TRANSPORT AMERICA 2003 Q2 Conference Call Transcript
TRANSPORT AMERICA
2ND QUARTER 2003 CONFERENCE CALL
JULY 17, 2003
10:00 AM CT
Operator: Good morning. My name is Shayla and I will be your
conference facilitator today.
At this time I would like to welcome everyone to the
Transport America Second Quarter 2003 Earnings
conference call.
All lines have been placed on mute to prevent any
background noise. After the speaker remarks, there
will be a question and answer period. If you would
like to ask a question during this time, simply press
star then your number 1 on your telephone keypad. If
you'd like to withdraw your question press the pound
key.
With us today we have Michael Paxton, Chairman,
President and Chief Executive Officer as well as
Keith Klein, Chief Financial Officer and Chief
Information Officer.
Mr. Klein, you may begin your conference.
Keith Klein: Thank you, Shayla.
Good morning and thank you for joining us for today's
call.
Before we get started, I would like to remind
everyone that today's conference call includes
forward looking statements that are covered under the
safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Actual results may
differ from those expressed. Factors that may cause
results to differ are covered in the company's Form
10-K for the year under December 31, 2002 as filed
with the Securities and Exchange Commission.
I would now like to provide some brief comments on
the second quarter financial results and then turn
the conference call over to Mike Paxton, Chairman,
President and Chief Executive Officer for his
comments on the business and plans as we move
forward. After Mike's comments, we will be glad to
open the conference call up for any questions that
you may have.
For the second quarter 2003, revenues decreased by
$3.4 million to $65.6 million compared with the prior
year. Second quarter's revenues include $2.7 million
in fuel surcharge recovery, compared to $1.1 million
in the second quarter of last year, because of higher
fuel cost year over year.
Our customer paid miles in second quarter were down
about 5.2% compared to last year's level. The
decrease in miles was due to
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significantly weaker freight volumes in a number of
key markets, seasonality in our customer's business
cycles and slower than expected ramp up in new
business. Mike will address these items in more
detail later.
Our average revenue per total mile in the second
quarter, excluding fuel surcharge, increased by 6/10
of 1 cent over the previous year, while our revenue
per customer paid mile is down from prior year
levels. This decrease was more than offset by a
significant decline in our empty miles percentage. In
the second quarter we averaged 10.6% deadhead miles
compared with 11.8% in the second quarter of 2002.
Our rate per customer paid mile improved in the
second quarter on a sequential basis for the second
quarter in a row, rising to $1.399 per mile compared
to $1.388 in the first quarter of this year. This was
due both to improved customer mix and rate
adjustments as we continue to manage our freight
network, lane balance and customer profitability.
Revenue per tractor per week, excluding fuel
surcharge, decreased slightly to $2,652 for the
second quarter from $2,689 in the second quarter of
2002 due to a softer freight environment.
We continue to take steps to reduce cost in the
business.
During the first quarter of this year we completed
the restructuring of our service center network. We
closed both our Clarksville, Indiana and Garland,
Texas facilities and restructured the staffing of our
other facilities. Our non-driver headcount is down 9%
from the fourth quarter 2002 level. Our revenue per
non-driver employee reached record levels for
Transport America in the second quarter rising to
$641,000 compared to $597,000 in the previous year --
an improvement of 7.4%.
We have also initiated a broader cost reduction
effort across the organization. We have challenged
the organization to identify and implement changes
that will reduce our overall costs by 5 cents per
mile. Mike will provide more details on this program
and our progress to-date during his prepared remarks.
Accident, insurance, and cargo costs increased by
approximately $700,000 during the second quarter when
compared to the previous year - our accident
frequency remains at record low levels. We did renew
our insurance contracts at the beginning of the year
and experienced a significant increase in the
insurance costs, consistent with the overall
insurance market and these cost increases are
reflected in second quarter numbers. In addition
we've experienced continued claims growth and
settlement costs. During the second quarter, we
significantly broadened the experience of our claims
management area by bringing in new leadership to that
group.
