Burlington Northern Sante Fe Corp. Q4 2008 Earnings Call Transcript

Burlington Northern Sante Fe Corp. (BNI)

Q4 2008 Earnings Call

January 21, 2009 4:30 pm ET

Executives

Matthew K. Rose - President and Chief Executive Officer

Thomas N. Hund - Chief Financial Officer

John P. Lanigan - Chief Marketing Officer

Carl R. Ice - Chief Operating Officer

Analysts

Thomas Wadewitz - JP Morgan

Randy Cousins - BMO Capital Markets

John Barnes - BB&T Capital Markets

Edward Wolfe - Wolfe Research

Jason Seidl - Dahlman Rose & Co.

John Larkin - Stifel Nicolaus & Company

Christopher Ceraso - Credit Suisse

David Feinberg – Goldman Sachs

Gary Chase - Barclays Capital

Matt Troy - Citigroup

Ken Hoexter – Banc of America

William Green - Morgan Stanley

Walter Spracklin - RBC Capital Markets

Presentation

Operator

Welcome to the BNSF Corporation conference call, hosted by Matt Rose. At the request of your host, all lines are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to BNSF's Chairman, President, and Chief Executive Officer, Mr. Matt Rose.

Matthew K. Rose

Good afternoon everybody, and welcome to our fourth quarter financial presentation. With me here in Fort Worth today are Tom Hund, EVP and Chief Financial Officer; Carl Ice, EVP and Chief Operations Officer; and John Lanigan, EVP and Chief Marketing Officer.

Our presentation today is available by webcast. I'll start by directing everyone's attention to our first slide regarding forward-looking statements. The statement basically cautions everyone that any of the forward-looking information presented here today could be affected by a number of factors, which could cause actual results to differ materially from any forecast information we provide.

I'd like to also mention that we'll be providing non-GAAP measures today in our commentary, and we ask that you refer to the Investor Relations page on our website for reconciliation to GAAP.

So taking a look at our results for the fourth quarter we are pleased to report earnings per share of $1.79. Weaker than anticipated volumes were offset by lower expenses and a fuel tailwind. The $1.79 earnings per share is a $0.23 increase over fourth quarter 2007 earnings per share of $1.46.

The improvement in earnings is a result of improved yields, strong cost control, continued productivity improvements, and declining fuel prices offset by 7% decline in unit volumes.

Freight revenue increased 3% to $4.2 billion due to continued strong yield and higher fuel surcharges offset by the decline in those volumes. John will give you a detailed report on the results for each of our business units in his review.

Our operating ratio was 73.7%, an improvement of over 300 basis points compared to the fourth quarter of 2007.

These results reflect the strength of our diverse franchise and our focus on effectively managing our resources and driving continued productivity. Carl will provide you with an operations update in his section and Tom will provide you with the details on all of our expense categories.

Before I turn it over to Tom I want to take a moment to recap our full year results. We achieved record earnings per share of $6.08, or $6.39 excluding a $0.31 second quarter charge related to the environmental matters in the State of Montana.

We reported freight revenues of $17.5 billion based on strong yield improvement and higher fuel surcharges despite lower unit volumes, especially in the fourth quarter.

Free cash flow after dividends was about $750.0 million, however, on a comparative basis to prior years the business generated free cash flow exceeding $1.3 billion. Tom will fully describe this difference in his presentation.

And finally, I am pleased to report an improvement in our return on invested capital to 10.7% from 10% last year.

Now I will turn it over to Tom.

Thomas N. Hund

As Matt already mentioned, earnings per share in the fourth quarter was $1.79, which is 23% higher than the fourth quarter of 2007.

Quarterly operating income was $1.116 billion, an increase of $166.0 million, or 17%, over 2007.

Our operating ratio was 73.7% for the fourth quarter, an improvement of 320 basis points over 2007.

And now, as usual, John will cover revenue and I will give the details on expenses.

Operating expense was $3.257 billion for the quarter, $38.0 million, or 1%, lower than the fourth quarter of 2007. This decline was driven by lower expense for compensation and benefits as well as fuel.

Compensation and benefits expense was $937.0 million, down $42.0 million, or 4%, from 2007 and compensation and benefits expenses for employee decreased 3% on a 1% decline in headcount. This reduction was the result of lower volumes cost controls and lower incentive compensation for exempt and scheduled employees, partially offset by wage rate increases and overtime pay related to severe weather during the quarter.

Purchase service expense was $534.0 million for the fourth quarter, up $21.0 million, or 4%, from 2007. About half of the increase was driven by higher locomotive maintenance.

Depreciation expense was $358.0 million, up $18.0 million, or about 5%, from last year as a result of our capital investment as well as updated depreciation studies.

Equipment rents expense was $218.0 million for the fourth quarter, down 8% from 2007 due to improved velocity, lower volumes, and the return of leased equipment.

Material and other expense of $255.0 million was up $25.0 million from the fourth quarter of 2007. This increase was the result of higher derailment cost and bad debt expenses offset by lower personal injury costs.

And lastly, fuel expense of $955.0 million was 4%, or $40.0 million, lower than the fourth quarter of 2007. This decrease was a result of lower units handled, improved efficiency, and lower prices partially offset by hedging losses.

Taking a deeper dive at fuel, as you know, fuel expense has been extremely volatile this year. Our monthly fuel price per gallon before hedge impact ranged from $4.01 in July to $1.94 in December and for the fourth quarter in total the average fuel price per gallon was $2.49 compared to last year’s fourth quarter of $2.59.

Earnings include about a $0.40 per share benefit or tailwind this quarter which represents the net change in fuel expense offset by fuel surcharges. A large portion of fuel surcharges lagged by up to two months and last year prices were rising while this year prices were falling. Overall, the fuel surcharge program is about 85% effective.

Turning to our hedge position, the recent drop in fuel prices has reduced the current market valuation of our 2009 hedges. And at current forecasted fuel prices the net impact of lower fuel prices, hedging losses, and fuel surcharges is expected to be about flat on a year-over-year basis in the first quarter.

Interest expense in the fourth quarter was $137.0 million and we expect first quarter 2009 interest expense to be about $150.0 million, primarily due to additional borrowings we did late in the fourth quarter.

We ended 2008 with capital commitments of $2.850 billion and as Matt mentioned, return on invested capital improved to 10.7% from 10% last year. We have updated our methodology, by the way, of calculating return on invested capital by using a more conservative rate to discount future operating lease payments to a debt equivalent that is more in line with our current borrowing costs. The effect of this change is a reduction in all periods by about 50 basis points and we have restated all periods to reflect that.

