US Xpress Enterprises Inc (USX) 2006 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 morning. Thank you for joining this U.S. Xpress conference call. On the call today will be Max Fuller and Pat Quinn, 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 of the Securities Act of 1933 as amended. You should consider carefully the risks and uncertainties described in our press release issued last night in various disclosures and filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statement to reflect actual results or changes and the fact affecting the forward-looking information.

I will now turn the call over to Ray Harlin.

Good morning. We thank you for taking the time to participate in our fourth-quarter conference call. We will briefly discuss the results of our operations for the fourth quarter of 2006, and following these comments, we will be glad to respond to any questions.

For the quarter consolidated revenues increased 21.4% to $386 million. Excluding the effect of fuel surcharges, consolidated revenues increased 22.7% to $337.7 million. For the year ended December 31, 2006, consolidated revenues increased 26.4% to $1.5 billion. Excluding fuel surcharges, revenue increased 22.1% to almost $1.3 billion. This significant growth in revenues was driven by the contribution of Arnold and Total in which we increased our equity ownership percentage to 80% on March 1, 2006.

Net income for the quarter was $6.4 million or $0.41 per fully diluted share versus $7.1 million or $0.46 per share for the prior year fourth quarter. For the year net income increased almost 85% to $20.1 million or $1.29 per fully diluted share compared to $10.9 million or $0.68 per fully diluted share before a onetime charge of $2.8 million related to the sale and exit of the Company's airport to airport business.

From an overall perspective, after establishing a new quarterly earnings per share record of $0.47 per share in the third quarter of 2006, we accounted a fourth-quarter freight environment more challenging than anticipated as the normal seasonal search failed to materialize, and the softness in housing and automotive sectors caused an influx of capacity in markets served by U.S. Xpress. Despite this, our operating income of $17.4 million in the fourth quarter was only slightly below the third quarter.

For the year the significant increase in net income reflects the turnaround of Xpress Global following the sale of the airport to airport operations in May of 2005, the contributions from Arnold and Total and the ability of the U.S. Xpress truck load operations to achieve comparable margins in 2006 despite a substantially weaker truckload market in 2006 versus 2005.

Let me now address a few of the factors in each of our business segments which impacted our results for the quarter. In our truckload segment, revenue net of fuel surcharges for the fourth quarter increased 24.8% due to the contribution of Arnold and Total. Revenues of our U.S. Xpress only truckload operations declined on a year-over-year basis by approximately 3.7% to $245.6 million. Operating income for the fourth quarter of our truckload operations declined approximately 3.4% to $16.5 million despite the contributions of Arnold and Total.

As previously discussed, the truckload freight market was significantly weaker than we experienced in 2005. Further, the stock market rates were very much depressed in 2006. In 2005 our U.S. Xpress truckload operations, especially our expedited Xpress Direct business unit, benefited significantly from the high spot market prices, which is the primary reason for the 4.4% decline in revenue per mile compared to the prior year quarter. The acquisition of Arnold, a regional carrier with an average length of haul of approximately 350 miles, is the primary reason our consolidated length of haul in the fourth quarter declined by 15.3% to 580 miles.

It should be noted that if you exclude our team and rail operations, both of which have length of hauls in excess of 1000 miles, our consolidated length of haul is approximately 500 miles. The 2.8% reduction of revenue miles per truck compared to the fourth quarter of 2005 is primarily due to the softer freight environment and the decline in our length of haul as generally utilization declines as length of haul decreases. Obviously the changes in the fourth-quarter expense category were largely due to the consolidation of Arnold and Total.

Within our U.S. Xpress only operations, the following factors affected fourth-quarter results. Although average fuel prices were lower in the 2006 quarter versus 2005, due to the volatility of prices in 2005 and the impact of such volatility on fuel surcharges, we estimate that fuel expense net of fuel surcharges negatively impacted earnings per share in the fourth quarter of 2006 by approximately $0.03 per share.