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Interest costs decreased this quarter by 27% to $1
million compared to $1.4 million in the previous
year. This decrease was primarily the result of our
continued reduction of debt.
Our net loss in the second quarter was $837,000 or 12
cents per share compared to a net profit of $208,000
or 3 cents per share in the second quarter of last
year.
Focusing now on the balance sheet, we continued our
debt reduction trend of the past three years. We were
able to reduce debt during the quarter by an
additional $6.7 million, which brings our total
outstanding debt to below $60.0 million at the end of
the second quarter.
Looking at the 2003 capital spending, we did not take
delivery of any new tractors in the second quarter.
We plan to replace 250 tractors this year with
deliveries beginning this month. We expect gross
capital spending for the full year to be
approximately $20 to $25 million in total. Net of
proceeds on trade-ins and disposals, we expect net
cap-ex to be in the $12 to $16 million range prior to
the sale of both service center facilities.
We expect to close on the sale of one of our closed
service center facilities in the very near future
with net proceeds expected to be in the $2 million
range. We will announce this transaction once it has
been completed. We are currently marketing the other
closed facility but have not yet identified a buyer.
During the second quarter, we continue to execute on
our already approved stock repurchase plan. During
the quarter, we repurchased 64,100 shares of stock at
an average cost of $5.65 per share, totaling
approximately $362,000. That brings our total share
repurchases to 122,700 shares since October of 2002.
Under the current authorization we have remaining
authority to purchase up to an additional 120,600
shares of stock. We plan to move cautiously on the
stock repurchase front and will do so if it makes
sense for us to continue to repurchase stock.
Looking ahead at the third quarter, we will implement
the requirements of the Financial Accounting
Standards Board's Financial Interpretation Number 46
dealing with leases financed by special purpose
entities as discussed in our 2002 10-K filing and our
first quarter 10-Q filing. The effect of this
pronouncement will require the company to report both
the assets and related liability relating to its
corporate office facility. This facility had
historically been reflected as an operating lease in
accordance with generally accepted accounting
principals. At June 30, 2003, the amount of the
carrying value of this asset is approximately $11.2
million and the related debt is $13.0 million. The
difference between these two numbers is expected to
be reflected as a cumulative effect adjustment in
third quarter financial results. We continue to
explore opportunities to sell or restructure this
facility and the related liability. However at this
point, all viable alternatives reviewed
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significantly detract from shareholder value;
accordingly, we have not completed any of those but
we continue to analyze the opportunities as we go
forward.
That concludes the financial review. I would now like
to turn things over to Mike for his comments - Mike.
Michael Paxton: Thanks, Keith. Good morning, everyone.
We were clearly disappointed in our second quarter
results. The freight market was softer than expected,
particularly in some of our key geographic centers
resulting in reduced available miles.
For the first six months, our loaded miles were down
2.7% relative to year ago. Total available miles were
down 4.9% for the same period. Our trucking revenues
on a year-to-date basis are off 4.4% from last year.
Nonetheless we have remained focused on our
productivity efforts. For the first half of the year,
our revenue per tractor per week remains above one
year ago by 1.1%. Our average rate per loaded mile
for the first six months of $1.39 is below a year ago
but reflects two consecutive quarters of increased
revenue per mile. Our average deadhead for the first
half of the year was 10.3% and despite an up-tick in
the second quarter was nearly 200 basis points below
the same period a year ago. Our back office
productivity continued to improve to $636,000 for
non-driver employee, nearly 10% over the first six
months in 2002.
During the second quarter, we undertook a significant
maintenance campaign to repair a closed wheel-end
system on nearly 3,600 of our trailers. Since there
was a potential safety issue involved, we notified
the National Highway Transportation Safety
Administration, better known as NHTSA, and the
vendor, Strick Corporation, of the situation. At the
present time, NHTSA is comfortable with our repair
program. We are in discussions with Strick regarding
their liability on this issue. It is difficult to
estimate the cost of this campaign at the present
time.
As we look to the remainder of 2003, we are
cautiously optimistic that freight demand will
improve. Our focus will continue to be on profitable
revenue growth and productivity improvements.