Free cash flow after dividends for the year ended 2008 was about $750.0 million, however, as Matt mentioned, on a comparative basis to prior years free cash flow exceeded $1.3 billion. Now the difference in the two amounts is caused solely by a financing decision that we made at the end of the year. Equipment acquisitions made during 2008, totaling about $600.0 million, would normally have been leased with the proceeds added back to invest in cash flow.

However, because of the state of the financial credit markets we opted instead to issue $500.0 million of unsecured debt in the fourth quarter, which is excluded from the calculation of free cash flow.

Finally, in 2008 we spent about $1.150 billion on our share repurchase program.

Now I will turn it over to John for a detailed review of revenues by business units.

John P. Lanigan

In the fourth quarter we achieved a 3% increase in freight revenue, primarily due to improved yields and fuel surcharge revenue. Our units handled were down 7% with revenue ton miles down 5%.

In spite of the continued slowdown in the U.S. economy we delivered an improved revenue performance led by a price increase of 6%.

Fourth quarter fuel surcharge revenue was about $220.0 million more than last year, due largely to the lag effect.

Now turning to the individual business units, the fourth quarter was an all-time record quarter for coal in both revenue and volume. Despite high stock piles demand for PRB coal remained strong in the fourth quarter. Continued strong demand led to volume growth, driven primarily by increased business with current customers and Eastern conversions.

In our agricultural products business unit we produced a record fourth quarter for revenue despite two issues within the grain export market. First, global crop production has recovered from 2007, leading to increased competition for the U.S., particularly in wheat and corn. Second, the global economic slowdown tempered demand this quarter for grain and grain products, particularly those used for higher protein animal consumptions.

Soybeans produced a 39% revenue increase on 17% higher volumes while Mexico grain demand, mainly for corn and soybeans, increased 30%. These only partially offset a 23% decrease in export grain, excluding Mexico, with the Texas Gulf down 54% and Pacific Northwest down 7%.

Ethanol production was still strong on a year-over-year basis in the fourth quarter, adding domestic support to corn demand. Ethanol volume was up 46%, although lower oil prices and decreased subsidies will likely lead to slower growth in 2009.

Declining commodity values and higher input prices contributed to a decline in demand for fertilizers as producers were reluctant to higher production costs in the quarter. Overall fertilizer volume, which was flat for most of the year, declined 32%.

Bulk foods also saw a double-digit unit decline of 18% for the quarter.

Industrial products revenue was down 1% with a 14% decline in units which was offset by higher price and increased fuel surcharge revenue.

Petroleum products produced 10% revenue growth led by LPG. The recent cold snap was positive for propane late in the quarter.

We also saw continued strength in the Canadian oil sands.

Construction products increased 2% with a record fourth quarter minerals volume. Demand for drilling materials led the increase in minerals and clay.

Building products 10% revenue decline was almost entirely due to lumber and panel, which are highly correlated to housing starts. Lumber and panel volumes were down 39%.

Consumer product results were impacted by the slowing U.S. economy as we saw a 5% decline in revenue on 8% lower volume.

Domestic intermodal reported a 3% decline in revenue on a 3% decrease in units.

International posted 6% lower revenue on an 11% decline in volume.

And our auto segment saw a 14% decline in revenue on a 29% decline in volume.

Due to the economic recession we are continuing to see slower volumes in many sectors and looking forward, we expect this trend to continue during the first quarter of 2009. Solid demand for PRB coal should continue. First quarter 2008 saw a record demand for U.S. crops. This year strong global supply combined with competitive advantages on price should lower demand for U.S. supply.

Industrial products should continue to feel the impact of the economic slowdown, especially in construction products and building products.

In consumer products, volume will be challenged by weak demand for consumer goods and automobiles.

And now I will turn it over to Carl for a review of operations.

Carl R. Ice

Over the next few minutes we’ll cover our familiar topics of velocity, service, and productivity, and of course review our typical metrics.

But before we do that we thought it would be helpful to comment on two topics, weather and cost control because we now from your comments and questions that you would like to hear us comment on those.

So first in terms of weather, you know that 2008 was challenging during much of the year, with flooding earlier and certainly the year ended in much the same fashion. The last two weeks of the year we had snow across the majority of our network and extremely cold weather across the north. That was followed by snow melt and flooding in the PNW and continued extreme cold. That had some impacts on things like train starts and because of train size and over time it made our metrics a little more sluggish as we came out of the holidays.

As always though, we know that the weather is part of railroading. Our teams responded diligently and will continue to respond diligently and the network is coming back on line well.

In terms of cost control, we have long had a viewpoint of the crucial nature of efficiency. When we are in growth periods efficiency is important because it drives service and capacity and in difficult times, such as we’re in now, cost control is increasingly important. We are keenly aware of that. Matt will cover the details of some of that later, but from a more philosophic view I would make three points.

First, we have long worked and discussed with you making as many of our costs as possible vary with volume. Secondly, in concert with that we have set up ways that we can adjust our resources so that as volume changes we can adjust those as well. And finally, we have approvals and review process in place that make sure that our cost levels match our points of view about volume and are appropriately controlled. So you can expect that to happen throughout the quarter and throughout the year.

Turning towards our metrics, locomotive velocity miles per day was relatively flat year-over-year, down slightly. This was primarily as a result of mix. There was some impact, as I mentioned earlier, from weather but this is primarily mix as our fast returning intermodal trains have fallen off so we had less locomotives committed to that segment.

In terms of car velocity, we had a record in the fourth quarter, a little over an 8% improvement. We expect that improvement to continue throughout this year.

As you would expect from those kinds of improvement, our on-time performance also improved. We ended for the system at 88.6% for the quarter. That’s the best on-time performance we’ve had since 2003.

In terms of people productivity, we did have a work force reduction of a little over 1% year-over-year. Gross time miles did fall more than that so we saw a deterioration on our productivity measure but it’s important to mention that that is primarily from lag. The number of employees is an average throughout the quarter. The number of employees we had fell throughout the quarter, so for instance, we had about 800 less employees at the end of the quarter than this average shows. So we will see as the first quarter unfolds that our work force will match our volume.

To put it a different way, our train starts were down about 7.5% for the quarter compared to our volume drops. In December train starts fell more than volume did and that trend has continued into the first part of this year.