Including gain on sales, which was $1.2 million in the fourth quarter of 2005 versus a negligible amount in 2006, our revenue equipment depreciation and vehicle rents within our U.S. Xpress truckload operations increased by 9.4% or approximately $2 million due to the previously discussed gains and the effect of the substantial prebuy of tractors which we initiated in the second half of 2006.

For the quarter insurance and claims expense declined by $10 million compared with a year ago due to favorable accident experienced in the 2006 fourth quarter, and the 2005 fourth quarter reflected significant adverse development and prior year claims, along with higher claims experience in the quarter. In effect, we believe the 2006 fourth quarter reflects a more normalized run-rate for insurance and claims experience.

Turning to Xpress Global, in the fourth quarter, management of Xpress Global continued the successful turnaround of the operations of this subsidiary. For the quarter revenue declined 4.9% to $21.4 million, and operating income improved significantly to $864,000 compared to a loss of $2.2 million in the fourth quarter of 2005. For the year revenue declined 25.4% to $93.5 million, primarily as a result of the sale of our airport to airport operations in May of 2005. Operating income, however, improved to $4.4 million compared to our operating loss of $13.5 million in the prior year. The turnaround in profitability at this subsidiary was achieved by disposing of our unprofitable airport to airport operations, improved pricing and yield management, increased operational efficiencies in our terminal operations and reducing overhead expenditures related to our floor covering logistics operations.

From a balance sheet perspective, our long-term debt, including current maturities and our securitization facility, was $340.5 million at December 31, 2006. With stockholders equity at $252.5 million, our debt to total capitalization at December 31, 2006 was 57.4%. Net capital expenditures in 2006 were approximately $165 million as we significantly lowered the age of our tractor and trailer fleet and increased the ratio of owned equipment versus leased equipment.

At December 31, 2006, the average age of our truckload tractor and trailer fleet, including Arnold and Total, was approximately 21 months and 48 months respectively. Following completion of the prebuy of tractors with 2006 pre-emission engines in the first quarter of 2007, we expect our fleet age to approach 18 to 20 months.

Further, the completion of deliveries on our long-term trailer order in late 2007 should further reduce the average age of our trailers.

As a result, we anticipate a significant reduction in our capital expenditure requirements after the first half of 2007 and well into the 2008 year. Yesterday we also announced that our Board of Directors authorized the Company to repurchase up to $15 million of our common stock.

Looking back on 2006, we believe we accomplished much and want to thank all of our employees for their contributions to our results. These accomplishments include the return of profitability of our Xpress Global operations, the success of Arnold and Total which for the year generally meet our expectations and each entity successfully improved their operating results in 2006.

The U.S. Xpress truckload operations achieved comparable margins in the full year of 2006 versus 2005 in the face of a weakening freight economy. Our solo and regional fleets continued to show improvement in their operating matrix metrics. Our profitable dedicated operations continued to grow. Our team operations and Xpress Direct expedited groups achieved continued success, and finally, our expedited rail program continued to provide a profitable long-haul product to our customers.

In closing, we believe we have a business and financial structure that provides a solid base for future growth in revenues and earnings and to improve the future returns to our shareholders. In the near-term, the depressed freight demand we are experiencing may make the first half of 2007 challenging. However, we believe the truckload industry fundamentals remain positive in the intermediate to longer-term.

At this point we would be glad to respond to any questions.

(OPERATOR INSTRUCTIONS). [Nick Fairwell], The Arbor Group.

Good morning. I have a couple of follow-ups if I may. Ray, if you look at the insurance if I have the numbers correct, it looks like the delta is about $7 million between 14 last year and 21 -- I'm sorry, 21 last year and 14 this year.

Yes, that is correct on a consolidated basis.

How much roughly you might consider sort of extraordinary or sort of beyond normalized expectations just as an estimate?

You mean you're talking about the current year?

Just what I'm trying to do is net out what looked like an incremental -- well, the gain on sale of equipment was about $0.04, and I'm wondering it looks like you probably got a benefit of more than that just in the insurance swing year-to-year.

