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TravelCenters of America LLC (NYSE:TA)

Q3 2009 Earnings Call

November 09, 2009; 10:00 am ET

Executives

Tom O’Brien - Managing Director, President and Chief Executive Officer

Andy Rebholz - Executive Vice President & Chief Financial Officer

Tim Bonang - Director of Investor Relations

Analysts

Ben Brownlow - Morgan Keegan

Bryan Maher at Collins Stewart

Smedes Rose - KBW

Greg Shultz - Gianna Partners

Ben Axler - Spruce Point Capital

Michael Boylen - Stifel Nicolaus

Operator

Good day, and welcome to the TravelCenters of America third quarter financial results conference call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Tim Bonang. Go ahead, sir.

Tim Bonang

Thank you Christie. Good morning and welcome everyone. Our agenda today includes remarks by Tom O’Brien, our Chief Executive Officer and, Andy Rebholz, our Chief Financial Officer. After the presentation, there will be a question-and-answer session.

Today’s conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Federal Security Laws. These forward-looking statements are based on TA’s present beliefs and expectations as of today, November 9, 2009.

TA undertakes no obligations to revise or publicly release the results of any revisions to the forward-looking statements made today other than as required by law. Actual results may differ materially from those implied or included in these forward-looking statements.

Additional information concerning factors that could cause our forward-looking statements not to occur, are contained in our filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance upon any forward-looking statements. And now, I would like to turn the call over to Tom O’Brien.

Tom O’Brien

Good morning and thank you for joining our call today. I’m here to report our results of the 2009 third quarter. In the third quarter of 2009, TA generated a net loss of $12 million or $0.73 a share. In the third quarter of 2008, TA had boasted net income of about $16 million or a $1.10 per share. In the third quarter of 2009, TA also reported EBITDAR of $60 million, a decrease of about $28 million versus the third quarter of 2008.

EBITDAR in the third quarter of 2009 of $60 million exceeded cash rent by about $15 million, the sixth consecutive quarter in which TA has achieved such coverage and also exceeded GAAP rent expense by about $1.5 million. TA’s net loss for the first nine months of 2009 was $45 million, or $2.72 a share, compared to a net loss of $42 million or $2.81 a share for the comparable 2008 period. EBITDAR for the first nine months of 2009 was about even with the 2008 first nine months.

The unfavorable comparisons to the prior year results for net loss and EBITDAR are primarily attributable to the decline in fuel gross margin between years. Fuel gross margin was $25 million less in the 2009 third quarter than in the 2008 third quarter. This decline was partly due to the lower fuel sales volumes but it’s primarily based on a 27% decline for the fuel gross margin per gallon on the same site basis.

So this margin decline is directly related to the strong fuel margins realized in the third quarter of 2008 that resulted principally from diesel and gasoline price declines, experienced in that period, after the crude oil bubble burst after reaching its peak of about $150 a barrel in July, 20008. This is in stark contrast to the price of diesel fuel during 2009, which has generally been on an upward trend. This upward price trend seems to be continuing since the end of the third quarter.

On a same site basis, for the 2009 third quarter versus the 2008 third quarter, our fuel sales volume declined by about 3.6%. This reduced volume contributed to a $28 million decline in non-fuel revenues and an $18 million decline in non-fuel gross margin. We believe the decline in non-fuel revenues and gross margin was also driven by the effect of economic conditions in the United States, on the purchasing decisions of our customers who continue to defer purchases of things such as truck maintenance.

In the face of the declining non-fuel sales volume, we were able to decrease our site level operating expenses by over $13 million. We also continue to improve in our SG&A cost during the quarter. SG&A declined by $1.6 million versus the third quarter of 2008. For the first nine months of 2009, we decreased our SG&A costs by $19 million, versus the same period in ‘08. TA and its customers continue to face difficult economic and industry conditions. I am not happy that the positive up tick in gasoline volumes for example, that we experienced for the third quarter was inconsistent during the month of that quarter.

I am also certainly not happy that TA posted the GAAP loss for the 2009 third quarter. I am happy about the fact that declines in fuel volumes seemed to continue to moderate, our quarter over prior year quarter comparisons of fuel volume of minus 16% for the 2009 first quarter, improved to minus 11% for the second and improved again to minus 4% for the third quarter, the trend within that quarter also improving similarly.

These figures are admittedly partially attributable to “easier comps” and so perhaps more attention should be paid to the fact that despite generally rising fuel prices, fuel cents per gallon margins continue to be in the double digits.