We just announced this week the appointment of Craig
Coyan as our new Vice President of Sales and
Marketing to replace Rick Lane, who has left the
organization. Craig has spent most of his 25-year
career with M.S. Carriers. He is a highly motivated
sales executive with excellent customer relation's
skills. Craig and his sales team will be focused on
filling the hopper with new business opportunities
and continuing to improve our rate structure.
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The other piece of good news on the sales front is
the addition of over $8 million in new business from
one of our key growth customers. This business is
beginning to ramp up as we speak.
From a productivity standpoint, we have initiated a
major corporate program called the "Nickel
Challenge". Our goal is to reduce our overall cost in
the organization by 5 cents per mile or $10 million
on an annualized basis. Our steering committee, which
I chair, meets every other week. Each department has
already identified the cost opportunities that are
expected to achieve or exceed our goal.
In closing, I want to say that our organization has
been working diligently to move the business forward.
We have an excellent portfolio of customers and we
believe the fundamentals are coming together. We
continue to be enthusiastic about our prospects.
Thanks for your attention. Keith and I will now
entertain any questions that you might have.
Shayla, we will turn it over to you to coordinate the
questions, please.
Operator: At this time, I would like to remind everyone in
order to ask a question, please press star and then
the number 1 on your telephone keypad.
We'll pause for just a moment to compile the Q&A
roster.
Your first question comes from Carter Newbold of
Rutabaga Capital Management.
Carter Newbold: Morning guys.
Michael Paxton: Morning.
Keith Klein: Morning, Carter.
Carter Newbold: I can't say that I've pored over the reports of all
your competitors in great detail, but you seem to be
a sort of an outlier in the wrong direction in terms
of rate and utilization. You've referenced your sales
process not ramping as quickly and some geographic
issues but, I guess, could you delve a little more
deeply into - I mean, it would appear - versus your
public peers that you're losing share and which I'm
sure is not your goal but could you talk further
about why you think that's happening?
Michael Paxton: I think first on the rate side, we got out of the box
late in the fourth quarter last year as you
mentioned. So some of what's happening is the carry
over from the fourth quarter. We've been aggressively
pursuing rate increases through the first six months.
We did bring some of that rate increase home, as
noted by the small but sequential increases in the
first two quarters.
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Quite frankly we have run into some push back with
some of our customers. Now whether it is a mix issue,
I don't know, but in some portions of this country,
we just have not been able to get the rate increases
that we had anticipated. With Craig on board, we're
taking an even more aggressive approach than we have
up to this point, so we anticipate that we can
continue to move that one forward.
With regard to utilization, as you know, we've had
very, very good - made very, very good progress even
through the first quarter of 2003. This is the first
quarter that we've seen a decline and that is all
related to the decline in the miles.
Carter Newbold: OK. Could you give a little bit longer - at least
remind me of some of the chronology of the changes
you've made in your sales leadership, because I think
this is the second in a relatively brief period of
time. And can you also talk about whether your
incoming head of sales has had significant experience
with your major customers previously or is he just
sort of meeting them for the first time?
Michael Paxton: No. First of all, you're right. Rick Lane left the
organization; he was brought in a little over a year
ago. That was a mutual decision. Craig Coyan comes
out of M.S. Carriers. M.S. basically has a -- and has
for years - has a very similar network -- the kind of
network that we've operated here at Transport
America. He's got an excellent understanding of our
customer base. We did a lot of reference checks with
our customers and they are very enthusiastic -- those
who know Craig -- they're very enthusiastic about him
coming on board. That's one of the reasons why Craig
was such a good selection for us, because he does
have such a good understanding of our system and also
our customer base.
Carter Newbold: OK. My last question, I guess, is for Keith. It looks
like your second half net cap ex is a little bit more
than the free cash flow that you produced in the
first half. Is there any prospect for further debt
reduction in the second half or will that be
dependant on the business picking up a little bit?