The fourth quarter of this year we had good accident experience, and we had very little growth in prior year claims. So the fourth quarter of this year is a more indicative run-rate of what we would expect insurance to be in the future absent significant accidents.

So last year you could even say that perhaps $5 million to $7 million was extraordinary (multiple speakers) or beyond normal.

That is correct.

The next thing is, the $15 million share repurchase, I assume that is the new authorization. That is not incremental added onto the prior authorization?

No, we have used up all the prior authorization, and this is new incremental.

And then at the end of the year, could you indicate what your net debt is relative to the third quarter and how much of that debt increased and whether your interest rates on that debt increased during the quarter? Was the interest expense delta from $5 million to $5.7 million all due to incremental debt?

Our debt at the end of last quarter was $329 million, and at the end of the year, it is $340 billion. The interest rates have gone up slightly, but it is not significantly different from what it was at the end of the third quarter.

Justin Yagerman, Wachovia Securities.

This is [Rob Samanon] for Justin Yagerman. I was hoping that you guys could add a little more color on the depreciation and amortization line? I noticed that it had gone up both sequentially and year-over-year. I realize that the increased tractor size would probably explain the higher number, but I was wondering if anything else is impacting this line. It sounded like you had mentioned a gain earlier in the call in terms of just changing in gains year-over-year?

Yes, the change between years is primarily number one, it is Arnold and Total are consolidated into this year since March and into the entire fourth quarter. So that is the biggest portion of it. But you also have an increase in the percentage of ownership versus leased on both tractors and trailers. You also in the fourth quarter of last year had $1.5 million gain in the reduced depreciation expense, and in this year's fourth quarter, the gains are negligible. So those are the primary -- and then because of the prebuy we are buying current year tractors and trading out older tractors which have a higher depreciation rate. So those are all the factors that lead you to a higher depreciation amount.

That makes sense. So, as we look out forward, if we offset -- if we look at that $1.5 million gain and kind of make assumptions on the gains and losses, that will be using this modified for that run-rate on a go-forward basis would be pretty fair it sounds like.

I think what you will see as we go through the year this year, our ownership percentage will increase, and our lease will go down because of our tax position. So you will probably see a shift between leased ownership, which is a shift from vehicle rents to depreciation.

Now, as we look out, will that kind of shift in ownership between -- in tractors? Will that impact your tax rate for next year?

It does not impact our tax rate. It helps us to shift out of paying the taxes currently and to making it deferred taxes for later years.

Okay. And then we saw the pricing had declined 4.4% year-over-year during the quarter. We're assuming that contractual rates were up year-over-year, but the weakness in the spot market caused the year-over-year decline?

That is correct.

Could you provide a little further insights on the pricing environment I guess during the quarter and what you are currently seeing in January?

I will let Max, Pat and Jeff address that.

Yes, I think that if you look at it, last year was kind of an extreme, and this past fourth quarter was kind of the opposite of the extreme. You had the hurricanes in 2005 where the spot markets were extremely hot. Our expedited division did extremely good during that period. When you look at the fourth quarter of this year or this past year, obviously you had almost just totally the opposite.

So you had weakness. You did not have the peak of expedited operations where probably the slowest it has been since we started that operation. We saw some slowness into long-haul rail operations. So we did see weakness in the fourth quarter.

Now we're seeing base rates continue to climb here in the early part of the year. Now we also see a lot of extra bit packages that you normally don't see this time of year starting to hit the street. So I guess my prediction is that there is going to be more pressure on rates over the short-term, but long-term we think with cost increases that the industry is having that you are going to see increases maybe towards the end of the year as opposed to more in the first half. But a lot of pressure in the first half. Jeff, Pat, do you have anything else?

Well, I think one thing to say, Rob, I don't think our contractual customer rates -- they were essentially up year-over-year. It was primarily that expedited stuff that drove the rate down in the fourth quarter.

And it was the extreme last year versus this year.

Very good last year and non-existent this year.