In terms of our online inventory, we did have a reduction in inventory, not quite as much as units. Part of that is from mix. But also this measure continues to carry in cars that are stored and we have a significant number of cars that are put away, out of our way, that we’re not incurring costs on but they’re still showing these inventory numbers.

And then finally, in terms of fuel efficiency, we had the sixth record quarter of fuel efficiency and we continue to believe we have the right metrics to drive for improvement in fuel.

So in summary, in 2009 we will have our familiar focuses to drive service and velocity but we will also make sure, as I said at the start, that we will appropriately control our costs in relation to volume.

Matthew K. Rose

As you all know, 2009 is shaping up to be a very challenging year. We are in the midst of a global recession and one of the most difficult years ever for the U.S. economy. BNSF has a strong track record of managing through such economic downturns.

With that in mind I wanted to touch upon the guiding principles we will use to manage BNSF through the recession and into the recovery. We are acting quickly and prudently to adjust our operations for the declining volumes and we are taking other measures to reduce expenses and capital spending.

First, we will focus on maintaining a strong railroad. We are continuing to invest in our infrastructure to ensure safety and efficiency, including the maintenance of our core routes. We anticipate 2009 capital spending to be about $2.700 billion, a reduction of about $150.0 million versus 2008. The program is almost exclusively replacement capital and locomotives. The locomotives are part of a long-term purchase commitment with the manufacturers. We will also review our capital plans during the year and adjust them more if necessary.

Turning to the expense side, we continually review our asset needs. We currently have over 35,000 cars in storage and have placed over 700 locomotives in storage. In light of the current economic uncertainty and lower volumes, we have taken a number of actions to ensure we effectively manage our compensation costs. These actions include employee furloughs of about 2,000 year-to-date with this number expected to grow to about 2,500 shortly, and also minimizing for positions vacated by attrition. We expect first quarter headcount to be down about 5%.

And while our scheduled work force will receive a negotiated 4.5% wage increase this year, we have eliminated merit wage increases for our salaried work force in 2009. Despite the current economy and significantly weakening of the financial markets, BNSF has maintained strong liquidity and good access to the short- and long-term debt markets and we will place a premium on maintaining flexibility and liquidity until the markets turn around.

Based on a lack of insight in the near future, we are not in a position to provide earnings guidance at this time for the year. I can tell you that slightly less than two-thirds of our revenues are under contract and pricing for about 90% of that contract revenue is already set for 2009.

As you would expect, some cost components of RCAF, especially fuel, have dropped significantly. Since RCAF is the escalator for about half of our coal contracts, coal RPU will moderate. We have a considerable amount of variability built into our cost structure and that variability increased over a longer time period.

In addition, we placed an increase focus on expense control, including purchase services and other discretionary expenses. If current volume trends, as compared to the same period last year, continue through the first quarter and given the current market for fuel prices, revenue would be down in the mid-teens.

We also believe that operating expense in the first quarter would be down in the mid-teens, including a headwind on fuel hedges, which Tom has already described. All of this would translate into earnings per share of about $1.00 for the first quarter.

With our strong network, diverse franchise, and ability to manage our resources, the long-term prospects for BNSF remain strong and when the economy does recover BNSF is well positioned to take advantage of the opportunities in the market place.

With that, we are ready to take some questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Thomas Wadewitz - JP Morgan.

Thomas Wadewitz - JP Morgan

On pricing, obviously a lot of concern out there that the short decline in volumes will affect your ability to take pricing up and wanted to get a sense if you could tell us what the pricing looks like on contracts, let’s say in the carload area that you’ve been signing recently versus the pricing you may have achieved end of the summer, let’s say four months ago. And directionally has that changed a lot and what would your view be on pricing trend in 2009.

John P. Lanigan

As Matt mentioned in his final comments, 90% of our contractual business has already been closed for 2009 so we have very little left to close. In fact, the vast majority of what’s left does not close or expire until the back half of the year. So we are fairly well set from a pricing standpoint.

And recent pricing has been more challenging, obviously, than if we went back a couple of years, but we’re still achieving positive pricing results. And we have typically not given specific guidance on pricing going forward. In the past, as we have talked about it, historically our pricing remains strong and we think it will be historically strong as we work throughout 2009.

Thomas Wadewitz - JP Morgan

This slide you showed in fourth quarter when you provide the breakdown, you show about 6% from price in terms of the impact on yield. Is it with 90% locked in on the contracts you should have pretty good visibility to what that number might look like in 2009. Do you think it would be dramatically different than 6% or do you think given the information you have it wouldn’t be that much different than 6%. Kind of some directional comments on that.

John P. Lanigan

Directionally one of the big headwinds from a pricing standpoint is RCAF and the fact that the input components of RCAF are dropping dramatically and so that is going to affect pricing going forward. So it will be difficult to maintain that type of pricing because of the downward impact on RCAF.

Thomas Wadewitz - JP Morgan

Do you have much RCAF outside the coal that you identified or is it pretty much just half of the coal?

John P. Lanigan

It’s about half the coal and there is a scattering of it in some of the other businesses but not material.

Thomas Wadewitz - JP Morgan

When you think about the cost structure and how variable it might be, I know you’ve done some hard work over the years, some good work, to try to set yourself up to have variable cost structure with purchase services and outsourcing and various things, incentive comp. How much of the operating expenses do you think would be variable if you look on a two- or three-quarter basis? Do you think it’s 50% or is more like 40%, so that we can think about incremental margins and so forth.

Thomas N. Hund

I’ll start by saying the one thing you have to do is assume a fuel price because the biggest variable expense we’ve got, the one that is the most variable, is fuel. And so if we looked at, for instance, 2008 we would have said, in the short term which would probably be a quarter or two, over 50% probably would have been variable.

But no as fuel has declined and therefore that sort of raises every other component, it is probably more in the mid-40%s right now. But as you get out, your question was really more like two or three quarters, you probably do get yourself more towards that 50%. It’s 50% of the costs we’re talking about here.

Thomas Wadewitz - JP Morgan

Yeah, 50% of the operating expenses. So with the programs do you think we need to wait until second quarter to see some impact on the cost reduction programs or do you think we will see a pretty good impact in the first quarter?

Thomas N. Hund

I think as we think about the first quarter, you know, Matt said expenses down kind of mid-teens also. A lot of that is driven by fuel but I think we will see significant decrease in costs across the board. As a matter of fact, I think the only cost area that I would expect to see increase by any decent amount in the first quarter would be depreciation, if volumes stay kind of where they are now.