Before I continue, I will turn the call over to Andy Rebholz, our Chief Financial Officer, who will review our third quarter results in detail. After Andy’s comments, I’ll come back and then we’ll answer questions.

Andy Rebholz

Thanks Tom and good morning everybody. I would like to discuss some of our key financial results for the third quarter. In this discussion, I’ll refer to same site results, which are the results at only those sites that we’ve continuously operated since January 1, 2008.

Our fuel volume, on a same site basis, declined by 3.6% in the third quarter 2009 versus the 2008 third quarter. We believe this decrease may be milder than that experienced within the trucking industry generally. These results reflect the continuing difficult conditions in the US economy, and the effect such an economic environment has on the trucking industry. The decreased fuel sales volume also resulted from reduced fuel consumption resulting from the fuel conservation practices implemented by truckers.

On a same site basis, our 2009 third quarter fuel gross margin was approximately $25.5 million or 29.7% less than in the comparable 2008 quarter. Tom described the reasons for this decline earlier and it is worth nothing that we believe that we will see a similar comparison between years for the fourth quarter, because fuel gross margin for the fourth quarter of 2008 benefited from the same market dynamics as the third quarter of 2008, producing the strong fuel gross margin we’ve realized in the fourth quarter of 2008.

Our fuel revenue for the third quarter of 2009 reflected a decrease of $847 million or 46% and our fuel cost of sales reflected a similar variance. The most significant factor in these variances is the large decline in the market prices for petroleum products between the 2008 and 2009 third quarters. Our average retail price in the third quarter of 2009 was down about 45% from the prior year quarter. Our non-fuel revenue during the 2009 third quarter declined by $28 million or about 8.7% on a same site basis, versus the 2008 third quarter.

We believe that the decline in non-fuel sales reflects the smaller number of trucks on the highways, the fewer miles driven in the 2009 third quarter than in the same period of 2008. The increased maintenance intervals instituted by truck owners and the general effect of the recession on consumer spending as well as an increase in the level of discount in the economic and industry conditions have forced on certain areas of our business.

Our non-fuel gross margin as a percentage of non-fuel sales decreased by 60 basis points, on a same site basis to 57.4% for the 2009 third quarter. This margin decline reflects, we believe, the continued declines in sales of higher margin discretionary products and services and the effect of more aggressive price discounting somewhat offset by various improvements that we’ve been able to implement at our locations since the Petro acquisition.

Our site level operating expenses decreased by $12.5 million, or about 7.6% on a same site basis versus the 2008 third quarter. This decrease reflects the lower volume of sales, as well as our labor expense controls implemented to adjust to the decreased sales volume levels, offset somewhat by increases in unit labor costs.

Our selling, general, and administrative costs of $19.7 million for the third quarter of 2009 represented a decrease of $1.6 million versus the comparable 2008 period. The reduction in SG&A costs resulted from the end in January 2009 of the various severance and retention plans that had been in place since January 2007 as well as our other efforts to control and reduce corporate staff and related salary and benefits cost.

Our adjusted EBITDAR for the third quarter of 2009, decreased by approximately $29 million as compared to the 2008 third quarter, principally as a result of the decline in fuel gross margin between periods. As Tom will detail in a moment, we again increased our cash balance during the third quarter. In a very difficult economic environment, TA has thus far been able to continue to conserve cash, and increase its cash balance.

Now I’ll turn the call back over to Tom.

Tom O’Brien

Thanks Andy. I just have a few more comments before we turn to questions, and as I’ve done in past quarters, I’ll now give you some more details about TA’s cash and liquidity position.

During the third quarter of 2009, TA’s cash balance changed as follows. We began the quarter with a $182 million of cash on the balance sheet. We spent $10 million to fund capital projects. We sold to HPT $1 million of improvements to the properties released from them. We generated adjusted EBITDAR and excess of cash rent of $15 million, and after taking account of certain working capital and other changes we ended the September 2009 with a $185 million in cash on the balance sheet.

As of September 30, the portion of our credit line used to support letters of credit was approximately $67 million and this is $100 million credit facility is otherwise undrawn. At September 30, we had approximately $10 million remaining of the original $125 million allowance from HPT for certain TA branded property improvements that can be sold to HPT without a rent increase.

During our conference call last quarter, we pointed out the fact that the 2009 third quarter would likely show declines in profitability and other measures due to the fact that the 2008 third quarter included some very strong cents per gallon margins attributable mainly to rapid declines in fuel prices. In fact this is what’s reflected in the TA third quarter 2009 results.