Well, I mean you had rates $0.20 and $0.30 higher last year during the peak season for the expedited stuff.

That makes sense. That was what our sense was kind of as we were looking out in the quarter. We noticed that the owner operators declined by roughly 100 tractors sequentially from Q3 and were also well below the 2006 run-rate of 900 to 950 since the consolidation of Total and Arnold? Did you guys see roughly 100 owner operators leave during the quarter, or was this just a result of seasonal issues. I was hoping you guys could provide a little more color (multiple speakers) of how you're thinking about this going forward?

It is more of a seasonal issue, Rob. A lot of the owner operators go home at the end of the year, and we have a policy that come out of the truck count if they are off for so long. So you will see that number bounce back up.

All right. That makes sense, guys. Last question before I turn it over to someone else. How has freight been feeling so far in January, and what have you been hearing from your customers about their expectations for 2007?

Rob, this is Jeff Wardeberg. Freight right now is a battle. I don't know how else to put it. Our people are working extremely hard to dig and find as much as they can. We're seeing our order count start to climb, which is typical of this period of January after a soft start. Expectations from customers I think that judging from the amount of bid packages that are flowing in here, I think that they feel that there is a possibility they can get preferential pricing as opposed to what they have had in the past and are hoping to capitalize on that.

Tom Albrecht, Stephens Inc.

A couple of things. I know you gave the operating income for ATS total. I'm just curious what was the OR for that a year ago, even though it was equity income a year ago? I'm just trying to see if it is holding steady or deteriorating as well.

In the fourth quarter, I don't have the numbers exactly in front of me, but it is not a significant deviation for Arnold and Total.

So like, for example, the consolidated OR slipped I forget was it 90 or 110 basis points? (multiple speakers)

That is primarily U.S. Xpress.

Okay. So if I think about it flattish or off a hair, then that is probably not too far off. How do you feel you will be able to manage the core U.S. Xpress truckline business here in the first quarter? I mean your operating income ex-ATS declined 31% to about $11.8 million. I'm modeling more than a 30% drop, but I'm curious your thoughts on whether that is going to be like the first quarter of '05 where everything just absolutely plummeted to a loss, or can that non-ATS total business be less volatile than it used to be?

I think you're going to see that the non-ATS total business is going to be a lot less volatile than what you see in our core business this past 12 months has been substantially better than what it was during the first six weeks of last year. We are up several percentage points year-over-year in the first six weeks. So I don't think you're going to see us dig the hole that we did last year. We think that we are in a market that is under pressure, but we also think that the customer base that we have got where we position the assets will give us a lot better yield even in a tougher environment. This is a much different Company than what you have seen over the last two or three years. I think even in a tough environment, you're going to see us perform reasonably well. This last quarter, even though it was a tough quarter, is still one of the better quarters we have had in the last five years. So I think that our turnaround and our positioning of equipment is showing some pretty good results, and I would expect that to continue more so even this year as we continue to mature those markets that we are in.

Now a little help in the first quarter from the freight market in February/March would be helpful.

Right, right. How much are you willing to play on price I mean if it comes to that, or were you able to diversify your customer base enough that if you've got to walk away from some nasty pricing situations, you have got other new opportunities awaiting you?

Basically we will play up price for incremental business but not to the crazy point. We have got a good solid core base business that obviously we have made some pretty decent money with. It is the top 10% that seems to be the issue, and it constantly is your issue in the freight business. So what we're looking at is, if we have to increase utilization by getting more competitive on price, on incremental business, you will see us do that. And, of course, that incremental business is what you normally back off off when pricing starts to firm back up, which we would assume would be somewhere around mid-year.

Right.

We are using what I'm calling the big funnel approach right now. I want all the freight I can get into the system, but I don't want to push the rates down to the point that we don't have a margin left.

Yes, please don't do that.

And I would add to that, if you look at our rate levels so far through January, they are up a few percentage points over where they were a year ago.

Yes, but we all know the big packages are just hitting the market now and well over the next 60 to 90 days. So hopefully that is not a whole new chapter you need to write.

