American Commercial Lines Inc. (ACLI) Q4 2009 Earnings Call February 9, 2010 10:00 AM ET
Dave Parker - VP, IR and CC
Mike Ryan - President & CEO
Tom Pilholskiv - SVP & CFO
Good day ladies and gentlemen and welcome to the fourth quarter 2009 American Commercial Lines Incorporated earnings conference call. My name is Towanda and I'll be your coordinator for today.
At this time all participants are in listen-only mode. We will be conducting a question and answer session, towards the end of today's conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.
I would now like to turn the presentation over to Mr. Dave Parker, Vice President of Investor Relations. Please proceed sir.
Thank you, Towanda. Good morning, thank you for joining us. Today, we will be discussing our fourth quarter and fiscal year ended December 31, 2009, financial results. Before we begin our discussion, I want to remind you that statements made during this conference call with respect to the future are forward looking statements.
Forward looking statements involve risks and uncertainties. Our actual results may differ materially from those anticipated as a result of various factors. A list of some of these factors can be found in our SEC filings, including our Form 10-K for the year ended December 31, 2008, and Form 10-Q for the most recent quarter on file with the Securities and Exchange Commission.
During the conference call, we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at www.aclines.com in the investor relation sections under non-GAAP financial data.
Also, as a reminder you can follow along today via a live webcast featuring a slide presentation which can also be accessed at aclines.com. If you plan on viewing the slide presentation, I'll remind you to please listen to the call via your computer speakers rather than dialing in by telephone in order to avoid a time lapse between the slide presentation and the audio.
Joining me on the call today we have Mike Ryan, our President and CEO and Tom Pilholski our Senior Vice President and CFO.
With that, I'll now turn the call over to Mike
Thanks David and good morning from snowy Jefferson Ville, Indiana. Those of you on the East Coast I guess this is heading your way again, so our apologies for that, but you seem to have a lot of practice for that, so I am sure you'll do well with it.
I'll begin with comments on our performance highlights today and current market conditions. And then update you on our strategic initiatives. Tom will then comment on our financial results, and then we'll take your questions.
We are pleased with our fourth quarter results, finishing 2009 on a positive note, after a second straight year of difficult economic conditions. Our earnings power was greatly impacted this year as our client ship less to their customers and to their own production facilities. With the economy beyond our control, we focused on improving the fundamentals of our business.
Even with no real sustained recovery in the economy, we were profitable in the fourth quarter, these results still trailed Q4, 2008 but are indicators that our cost cutting efforts combined with our strategic initiatives are starting to help drive positive results.
Our fourth quarter results in transportation, were achieved despite significantly lower grain freight pricing, substantial volume declines in our high margin liquids and metals markets and increased cost of moving empty barges.
We made strong progress on reducing our personnel cost and other operating cost. In our manufacturing segment, we almost doubled full year EBITDA over prior year, so we had substantially lower manufacturing sales at Jeffboat as a result of fewer barges produced. We moved our Jeffboat strategic initiative forward by operating a shipyard more efficiently and safely this year.
Our improvements in safety and production efficiency combined with more attractive contract terms drove 2009 Jeffboat margin results. As you can see on the slide, despite difficult economic conditions, we continue to generate strong cash flow, paying down debt and strengthening our balance sheet.
In the markets, overall barge freight demand remains weak, we continue to encounter very difficult general economic and transportation market conditions. This weakness is confirmed with the January federal reserve base book statistics and in barge freight tonnage levels reported by the army core of engineers.
Our 2009 ton-mile volume decline of 6% on an overall basis, mere the industry decline. However, the ACL business segments which were negatively impacted by volume variances were the financial drivers for us in 2009, while we experienced strong increases in our grain and legacy coal business, these are our lower margin lines of business.
Our significant volume declines in 2009 in our higher margin liquids and bulk businesses especially within the metals portfolio continue to put earning stress on our company.
We did see the differed volumes of the delayed grain harvest in the fourth quarter. Grain volumes in the quarter increased 20% over the prior year. The delay resulted in higher seasonal grain rates lasting longer into the fourth quarter.
However, we did not see the traditional strong pricing surge in the 2009 harvest. As the 2009 harvest season did not follow the compressed timeframe of a more traditional grain harvest. On a potentially positive note for 2010, the USDA recently reported that the grain harvest was at record levels and that grain exports for the current marketing year are expected to increase 10% over this past year.