Keith Klein: There's some opportunity as I mentioned. I
think we'll close on the sale of one of our
facilities here in the very near future and we'll
announce that when it happens. Net proceeds there --
a couple million dollars. So I think there's some
opportunities for continued reduction. I don't think
you're going to see debt levels increase dramatically
at all during the year. You know, it could stay flat
but it could also end up down.
Carter Newbold: OK.
Keith Klein: We were close to, I think, at the beginning of the
year we targeted high 50s in terms of our overall
year-ending debt number, and I think we're still on
track to get close to that number. The one thing to
keep in mind, Carter -- and I mentioned in my
comments, but I want to reiterate it -- is we've got
this new accounting rule coming on that will require
us to put
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the corporate office facility on the balance sheet
and that is $13 million in debt. So that'll impact
our reported debt number, but it's really taking an
operating lease and because of accounting rule
changes recording it as a capital lease.
Carter Newbold: And then - so you bring the asset on the balance
sheet at a market basis and that's the $11 million
that you mentioned?
Keith Klein: You bring the asset on at a basis as though you had
depreciated it from the beginning of when you
acquired or when the asset was originally leased.
That's the $11.2 million.
Carter Newbold: So that will give you a couple of million-dollar
non-cash event?
Keith Klein: Correct.
Carter Newbold: OK.
Keith Klein: It shows up as a cumulative effect of a change in
accounting principle, below the line.
Carter Newbold: Great. Thanks a lot.
Keith Klein: Thank you.
Operator: Your next question comes from Wilmot Kidd of Central
Securities.
Wilmot Kidd: Hi. Can you remind me? You're purchasing 250 tractors
in the second half of the year - what percentage of
your fleet will that represent after you bought them?
Keith Klein: It's about 25% of our company-owned fleet.
Wilmot Kidd: Uh-huh - and what's the average age now and what will
it be? How about that?
Keith Klein: We're running - I haven't looked at it exactly - but
we're right about 2.3 years right now.
Wilmot Kidd: Uh-huh.
Keith Klein: Once we get through this replacement cycle -- as
quick as it happens -- I think that's going to come
down to, and I haven't projected it out lately, but
somewhere around 1.9 to 2 years.
Wilmot Kidd: Well, that's extremely competitive, isn't it,
vis-a-vis all your peers?
Keith Klein: This is in the ballpark. It's a four-year replacement
cycle and if you have it evenly spread out, the
average age at any point in time would be two years.
There are some of our peers that did a bunch of
replacements last year that are under two.
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Wilmot Kidd: OK.
Keith Klein: But we feel very comfortable with a four-year
replacement cycle.
Wilmot Kidd: Well, I'm curious as to why you talked about getting
so - pulling back if you will, on your stock
repurchase. It seems to me like this is a great
opportunity to buy your stock back in. Why this
expression of caution?
Keith Klein: I think, from my perspective, we've got a lot of cap
ex that we're going to be taking on in the second
half of the year. And we have been focused on debt
reduction. I want to continue to focus on that...if
there's opportunities that makes sense for us to do
it, we'll certainly exercise that, but we're just
going to be cautious in our approach.
Wilmot Kidd: Your book value is substantially higher than market.
Keith Klein: Correct.
Michael Paxton: Correct.
Wilmot Kidd: And some of us would even hope that the company is
ultimately or even now worth more than book value. So
we feel like you ought to - you've proven that you
can reduce debt. It seems like this is the time to
take advantage of buying your stock in. You guys
don't really feel that way.
Keith Klein: I don't think we're saying that. I think it's, you
know, because of the other debt that we're taking on
we just want to be cautious in our approach. You're
point is well taken and certainly part of what we've
been thinking about as well.
Michael Paxton: I mean we're not eliminating our options -- clearly
Wilmot. So which is - I think that Keith's point is a
good one, and it is that, you know, we're going to be
prudent about it. And we'll - if the opportunity
arises and it seems like it's the right opportunity,
then we would pull the trigger on it.
Keith Klein: Yeah, I will say, Wilmot, that not all of our
shareholders feel the same way that you do. We get
feedback quite strongly on the other side of that
equation as well.