But that's also a significant opportunity because as Max is alluding to the bottom percentage of the freight base is where the real ugly stuff is. And if we can be successful in upgrading that freight quality, we win.

Right. Ray, back to the CapEx for a minute, did you say 265 net was the '06 figure?

No, 165.

Okay. I was going to say man, that is a lot higher than I had modeled there. I know you said second-half '07 onward it drops, but do you even have an approximate figure that we should be thinking about for '07?

Yes, I think some depends on how much we lease versus owned, but in the $75 million to $80 million range for all of '07 heavily weighted towards the first part of the year.

Okay. And then how about drivers? I mean I think generally there is a sense that since August or September the recruitment and retention has been better, but I'm curious as to your experiences, and if it has improved, why is that? I mean drivers are desperate for miles. Why would the bigger fleets be benefiting if that is the case?

I think that that for U.S. Xpress we have seen some improvement. We have revamped our recruiting department and somewhat our HR department last summer. We changed how we recruit drivers. We have opened up new locations that we recruit. Before we used to use a centralized model there in Chattanooga. Today it is decentralized and (indiscernible) to terminals. The terminals are recruiting the drivers that work for the fleet managers in those facilities.

So I think that we're seeing a lot of success. I don't know how much of it is the true market and how much of it is the changes that we have made. But we have seen our turnover drop as low as some months almost as low as 40 to 50%. We have been in 80 and below fairly consistently probably for the last six to nine months. So we have seen a lot of success, but we're not sure how much of it is us because of the big change to the way we are doing business compared to the way we are used to.

It is certainly a lot better than it was a year ago.

Right.

I will take it either way it is working.

Yes, regardless that is the point.

We're trying not to screw it up.

We don't won't to give away all the secrets either.

Right. Now I know over the years there have been periods where you have provided guidance and then other periods were you have backed off that. A year ago you made a $0.05 in the first quarter. Given the dramatic changes that have occurred, it would seem to me that even though the industry at-large has a tough comp that you should still be able to put up a nice improvement in earnings in March. I'm just curious as to your thoughts even if you don't want to provide guidance.

Last question, Tom.

Yes, I'm working on the wording here. Go ahead.

You know, we have not provided guidance, and I don't think it would be appropriate to. As we said, we're positive on the actions we have taken within the Company. We've got a stronger core business. So solo business, our regional business, our dedicated business is a larger percentage, and it has been a successful business. Xpress Global is doing very well.

So we know our businesses are better than they were. What I don't know is what this freight market is going to do. You know, everything occurs in the first quarter is what happens in February and more importantly what happens in March. So we are not avoiding the question except that we have decided that guidance at this point would not be appropriate, but we're very positive on where we are as a company.

I have got a pretty wide dartboard, so I will just use that here as I think about -- (multiple speakers)

We have a very earnings leveraged model, and out of $350 million plus in revenue, each $300,000 in pretax earnings is a $0.01. So your percentage in there is tough when you have got a slow freight market. But again, we are a better company than we were last year.

No, I don't disagree. And then back to I think it was Rob's question on D&A, I have got about $75 million in the model, but the latest quarter run-rate would be higher than that. And I know you are shifting more to ownership this year. Do you have an approximate figure you can share with us for D&A or whether we should (multiple speakers) if you're looking at it as best D&A plus rents (multiple speakers) and percentage.

Yes, I think we're looking at it as D&A and vehicle rents together. I think the D&A run-rates that you see in the fourth quarter is going to move up slightly, and it will probably come out of vehicle rents absent growth in the fleet, which we have no plans to significantly grow the fleet at this point in time.

Okay, I will play with it then. Okay. That is it, guys. Thank you.

Chaz Jones, Morgan Keegan.

I just wanted to ask one, were there any material revenues associated with deadhead miles in the quarter? And if not, perhaps how that compared to last year?

We did not have any benefit from paid deadhead miles in the fourth quarter of '06, and it was dramatically less than what it was in the fourth quarter of '05.