This is not a guarantee of strong volumes or pricing for barge carriers there, as there remains an excess of barge capacity due to reduced overall shipping demand in recession impacted markets.
Grain exports via the river to the Gulf should continue to remain an economically attractive choice for shippers as the freight spread between shipping on the river versus the Pacific North West continues to favor the river. We are not seeing any sustained change yet that would signal to us a return of higher margin metals and liquids volumes.
We have seen some modest sequential volume improvements in these markets, though there is no clarity as to how much of this activity is inventory replenishment and how much may be sustained economic improvement.
The industry wide lower barge demand and resulting barge over capacity continues to negatively impact barge freight pricing. In manufacturing, Jeffboat margins clearly outpaced 2008 results. Our strategic initiative to optimize the employment levels and production capacity at Jeffboat continues. As we have reduced our workforce size by over 46% as of January 2010 versus year end 2008.
Our year end external backlog at Jeffboat was $49 million, we booked $32 million in the fourth quarter with new orders and one exercise option in the fourth quarter. We sold an additional $27 million of new orders in January, continuing increase in bids leave us optimistic that we will fill the remaining 25% of production capacity at Jeffboat in 2010.
Jeffboat will built barges for ACL in 2010 as well. At Jeffboat, our goal remains to right size the facility, and to build the standard dry and liquid barges which we build well in order to maintain a steady production schedule and consistent level of EBITDA performance during normal market periods.
In Q4, we sold our non-core holding of Summit Contracting. The Summit sale will allow us to focus on our barge business and the key transportation strategies we must implement in our core businesses.
We are not counting on any meaningful improvement in economic conditions in 2010. That will not slow us down though; we remain focused on reducing cost, generating strong cash flow and implementing our strategic initiatives.
Reviewing our strategic initiatives, our company has two main drivers, one is the economy, this component is not one we can control. The second is executing the fundamentals of building and moving barges. And this is in our control, improving the fundamental of our business will be achieved by executing our seven major strategic initiatives.
When we execute these well improving our fundamentals we will develop a company that is profitable in tough times, and highly profitable in strong economic times. That is our mission. You'll hear us talk about the economy in business trends, but you will hear us talk as much or more, about strategic initiatives.
We started to define and assign these initiatives in early 2008, that include driving to zero, driving accidents, incidents and loss productivity cost to zero, business mix improvement, I actually started this initiative when I joined ACL in December 2005. This category formally referred to as organic growth is really more than organic growth, it is rate discipline, contract success, business retention and improved portfolio mix, such as increasing our percentage of higher margin liquids and longer term high margin steal and bulk products.
Reinvestment in our fleet to lower the age and increase the productivity and a liability of our barge fleet through the measured reinvestment in new tank and dry barges. Scheduled service, establishing plans, predictable, main line and local service on our core system to improve margins on existing business and attract land base business.
Order to cash, administrative efficiency and excellence in capturing all work we performed, billing for that work and then collecting all receivables efficiently. Jeffboat Optimization to build the optimum number and type of barges with the right number of people maximizing and stabilizing profitability and reducing ideal time risk, and recruiting, retention and organization, hiring, retaining and deploying the best long term leaders to run our programs. These are our strategic initiatives.
Our company has focused for far too long on the economy alone to drive our results. Our success with the advancement of our strategic initiatives will change that. So, where are we on these initiatives? On our safety drive to zero in 2009, we completed 2 million hours without a loss time incident at Jeffboat. And achieved a safety incident record of 1.2 in transportation, which we believe challenges for the best in the industry.
In business mix improvement, we re-priced several of our largest and most attractive dry business contracts with 3 to 5 year renewals. We also continued to achieve organic growth wins with $12 million in the fourth quarter and $53 million for all of 2009.
Our improving balance sheet, now allow us to apply a portion of our growing financial strength to reinvest in our fleet. We are building 50 new dry hopper barges right now as we focused on improving the age and reliability of our fleet.
Our scheduled service initiative is now the focus of our decentralized operation management's team. They are standardizing operating practices system wide for efficiency gains, and as a requisite step, prior to launching expanded service schedules for organic growth.
Order to cash the timely and accurate capture of all available events is in a six sigma mapping stage and we'll have a significant return for us despite its backlog is low profile.
In the Jeffboat optimization we have reduced the staff levels by 46% and reduced the production footprint to two major lines for 2010, as we focused on building the optimal number of traditional hopper, deck and tank barges. And recruiting, retention and organization we have reduced our total workforce by 24% over the past year.