Matthew K. Rose

In fact, I think you saw it in the fourth quarter.

Thomas Wadewitz - JP Morgan

Right, that’s fair.

Operator

Your next question comes from Randy Cousins - BMO Capital Markets.

Randy Cousins - BMO Capital Markets

John, you talked about ag volumes kind of going back to normal levels. Could you speak to what your sense of is in ag rates because that tends to be much more of a spot basis. can you give us some sense as to how you see that playing out?

John P. Lanigan

The thing that has to happen first is the U.S. farmer has to start releasing their crop. They had such strong years in the 2007/2008 cycle that with commodity prices crashing last year, they’ve really been sitting on their stocks and we’re hopeful to start to see them come out as we get closer to spring and the planting season.

And with some of their input prices going down a bit recently, then hopefully at that point we will have a better feel for price.

Randy Cousins - BMO Capital Markets

Can you give us some sense, sort of base line pricing? Can you hold the pricing or do you see it coming down?

John P. Lanigan

We think we can hold the pricing.

Randy Cousins - BMO Capital Markets

There is a massive amount of excess capacity in the container shipping industry right now. The container shipping business has brought on a lot of these [very large] 12,000 TEU-type vessels. They are talking about laying up some of that capacity. How do you see that impacting your intermodal business and how do you see stuff shifting around between the ports?

John P. Lanigan

It depends on what type of capacity they lay up. Are they going to lay up brand new ships or are they going to lay up older ships and smaller ships. So I think you have to go almost line by line, liner company by liner company, to determine what their strategy is for lay-ups. And there has been a fair amount of information in the press about the total number of TEU lay-ups that have occurred so far but they’ve been a little more vague on which type of ships.

There is only a few ports that can handle the bigger ships and most of that capacity has to go to the U.S. West Coast because of the capacity of L.A., Long Beach, and Tacoma/Seattle versus a lot of the East Coast and gulf ports. So it really depends upon what ships get laid up.

But the more important issue is that the U.S. consumer is not consuming and international trade is down so dramatically that the steamship lines are going to look for what makes the most sense for them from an overall cost perspective, related to the volumes.

Randy Cousins - BMO Capital Markets

So does that work to your advantage or disadvantage in terms of how they plan out?

John P. Lanigan

We think it hopefully will be somewhat to our advantage. We have had some information that some of the steamship lines that were doing all water services are considering coming back to the West Coast because there is obviously more capacity at the ports available on the West Coast and from an overall cost perspective it is cheaper for them to go to the West Coast versus all water.

Randy Cousins - BMO Capital Markets

And with reference to this hedging program that you’ve got in place, what percentage of your fuel consumption is actually hedged? I think you mentioned you have coverage on sort of 85% so I assume this hedging program just deals with the 15 points that is unhedged, or how should we think about that?

Thomas N. Hund

It is actually probably going to be a higher percent than that because what has happened is volumes have fallen pretty dramatically. If we go back 2006, we burned probably about 1.6 million gallons. We haven’t given guidance for volume for this year but it’s probably going to be more like 1.3, 1.350, something like that. So it will end up being mathematically higher than that differential.

But we’ve never really said that there is an absolute limit on it, we just think it has to be in that neighborhood. And you have got other things that are also variable, like the components of price, how the fuel surcharge program works, the lag, as well as the volumes I talked about. So there is a little more art than science here.

Randy Cousins - BMO Capital Markets

And in terms of the fuel surcharge lag as a benefit, can you give us some sense as to what that benefit is going to be in Q1 if things just stay where they are?

Thomas N. Hund

Yes, I think I actually said that in my comments. We said that if they stay where they are, the impact of all of the pieces of price decreases, fuel surcharge decline, and hedging was all about a push.

Operator

Your next question comes from John Barnes - BB&T Capital Markets.

John Barnes - BB&T Capital Markets

On the capex plan, the $2.7 billion, down about $150.0 million, could you give us a sense of direction, how much farther volumes would have to fall before you would consider making another material change in that? And secondly, on the locomotive purchases, have you discussed at all with the manufactures actually pushing those out, just given the fact that you’ve got 700 in storage already?

Matthew K. Rose

We will be looking through the year at our capital plan and putting some additional downward focus on that. But as I said, really outside of maintenance of capital, there’s really two things that is driving the level of $2.7 billion. One is the locomotive arrangement that we already agreed to, and two is expansion projects that were already permitted and agreed to or started.

So I think you have to look at this over a little bit longer time. The locomotives will be fine. We’ve got air standards coming at us in California. We’re going to have to have these locomotives. In the next couple of years we won’t feel good about them but long term we will be fine with them.

As far as dealing with the manufacturers, sure, we’ve asked them. We are looking at perhaps some ways of how we maintain them but those were take-a-pay type issues. Like I said, hindsight is always 20/20, if we could have the decision back we wouldn’t have brought them in during this time. But in another year or two we will continue to cycle old, leased locomotives out of the fleet and we will find the natural balance of the supply and the demand.

John Barnes - BB&T Capital Markets

How many leased locomotives do you still have that you could cycle out?

Matthew K. Rose

We’ve got a couple of hundred this year that will be exiting the fleet here in January or February, right Carl?

Carl R. Ice

Yes.

John Barnes - BB&T Capital Markets

And for the balance of 2009? Or is that it for 2009?

Matthew K. Rose

Yes, in 2009 it’s a couple of hundred and then we will have to wait until 2010 comes.

John Barnes - BB&T Capital Markets

Given your ability to raise the cash that you did, is there any major refinancing in 2009 and secondly, any thoughts on your share repurchase activity, given the current environment and given what seemed like a pretty good environment for you to issue debt?

Thomas N. Hund

We have less than $500.0 million in maturities coming due next year so not a big number.

Then as Matt noted in his comments, we will be placing, at least for the near term, a premium on liquidity and flexibility from the financial standpoint. So I think those are kind of the watch words of the day until things solidify and our view of the future starts to come together a little bit better.

John Barnes - BB&T Capital Markets

And when did you issue that $0.5 billion in debt?

Thomas N. Hund

In December.

John Barnes - BB&T Capital Markets

Is there any thought to going ahead and doing it again, just given the desire for liquidity?

Thomas N. Hund

Always looking at alternatives.

Operator

Your next question comes from Edward Wolfe - Wolfe Research.

Edward Wolfe - Wolfe Research

Just a follow-up on the pricing discussion. First of all, I think what you said was a little less than two-thirds of your business is under contract. Is the implication the other third is tariff and the RCAF fits into that two-thirds piece?