I also reported to you that I was cautiously optimistic about the future, and I had hoped then today’s call might be a time I could report to you even more optimism, but in fact I remain only cautiously optimistic. TA has challenges behind it, all of which have been met with vigorous plans and a vigorous execution of those plans. The TA also has challenges in front of it, and again my intention to keep TA focused on preserving its liquidity and its financial strength has not changed.

Andy and I will now take your questions. Operator, do we have any?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ben Brownlow - Morgan Keegan.

Ben Brownlow - Morgan Keegan

I guess first of all I’d just like to menu on managing expenses so well especially in this environment, it’s encouraging to see that being sustainable. I guess starting off, you kind of touched a little bit about sales trends for the quarter and it sounded as though those costs continuing to improve in Q3?

Andy Rebholz

I’m sorry the SG&A cost?

Ben Brownlow - Morgan Keegan

The sales trends, I’m sorry.

Tom O’Brien

The sales trends.

Ben Brownlow - Morgan Keegan

Did those improve through Q3 and how did those kind of carry over into Q4?

Tom O’Brien

Yes, Q4 so far we are, the changes have continued to be mild, but we have not on the diesel side seen anything with the plus sign in front of it that at this time is a reliable number.

Ben Brownlow - Morgan Keegan

Okay, are you still accessing some of those lower margin fuel businesses or is that completely lapped at this point?

Tom O’Brien

It is not as big a focus as it was back when we really started to do that, because obviously you only has so much of that, you know what I mean?

Ben Brownlow - Morgan Keegan

Yes, okay. It’s probably too early to even see any changes at this point, but with the Flying J, have you see any change with kind of competitive stand there?

Tom O’Brien

Not much, but in terms of our competitors approach to the market place and things such as pricing and promotions in marketing and sales it is interesting and I don’t want to be accused of putting these numbers out when convenient for us, so you need to take it with a grain of salt.

Our fuel volume changes have been much more mile than for example for the changes in the total miles index put out by the ATA, and it’s gotten to the point where that delta is very large. So as Andy said, I think that we maybe, I take that to be an indication that it’s possible that we are picking up market share at this point; may be a reflection of things that are occupying others in the competitive landscape.

Ben Brownlow - Morgan Keegan

Okay, so you are still gaining market share, which you have been I guess for a couple of quarters how you feel like?

Tom O’Brien

Again, and I don’t want to oversell this, because we used to report this index data until started in my view to become disconnected, but, Yes, the changes that we are seeing are much smaller than the reported change in miles.

Ben Brownlow - Morgan Keegan

Then just basically one more question and then just a couple of housekeeping and this is I know a very difficult question. But just on the fuel margins, the Q3 obviously compared to last year is just, you can’t compare it because of the dynamics that were happening last year, but the Q3 field margin this year still seemed very healthy, just a little more normalized. How would you characterize the environment, I mean would you put it as an unfavorable environment because it sounded as if that maybe carried in Q4? Just how would you relate that to the margins you saw in Q1 and Q2, and just put some qualitative comments or your feeling around the environment?

Tom O’Brien

Sure. Obviously, as you pointed the environment in late 2008, it had I mean prices just went wildly down, I mean the beginning of the third quarter of 2008 we had diesel on the NYMEX I think was close to $4. By the end of that quarter we were at $2.75 and by the end of the year we were at $1.50 that was last year. Whereas today we are right around the $2 mark right now. And of course again we started the year at a $1.50.

The third quarter is interesting, because generally speaking between the beginning and the end of that quarter in 2009 diesel prices were largely unchanged, and in addition although volatility sort of the average change in diesel prices per day it’s one measure of volatility, has been milder in 2009 certainly than it was in all of 2008, and remained reasonably mild for all of the third quarter 2009.

And so, again, one quarter does not a trend make but we had very stable, relatively speaking, prices, lower volatility and manage the cost of 12.6% cents per gallon of fuel margin that is a mile way from what you may have considered to be historical norms back in prior to ‘07 when, if and when in any particular month we had double digits there was much rejoicing going on, and again if the third quarter is an indication of things to come I’m actually pretty pleased that we are able to improve that margin, and that’s substantial.

Anytime somebody says $0.12 it just doesn’t sound like a big number. But if you are comparing it to 8 that’s a huge move in dial, again I don’t want to oversell this too, because as I said I’m only cautiously optimistic and one quarter doesn’t trend make. But we had I think a pretty good look here with stable prices during the quarter translating into a double-digit margin.

