Under a new federal law, taxpayers submitting new offers in compromise (OIC) must make a 20 percent nonrefundable, upfront payment in many cases, the Internal Revenue Service announced. An OIC application is deemed accepted if the IRS fails to act upon it within two years. The IRS is updating its Form 656 to reflect the tax-law changes. For more information, go to this site and search IR-2006-16.
Indiana Supreme Court halted litigation to kill Gov. Mitch Daniels’ plan to lease the Indiana Toll Road to a foreign consortium for $3.8 billion when it ordered plaintiffs to post a $1.9 billion bond for the case to proceed. The Citizens Action Coalition had lost the first round of litigation in May. The lease is part of the governor’s $10.6 billion Major Moves plan to pay for new state highway projects.
A seven-mile stretch of Colorado’s Interstate 25 now has a tolled express lane that will cost truckers $18 per trip. One of the existing high-occupancy vehicle lanes between downtown Denver and U.S. 36 has been converted to the multiuse tolled express lane. Vehicles using it without a transponder will receive a $70 citation by mail. Truck owners can obtain a transponder and create an online account at this site.
American Truck Business Services (www.attrucktax.com) said it has merged with The Alliance of Independent Trucking Professionals, an association of professionals providing education and services to owner-operators and company drivers.
When looking for ways to improve the profits and cash flow in your company, studying the monthly and annual financial statements is only the start. To analyze the entire profit-improvement picture, it also is necessary to break the P&L down into component parts – and perhaps redesign it a bit.
Robert Matheson, a senior consulting division manager in a leading accounting firm, says traditional accounting rules sometimes disappoint when it comes time to make decisions on how to improve P&L. Worse, this process has forced many companies to negotiate revenues from a market-rate approach, as opposed to a cost-profit approach.
“Traditional accounting rules are written for accountants and bankers,” Matheson asserts. “Those rules should be followed, of course. But when I analyze the profit erosion of a transportation company, I work with the management to recast the P&L into a format I call ‘TruckSpeak.’ This makes it easier for operating people to understand the results – and how to improve them.”
Because transportation companies sell a service instead of a product, almost all expenses are lumped into a single category of “operating expenses.” That means fuel, driver pay, equipment costs and other controllable costs are lumped in with officer and administrative salaries, insurance expenses, accounting and legal, and other overhead. This is proper, according to Generally Accepted Accounting Procedures, and bankers and lenders expect that your financials will follow GAAP.
“Because our accounting formats make it difficult to separate controllable or variable costs from general overhead, many fleet executives may simply give up on trying to understand costs, and make decisions based on what rates shippers are willing to pay,” Matheson says. Only then do they try to make their costs fall in line – and sometimes that simply is impossible. “If a mistake is made on the front end where you price a lane below your costs, there’s no way to make it up in volume,” he says.
Here’s where Matheson recommends fleet executives take a page from their product-selling business brethren. “Recast your P&L into TruckSpeak,” Matheson says. “By this, I mean setting up revenue, cost of shipping, gross margin and general overhead into your P&L.” Then, gross margin analysis can help you discern your situation more accurately – and target the actions that can help improve the results.
This can be challenging, given that you must consider backhauls and empty miles, and sophisticated software is needed to help utilize the ultimate solution of activity-based costing. “But I’ve found that this simple recasting of the P&L can help transform your ability to negotiate better rates,” Matheson says.
How does it do this? “For one thing, if you knew you were accepting a lousy rate that would put you out of business, would you do it?” Matheson asks. “Or would you work harder to convince the shipper for a higher rate? At the very least, you’d make your equipment available to those shippers who were paying profitable rates, and de-emphasize the lower-yielding customers. You have to know when to walk away from freight, and be willing to do it.”
With the current capacity tightness, there’s no better time than now to build your relationships with the right customers who appreciate you and pay you – and drop the ones that are not right for you.
In implementing a TruckSpeak P&L, it is important to start with the one your accountant created, then work with your operating people to get them to buy into the TruckSpeak format and the resulting numbers. After all, it’s the folks in operations who are going to do most of the problem-solving once they understand what must be done to achieve higher profits.