All right. So there was quite a bit of paid deadhead last year for you guys?

In '05, yes.

Okay. One question I wanted to ask as well was just kind of digging into freight demand, several of your peers have indicated the Southeast has been one region of the country where they have noticed I guess greater weakness than some of the other regions. Are you guys seeing that, and what is sort of your exposure to the Southeast?

That has been the pattern over the last five or six years. It did not used to be, but it is -- it seems to be the pattern we have experienced, and there is still some of it in there.

In particular, Atlanta and Dallas.

Specifically, yes.

Well, the Southeast and Texas are the two areas that everyone seems to be mentioning at this point. Okay. And then it sounded like you alluded to, and I was just curious, if one of the areas within the truckload division was any weaker than the other. It sounded like you said that perhaps expedited rail and expedited team may had showed some more softness than the other areas. Did I read into that wrong?

You're somewhat correct. If you look at our expedited division, the big difference, their utilization is probably off a little bit from last year, but the rate is off substantially from last year. I think that is the big story there.

If you look at our expedited rail product, it flattened throughout most of last year and continues to be somewhat flat. So we are still seeing pretty good performance in our team in dedicated operations and some of our regional operations. But the big pressure, the big rate pressure is the time critical operations. Because that business, as it was a year ago, is down quite a bit, and that is a double-digit size in our Company.

Sure. Then lastly, if I could ask about Xpress Global, certainly I think we all know there's some exposure to floor covering and probably some concerns just given where housing is these days. You know, the division certainly needs to be commended for the turnaround in '07, but I guess the question is, can those earnings be sustained in '07 if we do sort of see some prolonged weakness in housing?

I think that you're probably going to see the earnings stay relatively decent throughout this year. Most of the cycling in the home business was more in the late third quarter of last year and the fourth quarter. If you look at the run-rates that they are running at this point, they are still performing relatively good.

One thing that the management team did there, and I think it is important for you to understand, is they created more of a variable costs so that when business slows down you don't have the cost pressures that the operation had maybe in times past.

The flipside is that when business ramps up, you don't have some of the initial cost pressure either if you buy your variable cost components properly. So today I think that Company is prepared for the environment that it is in, that it may be headed into. We are not sure that the floor covering industry is going to deteriorate much more than what it already has.

Okay. Sounds good. I appreciate the feedback, guys.

(OPERATOR INSTRUCTIONS). John Larkin, Stifel Nicolaus.

I had a question about these bid packages. It seems like every year, especially in those years where supply/demand are a little looser than they might otherwise be, that certain shippers throw these bid packages out into the marketplace, and I suppose you will get some over your transom that relate to business that you're currently handling. And then you will get some that relate to business that you're not handling? I was just wondering based on some of your earlier comments whether you had planned to handle those two types of bid packages perhaps a little bit differently?

I would say the answer to that would be yes, John.

Okay. Would it be safe to say that the bid packages on the business you're handling currently would be treated with perhaps less of a reduction in rate? Does that make you vulnerable I guess to someone else who perhaps wants that business?

I think it depends upon the circumstance and the alternatives available to us. It is kind of an artful dodge, if you will. If we can develop incremental business with new customers and keep in mind that we have got our salesforce focused on just that kind of thing, I think we can insulate ourselves from having to I guess drop our pants with existing business. That is the way we're approaching it, and hopefully we can execute to that level.

Isn't it also safe to say that many of the larger truckload carriers are much less inclined to go after business aggressively using price than perhaps they were five years ago or 10 years ago?

I think that is definitely true. Five or 10 years ago everybody was playing the rate game. Today we're playing more of the service game and the relationship game, and I think that one thing that we have had in some of these bid packages we have been able to go to customers that maybe are bidding part of their business. In the business that we have, we have convinced them maybe not to throw that business into the bid maybe by the fact that we have been given stellar service on those lanes and stuff, and that is one thing that I think has really helped us sustain our markets a lot better is the fact that the service are at pretty high levels, and customers are not as willing to go bid it and maybe bring in a substandard carrier.