Ben Brownlow - Morgan Keegan

Going back to ‘07 what is really fundamentally driving that difference, because I know some of the lower margin businesses were, $0.5 or maybe a penny benefit, but is it just the change in pricing strategy or do you think it’s trying to make up for the weaker demand trends, I mean is this something as demand picks up you think you could sustain a double digit margin?

Tom O’Brien

Well, that is the, I don’t know if it’s a million question or maybe a billion dollar question. It is a big question. I think that back when fuel prices started to take off in an upward direction, one of the things I lamented about in that environment was that earning $0.08 assuming that’s a fair return on a gallon of fuel that you sell for a $1 or a $1.50, well when that fuel prices goes up and your becomes more difficult to manage because of the volatility and all of that, you’ll have to reasonably expect a healthier, if you will, a healthier margin to be compensated for that.

And to the extend that that is something that continues to ring throughout the industry then it’s possible and I’m hopeful that double digit margins are to be the norm rather than the exception.

Ben Brownlow - Morgan Keegan

Okay. And, this is probably in the press release and I apologize for this, but the operating cash flow and then how much you have remain from HTP which you mentioned without rent increase and I missed that.

Andy Rebholz

Yes. That we exceed the cash rent by $15 million, and we have about 10 left in that 125, remember that’s $10 million sales that we can make to HPT without a rent increase.

Ben Brownlow - Morgan Keegan

Okay, and I would like to make a statement, I think it would be helpful and you as may want to consider as you kind of come up on 2010 is, I know their quarterly it’s going to be very difficult to predict but maybe just consider gaining some annual goals on comps, fuel margins, merchandise margins, things that maybe less volatile on a long run basis that you can give the street just kind of a sense of where your internal goals are kind of where it is at the bar?

Operator

(Operator Instructions) Your next question comes from Bryan Maher at Collins Stewart.

Bryan Maher - Collins Stewart

After a period of extended losses over the last couple of years, of course the exception being the third quarter of last year, can you kind of describe for us, what the world would need to look like for TA to start putting consistent profits up on the board?

Tom O’Brien

Yes, I think that there’s two elements. Those elements are really from where I see it in theories today. One is, a change in the economic backdrop or at least the certainty that the change is not coming, we are wound pretty tight and have been for an extended period now, the operating leverage that’s inherent in the TA business model.

We are seeing the downside of it with volume declines. I do expect that the upside of it may actually be more vigorous than the downside, because we are wound down so tight on things like labor and cost control and things like that. I think that there’s sort of a mini resurgence in things like shop business that may occur no matter what the economic environment, because it’s my belief that you can only defer maintenance for so long.

We are seeing that a little bit indications of it although it hasn’t shown up in the numbers in a material way, in that our emergency road side business has continued to grow, which means that some folks are learning the lesson about what it means to defer maintenance, and so, that may be something bounces back whether or not the economic activity picks up materially or when it does.

The second thing is of course, sort of goes back to when we put our rent deferral agreement in place with HPT. That, as everybody recognized and I said at the time, certainly appeared as if it might be a temporary solution or alleviation, if you will, during this difficult time.

Whether or not our spring is going to bounce back and TA will be able to generate not only the cash to repay those deferrals at the end of the deferral period, but also to generate profits, which is the goal here. That’s something that they don’t have visibility on today, because of where we are in the economic environment and that’s the answer to the question that it isn’t particularly definitive, but this is certainly a complex business in economic time.

Bryan Maher - Collins Stewart

Could you just recap the HPT deferral? When do you have to stop deferring and when do you have to start paying back?

Andy Rebholz

Yes, we have the ability to defer the $5 million per month through the end of 2010. Well, interest begins to accrue January 1, 2010. So, thus far we’ve been able to defer, but our non-accruing interest, interest begins January 1, 2010, we can continue to defer monthly through the end of 2010 and then July 1, 2011, is when those full amount of rent deferrals in any interest would need to be repaid by. We have the ability to repay anytime within that period, but January 1, 2011, is the sort of drop dead date.

Bryan Maher - Collins Stewart

Yes, it’s my understanding that the interest accrues at what, 12%, starting January 1st of 10?

Andy Rebholz

Yes, 12%, that’s correct.

Bryan Maher - Collins Stewart

And how do you think about that, kind of on a go-forward basis, I mean that starts to become kind of expensive money when you are covering the rents with operations and you do have a lot of cash in the balance sheet?

