pretty minimal effect.

What was the nature of the reason for the recall? Just out of curiosity.

Truthfully I don't remember.

One last question. I know you don't provide guidance. Tom tried to squeeze that out of you. But with respect to the first quarter, the big question I think investors are asking is on a combined basis with Xpress Global losing a little bit and the normal seasonality in the first quarter on the trucking side, how confident are you that you can make at least some money in the first quarter?

John, I think we indicated that we expected the profits from our truckload side to exceed our contemplated loss at XGS.

So that would put the combined --

The short answer that is we expect to make money in the first quarter.

Excellent. Nice job on the quarter and thanks for answering my questions.

Donald Broughton, A.G. Edwards.

I share Tom's consternation when it comes to modeling, and I don't necessarily even want as much guidance except maybe a little bit of a better understanding on how to attempt to model. Because I know you change the mileage base, but when I take the miles you have run and take the costs that are directly associated with running the fleet, your costs for the quarter were $1.69 a mile. And heavens, guys, you can go [wet] leasing trucks for that price, or less than that price.

So I got to believe somehow I am mis-accounting, so putting something in that numerator which doesn't belong there. But when I look at it, it's labor, it's fuel, vehicle rents, etc. It's all those things that ought to be directly applicable to running the fleet.

What are you -- our cost per mile is not $1.69, so I am not sure where got you that the number.

Well if I take labor, fuel, vehicle rents, D&A --

You got Xpress Global in there. You got our Xpress Global operations, which are not in our truckload miles. And so that's --

Okay. But -- so then the next problem gets to be that -- is there that huge of a swing in the Xpress Global expenses, because of I assume that they were relatively constant then --

They're not constant. We sold the airport-to-airport operations and there are no -- our sales are down $27 million.

Because we've got way over 1000 basis points swings on a per mile basis for line out (inaudible) --

That's because -- Don could we go over this off-line? Because what you're doing is comparing apples and oranges.

Well, what I am trying to do this come at the same things -- I don't know, Tom was trying to come at, which is based upon the information as you disclose it, it's really hard from the outside looking in to try and gain any insight into where it is headed in its model with any degree of reliability. And if we can't model with any degree of reliability, then the level of visibility and certainty in this market is going to take into that, and hence give you an evaluation -- isn't going to be that much.

If you -- and I'm trying to be constructive in this. I'm not trying to criticize as much as say, if you could help us then everybody can have better confidence and that ought to get reflected in the stock's valuation.

Okay.

Are we ready for our next question?

Yes.

Dan Moore, Scopist.

I got to be honest; I didn't have any problem modeling this quarter. I was looking at one other thing here with respect to your affiliates. And I was just curious, Ray, if you could give us a little bit of color on -- were you to go ahead end exercise your option or options to bring those entities in-house completely, in a very simple sort of way, could you tell us what that would mean for operating income? And I think there's something with the tax rate too. Aren't you double taxed on the operating income you're currently reporting on your P&L from those?

We report those as -- that they are minority interest. They get reported as one line item, so the way it works is I take their after-tax earnings, so they provided taxes on it. I then report that as equity in earnings and then I provide taxes on the -- those earnings. So if it were consolidated or part of our consolidated results, we would not be providing taxes twice. So that's what's happening now as far as their contribution. But that's the proper accounting for minority interest.

Yes, I understand. And if you were to bring those entities in-house, can you give me a sense -- any sort of a sense either on-line or off-line what the opportunity for accretion from that transaction would be?

Well, without -- without taking the number, the -- for the year, it was $2.8 million in contribution to pre-tax income. That's a 49% interest, so obviously their net income was approximately twice that for those entities. And we tax the 2.8. If they were consolidated they wouldn't have to be taxed, but --

And what's your cost of debt currently, I guess?

Right around 5% on a weighted basis.

Great. Thanks again.

(OPERATOR INSTRUCTIONS). John Larkin, Stifel Nicolaus.

Yes, just one technical follow-up for Max since you're an equipment guru, at least in my mind. I was talking to a big Thermo King dealer -- you might guess who that is -- earlier in the week. And he was telling me that Thermo King has come out with this APU device which is designed to allow trucking companies to shut down their main power plant yet still keep the environment comfortable for the driver. How do the economics for that work at these fuel prices? Do they? And if not, how high would fuel have to go to make that an economical decision?

Part of -- the unit that he's talking about is a pretty good unit. We're testing it. Part of the problem is some states still will not recognize those as units that you can run. They basically say any diesel engine has to be shut down within a 15 minute period, which that creates an issue if you're going to buy the unit and put on.

Theoretically, the payback could be somewhere in the 18 to 24 month period and I've heard people say less than that. We show internally that if we could use it, payback would be within that 24 months. The EPA and some of the states are looking at the different products that are out there and trying to valuate which ones they will allow to continue to run and which ones they won't. There's not a total consensus in the marketplace yet, so you could invest several thousand dollars in that unit, but yet not be able to run it in certain states. So we are still kind of on the fence waiting for more decision to be made before we decide to choose that unit or another unit.

That is very helpful. Have a good weekend guys.

At this time we have no further questions. I would like to turn it back to Mr. Harlin for some closing remarks.

I would like to thank everybody for attending our call for the fourth quarter and we look forward to the first quarter call.

This does conclude today's conference call. We thank you for your participation and you may disconnect at this time.