John P. Lanigan

In the two-thirds piece virtually all our coal business is in that two-thirds piece, half of the coal business is impacted by RCAF. The one-third that is not under contract is almost exclusively tariff in our ag and some in our industrial products business.

Edward Wolfe - Wolfe Research

And that tariff piece, what do you see at this point for rates in 2009?

John P. Lanigan

We are certainly anticipating that we will be able to hold firm on rates and hopefully be able to take them up somewhat during 2009.

Edward Wolfe - Wolfe Research

So up less than in 2008?

John P. Lanigan

It’s hard to tell at this point. We still want to get some more of the year under our belt.

Matthew K. Rose

I think that’s a fair statement between the press we’re going to have on RCAF and just the general business climate. We’re not going to sit here and tell you we’re going to achieve the same level of pricing. It’s almost mathematically impossible with RCAF is going to do.

It will be a little softer, but on the other hand it’s still going to be historically excellent pricing.

Edward Wolfe - Wolfe Research

Can we talk a little more about RCAF, just for educational? I need to understand this a little better. Can you break out net of the fuel impact of RCAF and the net of fuel impact of RCAF? And if you have got 90% of that done already, kind of how those two numbers look.

Matthew K. Rose

We can, but we can’t right here at the moment. We’ll have to get back to you on it. But I understand your question.

Edward Wolfe - Wolfe Research

Directionally, though, I’m guessing that the piece net of fuel is positive and the piece when you go gross of fuel it’s negative. Is that they way?

Matthew K. Rose

Sure. You’ve got to remember, the largest component of RCAF is wages offset by productivity and we have seen healthy wage increases in this industry, up until this point in time.

Again, we have got some charts that we can make available, but if you go back in time, sometimes RCAF actually went negative. But historically RCAF would run in the 2%, 3%, 3.5%, 4% range. And it’s just in the last year or two where it got to a high of 20. So RCAF is kind of like our chart, if we were to chart out our fuel expense, you would see this huge upward movement and now it’s going to come down.

Edward Wolfe - Wolfe Research

I think everybody understands that there is a gross of fuel and a net of fuel and there is a cost impact with that. What people are focused on is the pricing net of fuel, which is the number I think would make people feel better if they understood the visibility of that.

Matthew K. Rose

We have had a philosophy that we don’t believe we have overcharged for fuel and so you’ll see it, as fuel surcharge comes out, you will see it also in associated input costs if fuel comes down.

Edward Wolfe - Wolfe Research

In terms of the fuel hedges, have there been any new hedges entered into since the third quarter 10-Q was put out?

Thomas N. Hund

I’m not positive. I would say that probably not material. Because the Q includes some obviously fourth quarter activity so it’s not material. I would say we will be filing the K here shortly so check that, but it’s not going to be a material number.

Edward Wolfe - Wolfe Research

And the $0.40 net benefit that you noted from fuel in the fourth quarter, did that include the $49.0 million drag on hedge or not?

Thomas N. Hund

Yes, it does.

Edward Wolfe - Wolfe Research

On export grain expectations, where do you see volumes? Could we be back at 2007 levels in terms of volumes in 2009? Is that as fair a number to use as anything?

Matthew K. Rose

I think it is a little early to tell, but with the appetite for the high-quality U.S. grains in foreign markets, we think as the year plays along and the fact that we did have a good crop last year that has carried into this year, that we should have very solid results in export grain this year.

Edward Wolfe - Wolfe Research

So not giving back all of 2008’s gains over 2007?

Matthew K. Rose

I don’t have that kind of detail at my fingertips right now and I’m not going to guess.

Operator

Your next question comes from Jason Seidl - Dahlman Rose & Co.

Jason Seidl - Dahlman Rose & Co.

In terms of what’s going on in Washington, can you talk to what seems to be a creeping anti-rail sentiment amongst some shippers out there and obviously the role of the new administration and what they might play for the railroad industry?

Matthew K. Rose

I think the current economic situation has caused an interesting new dynamic. And that dynamic looks something like this, we are getting more and more questions of concern of the health of the industry. And we are just going to continue to have the discussion that what public policy should want is to make sure that the railroads remain healthy and there is more investment put into the physical plant.

We know that we have got a couple of different approaches. One is the anti-trust bill that probably has had the most action. We now that there will be a bill re-introduced in the House and a bill re-introduced in the Senate. But I have had conversations with both of the principals in the Senate and the House, the Chairman of both, and I tell you, where we are in violent agreement is that they have a real concern that we don’t have enough rail capacity and where we are also in violent agreement is that they want to have more rail in this country to take advantage of lowering our carbon footprint, lowering our dependence on foreign oil, all the things we keep talking about.

So we are in agreement on a lot of stuff. There’s just one little issue that’s out there that we have got to come to agreement with and part of our deal is we have to continue to explain why the model today and what I would call kind of the reconstituted model, with what the STB has done, with the small shipment and some of the other things that they’ve done, provides that relief to customers that they need. So it’s early. You’ll see the bills launched probably in the end of the first quarter and then the debate will begin. But there is already going to be hearings scheduled later this month on the condition of the rail industry, the financial condition. And when we announce lowering our capital plans, I guarantee you there is going to be a lot of concern.

And then I think finally, when you think about stimulus, there is nothing anywhere in all this trillion dollars of stimulus for rail, outside of some commuter rail. And part of the job here to get the country back is to make sure that industries don’t get harmed in terms of the current business climate, and so we think that we’ve got a great story and this all comes down to whether or not these are excess profits. And I have yet to meet anybody that says that 10% returns are excess profits.

So we will continue to explain our views of this and have the dialogue and cooperate in the debate.

Jason Seidl - Dahlman Rose & Co.

Tom, you mentioned your wage increase of 4%. When is that going to be flowing through the P&L?

Matthew K. Rose

It’s 4.5% and it’s July.

Thomas N. Hund

The 4% we talked about was the 4% that happened last July and then there is a 4.5% for the scheduled folks that kicks in this July.

Jason Seidl - Dahlman Rose & Co.

John, when you are looking at the pricing dynamic of sort of the non-RCAF business that you have, could you talk to where you’re seeing more strength than you’re seeing weakness in terms of being able to increase prices on your business?

John P. Lanigan

Well, the entire economy is struggling and so there really isn’t any significant pocket of business that is really thriving in the current environment so I would tell you that every discussion is a difficult discussion. We are continuing to achieve pricing increases and we anticipate being able to achieve those going forward.