Tom O’Brien

Yes, we’ll make that decision of course, closer to the time. If today was January 1, then I would frankly pay the interest and continue to defer. I think this environment is still one, although, and it may be I am not as deeply seated in the sentiment that I was six to nine months ago. This environment is still one where it makes sense for the marshalling resources including cash.

Bryan Maher - Collins Stewart

Yes, and just one last question. Similar to what the lodging companies did in April with large issuances of equity and then again in August, after a bounce back in their shares, you guys have come off some pretty low lows, to the point where your stock was trading kind of $5, $6, $7, $8 bucks a share. What is your thought with respect to capital rates as relative to needs in paying back HBT etc?

Tom O’Brien

Well, you are thinking about lodging REITs?

Bryan Maher - Collins Stewart

Exactly.

Tom O’Brien

I think we are an operating company and capital access is just, it’s a totally different market, but.

Bryan Maher - Collins Stewart

But there has been an awful lot of interest in your shares over the last two or three months.

Tom O’Brien

Yes. And we don’t have a capital raising transaction on the horizon.

Operator

Your next question comes from Smedes Rose - KBW.

Smedes Rose - KBW

I guess you sort of answered our question. So you are inclined to keep your cash balances in tact and to pay the 12% HPT versus paying back some, are you going to consider maybe like a partial repayment to lower your interest expenses or?

Tom O’Brien

Yes, in the context of that question what I was trying to do is give a sense, and that the real answer is, the day that comes that, I will make that decision the day that I have to, all right it’s an option, but if today were that day, that is what I was trying to say yes, I would defer and pay the interest.

Smedes Rose - KBW

Okay, and at the beginning when you talked about, it sounds like potentially you are gaining market share, what were the numbers that you were looking at versus your own that we are implying that maybe you are gaining some share?

Tom O’Brien

What we have to look at is the total miles index published by the ATA and it’s important to look at the one that would be that you could match up, if you will, best is the not seasonally adjusted index, there are two, that’s the one that this is done on the basis most look into how we do our numbers.

Operator

Your next question comes from [Greg Shultz - Gianna Partners]

Greg Shultz - Gianna Parnters

Question was answered, thanks.

Andy Rebholz

Thanks Greg.

Operator

Your next question comes from Ben Axler - Spruce Point Capital.

Ben Axler - Spruce Point Capital

Two questions; one is, how sustainable are those cost cuts and how permanent are they as the economy begins to ramp up, you appear to have nice operating leverage from that point of view. So, I’ve one here, point of view of how sustainable those costs are, that you pulled out of the business, will be my first question.

My second question is, if you could kind of bridge the cash quarter-to-quarter balance and discuss your actual ability to generate cash from operations excluding the deferral to HPT?

Tom O’Brien

Yes, first on the cost side, I think that by and large the cost in SG&A, for example, are sustainable. The cost in the operating expense line, what we try to do is the goal is to flex those, if you will, with changes in sales. It is my intend that those cost which today have declined at a slower pace, slightly slower pace than our gross margins from those businesses, it’s my intention that they will in the future increase more slowly than increases in non fuel revenues if in fact we get to the point where we are increasing non fuel revenues again.

So, there is, I believe firmly an opportunity for some margin expansion, what I’m saying, meaning gross margin from non-fuel less operating expenses. And so, that’s what I’m talking about when I’m talking about the spring, if you will, where we are to be able to take advantage of the operating leverage when the environment is right for that just as, that the other side of the coin of having gone through the period where the environment over the last 18 months maybe, has not been right, and we have disadvantaged by it.

As far as operating cash flow, again, I think that comes back to some of the prior questions. I mean that is the goal here, as well as generating positive net income on a sustainable basis. And it requires some of the things I was talking to, I think that was our second caller with Bryan Maher about, it requires a combination or one or the other of a changed economic environment, meaning an improved economic environment, and/or, if you will, a final resolution of the rent deferral agreement, and those things the future will tell us. Does that answer your question Ben?

Operator

Your next question comes from Michael Boylen - Stifel Nicolaus.

Michael Boylen - Stifel Nicolaus

I’m looking at, since I don’t see the Q filed with the SEC, I’m looking at last quarter, the June quarter versus what I see on your press release, could you tell like the overall operating expenses where I may have missed at, I know you went over SG&A, the site, the level of operating expenses?

Andy Rebholz

Yes.

Michael Boylen - Stifel Nicolaus

And what total operating expenses were for the quarter?