Wilmot Kidd: Meaning they don't want - they feel it's too risky?
Keith Klein: Various reasons, but they would just as soon see us
pay down debt even faster than if we did - if we
bought back shares. So, it's a balancing act there as
well.
Wilmot Kidd: Hey, well I've certainly been fully on the side of
paying down debt. So, I just wanted to get your
feelings on the subject and let you all make the
judgment.
Keith Klein: Well, we appreciate your feedback there.
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Michael Paxton: Thanks a lot.
Operator: Again, I'd like to remind everyone in order to ask a
question, please press star then your number 1 on
your telephone keypad.
Your next question comes from Carter Newbold of
Rutabaga Capital Management.
Carter Newbold: Sorry, I missed a couple. You guys there?
Keith Klein: Yeah.
Michael Paxton: We're here.
Carter Newbold: It looks likes sequentially the insurance and claims
line is up about half a million or 600,000 bucks
since the first quarter. Is there something going on
there that you can talk about?
Keith Klein: I briefly touched on it in my comments...
Carter Newbold: Sorry.
Keith Klein: ...Oh, that's all right.
The real issue is we had a couple of surprises in
terms of claims settlement. Things that, we felt -
you remember at the end of the year, we had some
outside help in evaluating our overall claims
exposure and looking at individual claims and we got
surprised in a couple of areas.
Our accident frequency rates still remains low but -
and that's one of the reasons that we've made some
changes in the claims management area. We brought in
some leadership - we brought somebody with 20 years
of claims management experience in to head up that
group. We're just making sure we're doing the right
job in managing those claims going forward so we
don't have those surprises.
Michael Paxton: But these are older claims. One was a jury verdict.
The other was a settlement. And we could do nothing
about the jury verdict except be surprised at the
level given what our outside objective council told
us they thought these claims would end up settling
at. So it's one of those things where we're doing our
best to try to clean those up and have the right
reserve levels in place. And every once in awhile you
get surprised and unfortunately we got two of those
this time.
Carter Newbold: OK. Secondly, I wonder if you could just remind me
again of whose engine is on the tractors that you're
buying the second half of the year. How confident you
feel in the operating cost of the new tractors? And,
if you'd be willing to, how you think the operating
cost of the new tractors will compare with those you
will be replacing?
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Keith Klein: The new engine is a Mercedes engine which, was
delayed in terms of compliance with the emissions
standards. That engine has been out there for quite
awhile overseas and there's a lot of demand for it
here in the US. There is a lot of good feedback.
There is some tweaking you need to do with that
engine when you get it in, from what I've heard, but
we've got a program together to really manage that
process. And we feel very comfortable that we're
going to have less cost associated with maintenance
going forward. If you remember back on our
replacement cycles, we had three years where we
acquired a whole bunch of new equipment and then we
didn't buy any equipment in the fourth year. We're
now coming up to where the tractors we're starting to
trade in are mainly five-year old tractors. We want
to get an even replacement cycle going forward, so we
ran out some of our tractors to five years. That
group that we're turning in this year -- the majority
of that is five-year tractors. So we're going to get
rid of half of the five-year tractors we have left.
Then next year the group that currently is four-years
old will be five years and we'll trade that in and
then we'll be back to a four-year replacement. So
we're getting rid of some tractors that don't have
warranty right now with some that do...twenty-five
percent of the fleet, so I feel comfortable that that
component of the cost structure will go down.
Michael Paxton: We - from an efficiency standpoint, we don't
anticipate any significant reduction in efficiency
with this engine. We're pretty fortunate we were able
to get in on this program. What we are hearing on the
newer engines that meet the new emissions control
standards is that the efficiency is even worse than
originally anticipated. So it's our hope that when we
have to buy those new engines that some changes will
take place that provide more efficiency than we're
seeing today.
Carter Newbold: OK. And how big is our class of five-year old
tractors that you'll replace in 2004? Is it similar
to this year's or...
Keith Klein: It is. Those are - they're four-year old right now.