Jason Seidl - Dahlman Rose & Co.

And most of your legacy that renews, that’s mostly in the coal area, correct?

John P. Lanigan

That’s correct.

Operator

Your next question comes from John Larkin - Stifel Nicolaus & Company.

John Larkin - Stifel Nicolaus & Company

John, on your outlook for the first quarter, I gather this may not include the rest of the 2009 but you said the coal outlook is positive and with the utilities in particular having historically high inventories, how much more inventory can they take and is the nuance here that you are perhaps a little less certain about what might be happening in the second and third and fourth quarters of this year?

John P. Lanigan

As Matt mentioned, we didn’t give any guidance at all beyond the first quarter so I won’t even hazard that guess. What we have is denominations that utilities have given us and given the mines for the first quarter and those numbers add up to positive growth in the first quarter for us.

John Larkin - Stifel Nicolaus & Company

And on the grain business, you mentioned that other competitive countries have had a pretty good crop year and that’s eating into the U.S. exports a bit. Are any of the U.S. exports, due to the changing dry bulk ship rates, going back to the river via New Orleans and over to Asia, or are you still holding on to your market share over the Pacific Northwest ports?

John P. Lanigan

There has clearly been some move to the river and some movement to the gulf as the spreads decreased pretty dramatically. They have strengthened a little bit lately, back up to about that $13.00 spread. So we are still taking exports to the PNW but clearly there was some impact.

Matthew K. Rose

And we will do okay on the exports to the gulf, too. It’s the stuff that they drag to the river that we get hurt on.

John Larkin - Stifel Nicolaus & Company

Carl, if I heard you correctly, your car velocity is up 8% year-over-year which surprised me a little given the decline in the intermodal business, especially on the international side. What is the secret to that great improvement there?

Carl R. Ice

We already said, the intermodal being down was a headwind for us because it does turn more quickly, but we saw a double-digit improvement in ag and a very strong improvement in merchandise. Those are the efforts of our various philosophy initiatives which include terminal processing as well as line through-put taking hold.

John Larkin - Stifel Nicolaus & Company

And is it fair to say that you expect that improvement to continue throughout the rest of 2009 or is there incremental improvement from here that can be realized?

Carl R. Ice

We certainly will hold on to the gains we’ve made and we will continue to make improvement. I wouldn’t suggest we will be 8% every quarter but we will make more improvement from here.

Matthew K. Rose

And just a couple of other things. You know, a volume decline should help a railroad get a lot more fluid and it has us as well. Our whole strategy is we’re going to shelve the assets that are not needed so we’re putting away a lot of cars and putting away a lot of locomotives because we want to keep the railroad strong and we don’t want that excess capacity just hanging around, quite frankly, clogging up the rest of the railroad, making things worse.

Operator

Your next question comes from Christopher Ceraso - Credit Suisse.

Christopher Ceraso - Credit Suisse

Could you run through again the assumptions that underpin your outlook for the first quarter? What are you looking at in terms of carload volume in the quarter?

Matthew K. Rose

What we said was if the current state of play that we’re seeing right now kind of stays where it is, and if you look at the week three numbers, I think we’re down 13ish. 12.7 is where we’re at week three. Year-to-date down 14. So we would expect because of weather and also normal seasonality that we would see a normal cyclical pick up in March versus January. But notwithstanding that we’re going to see some break-through in the economy, which we can’t see. That’s what underpins our outlook.

So we’re expecting really soft volumes for the entire quarter.

Christopher Ceraso - Credit Suisse

Did you give anything specific on price expectations for the quarter?

Matthew K. Rose

We did not. We put a little more color on it just because of the RCAF issue, saying it’s not going to be quite as strong as what we saw in 2008.

Christopher Ceraso - Credit Suisse

Something less than 6%.

Matthew K. Rose

Yes. The math works, RCAF will bring it down.

Christopher Ceraso - Credit Suisse

Did you say that share repurchases are on hold for now?

Matthew K. Rose

We did not but we said the word, flexibility, that we are going to keep all of our powder dry because, again, we are going to make sure that we have got the financial fire power to do what we need to do.

Christopher Ceraso - Credit Suisse

And as it relates to our capex plan, most of it you said is for replacement. Where does that leave you at the end of 2009 in terms of track miles, or capacity, however you want to measure it? Will it be more or less or the same than when you exited 2008?

Matthew K. Rose

No change. Small decrease in miles but really insignificant.

Operator

Your next question comes from David Feinberg – Goldman Sachs.

David Feinberg – Goldman Sachs

On pricing, taking a little bit of a longer-term outlook because you looked at 2010, any indication, you give some great insight in terms of 2009, what percent of your book was already contracted. Any indication on 2010 in terms of what percent of your contracts may or may not be already in place, and also in terms of the seasoning, as we go through the year, how you would look to start negotiating those contracts.

John P. Lanigan

We’ve already got about 80% of 2010 accounted for because of longer-term contracts. We have about 20% of our business coming due in 2010 and typically, depending upon the business unit, those negotiations will start about six months in advance of the expiration of the contract. So depending upon when they expire, they’ll start sometime second, third quarter of this year and then move on throughout until you reach the expiration of those contracts.

David Feinberg – Goldman Sachs

And then that 80 and 20 adds up to the 65% of your total book of business that is contracted, correct?

John P. Lanigan

That’s correct.

David Feinberg – Goldman Sachs

On the expenses, heading into the quarter you were originally looking for a 4% increase. Obviously volumes declined precipitously throughout the quarter. I was trying to get a sense of when you ended up booking a down 4% number for the quarter on a year-over-year basis, how much of that was volume driven and how much was the incentive comp, and I guess more specifically on incentive comp, if you were reversing a full year’s worth of expense that you had been accruing or is that just for the quarter?

Thomas N. Hund

We don’t give specific numbers on incentive comp but we weren’t reversing prior quarters. We were probably accruing it at a little less rate obviously as earnings dropped and volumes dropped. So I think that’s how I would answer incentive comp, it was still accruing but at a lower dollar amount.

Matthew K. Rose

We will end up with a very fairly significant incentive comp payout for 2008 but it definitely dropped in November and December so we were able to reduce our accruals a little bit and as Tom mentioned, the lower volumes, lower overtime, more folks on expenses.

David Feinberg – Goldman Sachs

And staying with expenses, you mentioned bad debt expense raised during the quarter, was that specific to any one end market or customer and would you expect that trend to continue?