Andy Rebholz

Yes, hold on, we are pulling that out for you, so you don’t get the wrong number. For the third quarter, site level operating expenses were $153.4 million.

Michael Boylen - Stifel Nicolaus

Okay, any reason why that’s up Q over Q, from the June quarter?

Andy Rebholz

I don’t know have the June quarter here in front of me.

Michael Boylen - Stifel Nicolaus

149.680.

Andy Rebholz

But the primary difference between those two quarters is likely just the level of activity between the two quarters. Because, I mean we certainly have a base layer of fixed costs baked into those site level operating expenses, things like the management salaries or utilities or property taxes, things like that that really aren’t variable with the level of sales.

Then there is a variable layer on top of that or at least semi variable and to the extent that you have say more sales in your restaurant, you will have needed more cooks and wait staff, that sort of thing.

Tom O’Brien

Generally speaking, the third quarter is going to have more business activity than the second quarter. And like, for example, if you look at that rolling quarter comparison in ’08, operating expenses line, if that’s what you are focused on, one from about 159 to 167. So, about a 5% increase second quarter versus third quarter, whereas.

Michael Boylen - Stifel Nicolaus

Actually 159 in ’08, you are saying from ’07 and one from 167 to 159?

Tom O’Brien

I am sorry, 159 to 167 between June ’08, the second quarter ’08 to third quarter ’08.

Michael Boylen - Stifel Nicolaus

Oh I see in third quarter.

Tom O’Brien

I think that’s the comparison you are trying to make here. So, it’s 150 to 153. So that’s not unusual activity.

Michael Boylen - Stifel Nicolaus

So total operating expenses for the quarter, were like 240 or some like that?

Tom O’Brien

Well, Yes 242.

Michael Boylen - Stifel Nicolaus

242, okay. The interest expense line on the income statement and interest income, what is that interest expense on? What is that?

Andy Rebholz

The largest component of that interest expenses is.

Michael Boylen - Stifel Nicolaus

I don’t see it by the way for this quarter, I am looking at the last quarter, I don’t see if we…

Tom O’Brien

Right, right, that will be in the 10-Q when it’s filed, but really the largest portion of it is a portion of the rent that we pay to HPT, that under GAAP needs to be classified as interest expense, under GAAP. So there’s $2.3 million of that $3.6 million is really just the piece of the rent payment that the way it needs to be accounted for as interest expense for certain of the sites that didn’t qualify for sale or lease back accounting and that sort of related to the item on the balance sheet, the capital lease obligations.

Andy Rebholz

As we reconciled all those figures because it is somewhat complicated. We reconciled all of those, I think it’s a footnote 3 from the second to last page of the press release.

Michael Boylen - Stifel Nicolaus

I may have missed it but what did you say the cash on a balance sheet was at the end of the quarter.

Tom O’Brien

185

Michael Boylen - Stifel Nicolaus

Okay, so I see in the June quarter it was 182. So I guess couple of people have asked this question. But why would you not pay off the deferred rent at least for the $60 million for this year or whatever it will be at the end of the year, is it $90 million at the end of this year? I don’t remember the number.

Tom O’Brien

Yes it is, that question has sort of been asked and answered but it’s a matter of.

Michael Boylen - Stifel Nicolaus

Well I mean if you are building up cash why would you encourage 12% interest payments?

Tom O’Brien

Again, I didn’t mean to suggest that we have determined today to incur the interest cost that would start in January, and the question was if I had to make that decision today what would that decision be.

The fact of the matter is I don’t have to make that decision today, but if I did I would defer. In the economic environment today we don’t have the clear trend while things are getting a less bad they are not necessarily getting better, and when we see one week the GDP grew by 3% that’s certainly positive but this morning when you see that unemployment has hit 10 I think you are still in the period of very mixed signals, and it would be a mistake to ease up our commitments to liquidity and financial strength too early, particularly today when there is no interest accruing and therefore it seems to be very little penalty for taking this approach. Does that make sense to you?

Michael Boylen - Stifel Nicolaus

No.

Tom O’Brien

Okay. Well I guess we’ll disagree on that.

Operator

This concludes today’s question-and-answer session. I’ll now turn the call back to Mr. Tom O’Brien for any closing or additional remarks.

Tom O’Brien

I don’t have any additional remarks I just want to thank everybody for calling in and if, we will certainly look forward to reporting the fourth quarter results. Thanks.

Operator

That concludes our call for today. Thank you for your participation.

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