So we've got a group that's going to go out to five.
But they're four-year old right now and that's about
240 tractors.
Carter Newbold: OK. So just on a very early look gross and net cap ex
next year should look vaguely similar to this year?
Michael Paxton: Well - what about the trailers?
Keith Klein: Yeah, on the tractor side that's true. You know, our
trailers - we're continuing to evaluate at what point
we need to start replacing some trailers. Our oldest
trailers right now -- once we get through our
disposal program -- would be 1996 trailers and we may
choose to replace some of those next year as well.
Carter Newbold: OK. Versus none this year.
Keith Klein: Correct.
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Michael Paxton: Correct.
Carter Newbold: OK. Thanks a lot guys.
Keith Klein: You bet.
Operator: Your next question comes from Dick Ryan of Feltl &
Company.
Keith Klein: Hey, Dick.
Dick Ryan: Good morning. I'd like you to talk about some of your
key lanes having some issues. Were they competitive
issues or mix issues?
Michael Paxton: I don't think we talked about key lanes as much as
geographic centers. We are in some areas -- I mean
Minnesota is a good example -- it just seems to be a
slower freight market than it has in the past. It
seems to be felt by our competitors as well. And so
that area and a couple of other areas are really
where some of the slowness was taking place. So it's
almost more market or region - market driven than
lane driven, per se.
Dick Ryan: How would you categorize your efforts to get rate
increases since, as you mentioned, you came out of
the blocks late?
Michael Paxton: I don't think we're where we need to be, Dick. You
know, the effort has been there. We've been tracking
it weekly. We have some of our larger customers under
contract so we anticipate some rate increases but it
will be later in the third quarter because it's when
the contracts expire. So we've not seen those yet
because of the contracts. Other than that, we are, as
I - I don't know if I pointed it out here, but we're
going to take, with Craig's help, a more aggressive
approach on some of our -- what I would call non-core
customers -- and where we think there may be some
opportunities. So we'll move forward on that as well.
Dick Ryan: OK. On the expense side, anything going on with
driver pay or turnover there?
Michael Paxton: Turnover, yes. I think that because of the slow
freight market, we've seen slightly higher turnover
than we have in the past. That seems to be abating a
little bit as things start to pick up but clearly the
turnover is a little bit higher. From a recruiting
standpoint, it's a little more difficult to bring in
owner-operators right now. Again, you know, the
freight's slow and some of these guys are just moving
into other jobs quite frankly. On the freight pay --
excuse me -- the driver pay side, we are looking at
some opportunities there and that will be part of
that Nickel Challenge.
Dick Ryan: OK. Now have you started providing service to the
owner-operators yet?
Michael Paxton: We just kicked that off at the beginning of this
month. In our Janesville, Wisconsin facility we have
the whole system in now -- the maintenance
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system in -- and so far so good. We're using that as
kind of a model and working through any kinks in
that. We should be able to start to move out fairly
aggressively in August of this year with the rest of
the service centers.
Dick Ryan: OK. Thank you.
Michael Paxton: You're welcome.
Keith Klein. Thanks, Dick.
Operator: Your next question comes from David Dubard of
Wellington Management.
David Dubard: You know, instead of adding capacity in the back half
of the year, I wonder if any thought has been given
to dramatically shrinking the capacity of the
company, culling out the unprofitable lanes and
drilling down into what the company really does --
and does well. I suspect from looking at the numbers
there are parts of this business that are very good.
But the numbers you're putting out don't really
support adding capacity. You still have 9% of your
company fleet unseated. So why not take that cap-ex
money and plow it into debt reduction or the share
repurchase program and cull down to where the value
is here?
Keith Klein: Maybe I wasn't clear when I talked about that. The
250 trucks we're doing, David, is replacement
capacity. It's not adding capacity. It's getting rid
of some older trucks that we have in the fleet
through the turn-in program and replacing them with
newer trucks and not running them out past, you know,
right now it's about five years on most of that
equipment. So we're not planning to add any company
capacity at this point in time.