Thomas N. Hund

It wasn’t related to one particular customer or segment. Just some issues we thought we needed to address and make sure we were properly reserved for.

As to whether it will continue, that gets into the whole issue of what’s going to happen economically here, which drives our results but also our customers.

Matthew K. Rose

I think it’s safe to say we are paying a lot more attention to every customer’s DSO and we have seen a couple of customers struggle and we will react to those quickly. But there is just a heightened awareness of the times that we are going through.

Thomas N. Hund

Matt brought up DSO and we have not just an industry best but a world-class days sales outstanding. It’s down in the 16-, 17-day-type range. We really worked hard on this over certainly the last five or more years to get it down to that range combination of our folks within receivables as well as John’s folks. And so all that has paid off by having the least exposure to all of our customers at this point in time.

David Feinberg – Goldman Sachs

And did you quantify that amount, what the additional bad debt expense was in the quarter?

Thomas N. Hund

No, we didn’t but it was a couple of cents a share.

David Feinberg – Goldman Sachs

The higher locomotive maintenance costs, just trying to understand that relative to your comments about buying new locomotives in 2009. Is that part of what’s driving the decision, the fleet aging and are your expenses going up so you’re looking to replace it or are they independent of that?

Matthew K. Rose

It’s really independent of that. The increases more had to do with the year-over-year comparison fleet size and what’s going on within the contracts. Certainly the older units we’re replacing, the newer units we would expect to be more cost-effective and certainly more fuel-effective. But nothing significant in terms of that given quarter’s increase.

Operator

Your next question comes from Gary Chase - Barclays Capital.

Gary Chase - Barclays Capital

Matt, when you talked about that current state of play, that was where you were referring to the dollar for first quarter? Earnings, did I catch that right?

Matthew K. Rose

Yes.

Gary Chase - Barclays Capital

So that wasn’t guidance that was just if things continue exactly as we see them.

Matthew K. Rose

Yes.

Gary Chase - Barclays Capital

John, you gave some clarity on the percentage of the business that moves on contract. I think we understand the RCAF exposure. When you look at the RCAF index exclusive of fuel, how much of the remainder of your contract business is exposed to RCAF ex-fuels? Should we think of it as the majority?

John P. Lanigan

I don’t think it’s the majority. It’s most of the rest of coal and then it is scattered in the other businesses. But we also have other escalators in the some of the other businesses that are tied to other indexes or to fixed rate escalators so there is a real mix of how we do escalators across the business.

Gary Chase - Barclays Capital

Is it 50/50? Is it something along those lines or is it only in coal and it’s just infrequently used outside the coal business?

John P. Lanigan

It’s mostly the coal story.

Gary Chase - Barclays Capital

Is there any part of the cost structure that we should think is going to benefit meaningfully in 2009 from the fact that commodity prices have really collapsed here? Are you going to be able to capitalize on that in any material way? To help you offset some of these pressures?

Thomas N. Hund

Fuel, obviously. Now keep in mind, ex-fuel on the operating expense side, 40% of the expense ex-fuel is labor. And we talked about the fact that we’re almost 90% unionized and there is a 4.5% wage increase coming mid-year. And a 4% that came last mid-year. So that covers a large part there.

If we look at the other areas, clearly pushing all of our suppliers and vendors, etc. to try and hold the line, but there’s not one area where we would say there is a critical mass where a commodity is the main driver.

In capital I would say it will help us a little bit as steel is moderated and things like that. That’s probably the biggest area that we will see some benefit as we look at next year.

Matthew K. Rose

And I would add to that, slightly as you would expect, we have put contracts in place to protect us on some of these things, so we didn’t write some of them up as much but that does limit our flexibility a little bit in the short term as well.

Operator

Your next question comes from Matt Troy – Citigroup.

Matt Troy - Citigroup

On intermodal, you brought up some good detail about changing behavior at the shipping lines and all water routes, I was wondering if you could talk about your discussions with customers at the margin. Are you seeing any modal shift to truck, on near term? Are you seeing any more aggressive pricing behavior by trucking lines in order to take share at the margin, more competitive with your intermodal business?

Matthew K. Rose

No, we’re really not seeing any significant modal shift. There is still a gap between truck and rail and I think one of the things that you should watch as we get into the late spring with permit renewals and license plate renewals for trucks, there is a lot of noise in the industry that a lot of the less healthy carriers and a certain amount of the small- or mid-size carriers may take a lot of capacity out of the network by now renewing equipment, and in some cases just completely go out of business. And that will be a boost, I think, to the intermodal story in the second half of the year.

Matt Troy - Citigroup

And I think you have historically quantified that gap. Was it 15% or so in terms of law of averages, differential pricing versus truck?

Matthew K. Rose

It’s dangerous because it’s different on a lane-by-lane basis. we’ve always given pretty big ranges of 15% to 40% depending upon the lane.

Matt Troy - Citigroup

But you’re messaging here today is you’re not seeing a change in the behavior?

Matthew K. Rose

No.

Matt Troy - Citigroup

I don’t want to get too granular, but just the information value of the traffic data even the industry releases is quite valuable as we all try and read the tea leaves on the economy. Are you getting anything from your customers? If I look at the volume declines in key industrial feed stocks into the U.S. economy on the rails, talking about chemicals, lumber, metal, steel, there are seemingly unsustainable rates over the last eight weeks, suggesting some conservatism, people want to reduce buffer stock, take down inventories, which I understand. But still, 30% to 40% declines are big. You’ve got the Chinese New Year coming two weeks early this year, which probably has most plants just shut for the month of January. Are your customers talking or at all positioning for a spike in volumes to play catch up in mid to late February?

Matthew K. Rose

No, there really is no discussion about a spike. What the discussion we are having is when people are going to come back to work more than anything, versus spike.

Matt Troy - Citigroup

So we, at this point, should just be anticipating some kind of typical seasonality where the March month is the heaviest volume month, from a first quarter perspective, albeit in a bad economy?

Matthew K. Rose

Yes.

Matt Troy - Citigroup

I hate to get too broad here but starting to hear grumblings, and counter-intuitively with higher profile articles and talk of potential call for re-regulation, hearing cross currents the other way about industry consolidation and the prospects there. You have got executive turn-over at least one of the railroads. Can you just offer your thoughts, if anything has changed, I don’t think it’s the case, but just on the case for or against long-term rail consolidation. In the current environment stocks are cheap.