Once the TruckSpeak recast is done, you then can analyze the causes of any unexpected relationships that result, such as extent of fuel surcharge recoverability, base rate profitability and the extent of operational efficiency.
“For highly profitable companies, these percentages typically fall into predictable patterns,” Matheson says. At the very least, you can compare your results to the forecasts you made when you bid the work. “When percentages fall outside the norm, there are typically two reasons: operations problems such as too much equipment, too many hours or too many miles; or commercial-side problems such as accepting a rate that is simply unprofitable. For the latter, you may have to be patient for a while before you can renegotiate.”
Either way, you can break down the problem and begin to find ways to solve it, says Matheson. “Over time, I’ve seen remarkable profit improvement in companies that think this way.”
FedEx reports higher 4Q earnings
FedEx Corp. reported a 27 percent increase in fourth-quarter earnings, citing solid economic growth in U.S. and international markets. Net income rose to $568 million, up from $448 million a year ago. Revenue totaled $8.49 billion, up 10 percent from $7.72 billion the previous year, the company announced.
Total combined average daily package volume at FedEx Express and FedEx Ground grew about 4 percent year-over-year for the quarter, led by continued growth in ground and international express shipments. The company says it sees continued growth in FedEx International Priority, U.S. domestic overnight express box, FedEx Ground and FedEx Freight shipments; and improving operating margins in the transportation segments.
“FedEx will significantly invest in growth opportunities in fiscal 2007,” says Alan B. Graf Jr., executive vice president and chief financial officer. Graf pointed to the company’s acquisition of Watkins Motor Lines for $780 million, announced in May, and its expansion of operations in China.
Green doesn’t mean tax-free
To encourage employees to purchase environmentally friendly hybrid cars, several companies reportedly are offering “rebates” or cash incentives to their employees in select areas to offset the purchase price of these vehicles. The Internal Revenue Service recently reminded employers that just like other forms of compensation, these cash incentives are taxable compensation.
The IRS said employers should include the cash incentive amounts in employees’ compensation reported on year-end Form W-2 earnings statements. The cash incentives also are subject to income tax withholding and employment tax. The tax code provides for an exclusion from income for employee discounts only if the employer produces the product and certain other requirements are met.
The tax code already includes incentives for the purchase of hybrid cars. The Alternative Motor Vehicle Credit applies to hybrids purchased on or after Jan. 1, 2006, and it may be as much as $3,400.
U.S. Bank buys Schneider Payment Services
U.S. Bank, which operates the PowerTrack freight payment provider, agreed to purchase Schneider National’s Schneider Payment Services, which will be operated as U.S. Bank Freight Payment Services. The deal rounds out PowerTrack’s ability to service freight payment customers by adding a fully-managed solution, U.S. Bank said. The acquisition adds more than $7 billion in freight payments to the PowerTrack portfolio. In addition, Schneider Logistics will use U.S. Bank Freight Payment Services and PowerTrack as the payment provider for its customers in North America. Terms of the purchase were not disclosed.
J.B. Hunt earnings up slightly
J.B. Hunt Transport Services said its profit for the second quarter of 2006 rose 1 percent on greater volumes in key segments, and higher freight rates and fuel surcharges. The company said in the second quarter it earned $55.3 million, compared to $54.6 million in the same period of 2005.
Revenue rose 10 percent to $838.3 million, compared to $759.2 million in the same period a year ago. J.B. Hunt cited revenue from fuel surcharges, which rose more than 57 percent to $114.2 million from $759,206 in the year-ago period. The company also said it repurchased about 7.8 million shares of its stock in the quarter at a cost of about $190 million.
J.B. Hunt said it had nearly 400 more trucks on the road in the most recent quarter than it did a year ago; most were dedicated to intermodal transport, where business rose 5 percent and pricing power increased by 4 percent versus last year. Freight rates rose about 4 percent in the most recent quarter, the company said.