David Dubard: But why even maintain capacity? Why not really take a
whack at it and find those lanes and those customer
relationships where economic value can be gained?
Michael Paxton: It's an age-old question, I think, and it's one that
we have debated here from time to time quite frankly.
The issue that you find when you start to cull
through the unprofitable lanes is that you then
impact some other portion of the network. And it's
not a one-for-one trade-off. What it does is then
create some significant service issues. What we have
been doing, David, is through the SPA system and the
department we set up, is literally monthly, region by
region, going through those lanes where we have
problems. And we're using that information to either
negotiate for higher rates or ultimately get off
those lanes. But we do it prudently so that we don't
impact another piece of business that in fact is
profitable and part of that profitability is driven
by the fact that we have the trucks in the right
place via the less profitable lanes. So we're doing
it, but we're kind of doing it on a lane-by-lane and
customer-by-customer basis.
David Dubard: Thank you.
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Operator: Your next question comes from Donald Broughton of AG
Edwards.
Keith Klein: Hey, Donald.
Donald Broughton: Gentlemen.
Keith Klein: Yes.
Michael Paxton: Yes, sir.
Donald Broughton: Real quick. Can you walk me through how
you think you're going to cut five cents a mile out
of your cost? That's - everybody - when I went
through line item after line item, for everybody in
the industry, I see upward pressure on cost not
downward pressure on cost. Please tell me how you're
going to get five cents a mile out?
Michael Paxton: Go ahead.
Keith Klein: It comes from a number of different places. If
you look, I think, - if you look at our cost
structure, our cost structure is higher than a number
of the other players in the industry. So I think
there's some opportunity for us to do some things
differently.
Donald Broughton: Well, then that begs the question -- why you haven't
cut the cost already?
Keith Klein: I think some of it we have. And, you know, now
with more of a formal program and our cost per mile
has come down over the last year. And we want to be
more aggressive on that within the organization. So
the areas that we're looking at and the areas that
stand out are, you know, the whole salaries and wage
line items. I think there is some more opportunity
there. We've taken some cost out there but we think
there is some more within that area.
Donald Broughton: Out of driver pay?
Keith Klein: We think that we're at the higher end of the scale in
terms of driver pay.
Donald Broughton: Yeah, but you already have unseated trucks, guys.
Michael Paxton: Yeah, but - it would not affect the current driver
base.
Donald Broughton: Then I don't understand. If you're going to lower
driver pay - if you take money out of driver pay, how
are you going to have more drivers?
Michael Paxton: We would grandfather drivers in -- any current
drivers -- into any plan that we did.
Donald Broughton: Yeah, but if you lower driver pay - the driver pay
you already have, you - you already have unseated
trucks. I mean, the concept sounds fine, but I don't
understand how you effectively get there. There's a
pressure - I
13
mean, I'm seeing, you know, in the Werner release
that they're raising driver pay. I'm seeing in -
across the board, people concerned about unseated
trucks - yourselves included -- that sounds like
increased driver pay to me. Insurance is going up. I
mean I go through the line items, it shows equipment
is more expensive to buy. But you have to replace
equipment that's getting older, and costing you more
in maintenance. I don't understand.
Michael Paxton: When you go through the service center decision that
we've made -- which is going to yield some
significant savings for us -- when you do the
analysis on driver pay against our key competitors,
in fact we are at a competitive disadvantage. And
again we would not in any way impact the current
drivers, but any new drivers coming in would be paid
a different scale. When you look at some other areas
in our organization where we feel -- even though
we've been driving up productivity as we've brought
to your attention every quarter -- we're convinced
that there are other areas and as we looked at it,
they're there. And in our opinion, they would not
impact whatsoever our ability to run this company
effectively.
Donald Broughton: OK. Well, good luck.
Michael Paxton: Thank you.
Operator: At this time, there are no further questions.
Michael Paxton: OK. Yeah, thanks very much everybody. Thanks, Shayla.
Operator: You're welcome, sir.
This concludes today's conference call. You may now
disconnect.
END