Matthew K. Rose

Again, we don’t see any major industry consolidation. You may see some clean up of the map here and there but as far as a big class-one transaction, I think again, you just need to think about it in terms that it would trip the regulatory wires and cause more panic on the regulatory issues that are out there. And I think these franchises, at this point in time, can best be run independently.

Operator

Your next question comes from Ken Hoexter – Banc of America.

Ken Hoexter – Banc of America

If we could just come back to the $220.0 million you talked about in fuel from the quarter. Is that just from all new fuel surcharges, less the hedges Tom talked about, or is that just what your lag impact was during the quarter?

Thomas N. Hund

No, that was the total amount of fuel surcharge received in excess of the same period last year. So that was pure fuel surcharge collection.

Ken Hoexter – Banc of America

Can you delineate what was due to the lag effect relative to what your cost was?

Thomas N. Hund

Out of that $220.0 million, about $175.0 million was lag-related.

Ken Hoexter – Banc of America

On your capex budget, you came out in a separate release that the $2.7 billion for 2009 but in your capex for this year it was $2.1 billion and I think you said there was $600.0 million in the release. I just want to understand this. It sounded like you typically would have leased then but then you issued the debt instead for the $500.0 million. Can you help me understand what you meant by that?

Thomas N. Hund

This year the comparable numbers would be 2850 for 2008 compared to next year’s 27 for 2009. Within the 27 there is an amount of locomotives and we talked about those a little bit, we don’t want to disclose the amount per, but it’s a fairly significant number of locomotives, and I would say right now we don’t know how those will be financed. They may come through the statement of cash flow either as investing activities, or if we do a lease, which we typically would do, that’s what our pattern has been certainly over the past five to ten years, that becomes netted within the statement of cash flow.

Ken Hoexter – Banc of America

So then no different basically than what you did this year with a similar portion being on operating leases.

Thomas N. Hund

Right. It’s $150.0 million less and all the rest of that is just whether we finance it or whether we go out and do unsecured financing, etc. So there will be some lack of comparability on the statement of cash flows, but from a pure what are we actually signing up for, it’s $150.0 million less.

Ken Hoexter – Banc of America

And in that release, did you specify what was your maintenance capex? Was it 24?

Matthew K. Rose

That’s too high. We’ll get back to you here in one minute.

Ken Hoexter – Banc of America

Matt, didn’t you say before that you expect, or maybe it was in the release, you said you’re greatly shrinking the amount of expansion capital and you said that’s going to be a big point that you can raise as Congress takes a look at what’s going to happen in this kind of environment. So I just want to understand how much room you have to go down on that $2.7 billion figure.

Matthew K. Rose

Again, hindsight is 20/20. If we would have known many years ago the types of volume drop, it would have been hundreds of millions of dollars less for 2009.

Ken Hoexter – Banc of America

Oh, you’re saying because it’s already committed to?

Thomas N. Hund

Yes. What I believe Matt said earlier was that there is a very small amount of expansion capital in there really related to projects that we’ve already started and therefore have either permits or significant investment already made.

Matthew K. Rose

It’s really the locomotives that we would have laid off.

Ken Hoexter – Banc of America

The legacy contracts, what percent are now expiring in 2009 and what is left in 2010?

Matthew K. Rose

Almost nothing in 2009 and we do have one or two coal contracts in 2010, in the back half of 2010.

Thomas N. Hund

1.9 for maintenance [of the 2.7]

Operator

Your next question comes from William Green - Morgan Stanley.

William Green - Morgan Stanley

Basically in the past you have said a number times what would make you nervous on pricing long term is if you get a prolonged and deep recession. We’ve got the deep part of it, so how long is prolonged, when you would start to worry?

Matthew K. Rose

I’ve always said three to four years.

William Green - Morgan Stanley

How many years then are we? Are we only in a quarter or we in a couple of years for down volumes?

Matthew K. Rose

I think this is the first full year of down volumes. I don’t think we would say that we have been in significant deep down volumes for several years at all.

Again, the railroad is still a very busy place. We could just handle a lot more freight right now and that’s why we put on that last slide, from the recession to the recovery. It will come back. There’s no doubt in my mind, and when it does we will be able to handle a lot of volume without adding any capacity for a long time.

Operator

Your final question comes from Walter Spracklin - RBC Capital Markets.

Walter Spracklin - RBC Capital Markets

On contracted business, have you in your past ever seen a customer come back to you on a contract, something they’ve already signed on the dotted line on, and asked you to renegotiate? Has that happened very much in the past and if so what has been the mechanism to go about changing a contract if they had.

Matthew K. Rose

Sure, they do it all the time. We have been around this thing long enough where things change and we take each case individually. But if we can find a win-win we’ll do it. But it’s not about finding win-lose in any of those cases. So sure, I think that’s the natural deal. Just like if we do a contract with a supplier, we’ll go back and ask them to renegotiate the terms, that’s just human nature.

Walter Spracklin - RBC Capital Markets

And has that happened a little more recently than in the past and what has been the experience when that, on average, I understand every case is different, will it be a significant change from what you had before?

Matthew K. Rose

Sure it’s happened recently and we will make any of those decisions based on the long-term interest of our customers and shareholders.

Walter Spracklin - RBC Capital Markets

On acquisitions, be it not necessarily class-one, but given the environment right now, there are a lot of struggling companies out there, prices are obviously lower, you are in a pretty good capital situation in terms of your leverage. Have you considered, or are you looking at, any acquisitions, particularly outside of the direct rail business that might be good complements to your rail business?

Matthew K. Rose

We continue to look at the logistics side but nothing compelling that now is the time. And I think until we get a little direction on these capital markets, we don’t like going out and borrowing $500.0 million and paying 7%. So we are going to look for a little direction and get these credit markets settled before we would be willing to do anything like that.

Walter Spracklin - RBC Capital Markets

And if you did, it would be in that logistic 3PL kind of stuff that you would be looking at?

Matthew K. Rose

Yes, we’re going to stay to our knitting. We’re not going to be buying pipeline companies and that kind of stuff.

Operator

There are no further questions in the queue.

Matthew K. Rose

We look forward to talking to everybody in April. We are like everybody else, we don’t have a lot insight into where this economy is going to go but we know one thing and that is the economy will recover at some point in time and we will be well positioned and our whole focus here is on long-term shareholder value creating and being very cognizant of the fact that we have got some short-term headwinds that this company has proven over the past that we’re pretty good at maneuvering through. So with that, thank you for your time and your interest.

Operator

This concludes today’s conference call.

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