And, John, I also think that all of the large carriers and even the midsize to small carriers realize that there is not a lot of capacity being added to this industry. And that is completely different from what it was five, six, seven years ago when people were bidding on price all the time.

Do you think the first quarter might be a period when we actually lose a little bit of capacity? Do you think there's a possibility of some of the smaller carriers perhaps either downsizing or exiting and perhaps even some of the larger carriers, if not going out of business altogether, perhaps reducing their reliability on the irregular route truckload business and maybe reallocating some equipment to a less seasonal or less cyclical market?

You may see some loss of capacity in the industry. I can tell you there were a lot of small guys wanting to sell because our phones continue to ring off the wall. So we can be highly selective in and what we're looking at. But the small guys are putting a lot more pressure today than the big guys. I think some of these bid packages they tend to lose because they don't have the marketing organizations that the big guys have.

If you were to do another acquisition at some point in 2007, would you stick to this minority investment concept that gives you the option to ramp up that ownership position in the future?

I think that makes so much sense because you can go to the dance and see if you like the dance, and then if you do, you can go to the next step. And if not, you can unwind it. It is a good low risk way to do an acquisition. Part of the big issue in an acquisition is the cultural differences that you have between managements and companies and customers and drivers, and it gives you a chance to kind of either perfect that or if you find that it is nonworking, you can back off. I can tell you in the deals that we have done that way, it has been I think suite for us and for the people that were in the companies that we acquired and the customers.

Given the recently announced share repurchase, the big ramp-up in CapEx in 2006 and I guess that will flop over somewhat into the very early part of '07 in order to keep your fleet age down so you can sit on the sidelines here later in '07, would you have enough availability to perhaps pull off another minority investment deal of the size of a TTM or an Arnold?

Yes, we have availability, and we have room within our debt covenants, and we have adequate financial resources. If we find the right opportunity with the right partner, we're prepared to do that.

Again, keep in mind the amount of free cash is probably going to be thrown off once we slow down equipment purchases here during 2007.

Okay. Ray, do you have a sense for whether your debt to total cap all-in might drop to 50% or lower by the end of the year? Is that a reasonable target do you think?

That is very reasonable.

Okay. And then lastly, just a question on the railroad business. I got the impression in the last couple of conference calls that perhaps the meteorite rate of growth that we were seeing there in past years has leveled off a bit, and perhaps the railroad price increases have actually gotten so aggressive that you have had to back away from some of that business. Is that still the situation today?

That is somewhat true. Railroads have in some cases doubled and tripled the increases that we are able to take of our customers. So when it got to the point that there wasn't enough margin and we kind of backed off on some lanes with some customers, it is still business we intend to continue to build. We have kind of taken a real niche market approach doing the expedited rail where we are putting trailers on flatcars and riding behind the UPS trains, but you may see more in the rail arena from U.S. Xpress over the year. We're doing some studies on things that customers are saying are issues with the rail services they have today that maybe we can be a facilitator in that change.

Now if the railroad price goes up faster than you are able to pass that along to your customer and you decide to not handle that business on the railroad, can you predict that on the highway? Does that work economically for you?

It works in some cases. What you have, it really depends on what the customer is willing to pay. If he is willing to continue to pay a truckload are an expedited rail rate, yes. If he is wanting to drop down into a stack trained container, then sometimes you've got to play the customer's game.

It kind of depends on what your equipment availability is in that particular market too. We couldn't necessarily ship all of it to truck in a particular market because you don't have the truck capacity.

Yes. We kind of look at the marketplace kind of like the [Tennessee Watch]. You take two steps forward and one step back. That is what we're doing right now.

Sounds terrific. Nice performance in a tough quarter.

(OPERATOR INSTRUCTIONS).

Michael, given that, we want to thank everybody for attending our conference call. We look forward to talking to you after the end of the first quarter.

Thanks, everyone.

Once again, thank you, everyone, for joining us today. That does conclude the presentation. Have a great afternoon.