Our cumulative salary compensation reduction since 2008 now exceed $25 million and when combined with our hourly reductions, now totaled over $50 million in total compensation cost reduction. We actually reduced our workforce size, while improving the quality of our service and the products we offer. You can see other key metrics we monitor in the appendix to our slide presentation. I would like to turn the presentation over to Tom now to discuss the financials.
The next slide contains the summary of our financial performance. The transportation revenue change for the quarter and for the full year was primarily due to changes in the mix of commodity shift with significant volume increases in our lower margin legacy coal and grain business, not off setting decline in our higher margin metals other dry bulk and liquids markets. Revenues were also impacted by decrease telling revenue, significantly lower grain freight prices and lower fuel prices which are generally passed through to our customers. I will get into more detail for transportation revenues in a moment.
Manufacturing revenues are $45.2 million increase $7.3 million for the quarter driven by a change in the mix of external customer barges and ACL barges between years, as last year more of Jeffboat's capacity in the quarter was devoted to (inaudible) tanker builds.
Manufacturing revenue for the year decreased $39.2 million or 15% to the fuel barges filled as detail in the appendix. The diluted earnings per share from continuing operation was a $1.9 a decline of $0.72 compared to the prior year fourth quarter. For the full year the loss per share from continuing operations was $0.16 a decrease of $3.89 compared to prior year. Increased interest cost accounted for $0.16 of this decline in the quarter and $0.72 for the full year despite lower debt levels and the write off of deferred financing cost accounted for $0.89 of the full year decline.
The remainder of the decline for both the quarter and full year was due primarily to volume declines at our higher margin liquids chemicals and steel-related businesses and $16.6 million of lower grain pricing in the quarter and $56.4 million for the year. This fact is more than offset to significant cost savings we realize, the volume increases in a lower margin grain and coal business and the increased manufacturing earnings.
For the quarter, we had pre-tax charges of $1 million for severance and a charge of $1 million related to our Houston office closure. Largely offset by $1.6 million benefit from a change in our vacation policy. For the full year, we also had charges which were related to eject both [accounts-backed] dispute for $2.3 million, severance of $3.2 million. Total Houston closure charges of $3.7 million and a bankruptcy charge of $700,000 related to one of our liquids customers. These were offset by vacation policy change benefits and approximately $7.5 million of higher in net asset and in impairment gains then we realize need to the prior two years.
Shown in discontinued operations as an EPS loss of $0.37 for the quarter and $0.79 for the year related to submit contracting which were sold in November. The next slide illustrates the mix change in transportation revenues. As you can see, except for grain, we had lower year-over-year revenue declines in the quarter than for the full year as we are comparing to a generally weaker prior year fourth quarter. Overall transportation revenues declined 18.8% on a fuel-neutral basis in the quarter and 25.6% for the full year.
This was driven by a negative revenue mix grain pricing that was 22% and 25% lower than in the respected quarter and full year in 2008. Lower towing volumes and a 1.4% decrease in ton-miles in the quarter and 6% decrease for the year. Excluding volume increases in lower margin grain and legacy coal all other refrained in ton-miles decreased 18.9% in the quarter and 32.4% for the full year.
As you can see in that box on the top right of the chart similar to the first three quarters of 2009, the volume increases in the fourth quarter and lower margin grain and legacy coal and volume decreases in the highest margin steel, other dry bulk and liquids chemical markets drove the negative mixed shifts. We have seen some very modest sequential improvements in metals and liquid volumes compared to the third quarter but remained unsure if this is sustainable or due to inventory replenishment.
As you can see on the bar graph, steel revenues declined 25% for the quarter and 61% for the year on lower volumes. Liquid revenues decreased 27% with a 30% decrease in chemical business revenues in the quarter being partially offset by an increase in petroleum.
Note that on the full year, despite shipping over one-third of our grain volume, lower pricing drove only a 1% increase in grain revenue. Lower grain freight prices compared to last year resulted in $17 million of year-over-year negative revenue and margin impact in the quarter and $56 million for the full year. Sequentially grain pricing was $17 million better than the third quarter pricing this year providing much of the sequential fourth quarter improvement in EBITDA.
From an update on contract renewals; of the 48 active contacts that were schedule for renewal in the fourth quarter, 30 were renewed at approximately of 5% blended rate reduction, nine contracts were extended on existing terms into the first quarter of 2010. [Bold] move from term contracts to spot pricing and five contracts were lost or we chose not to be bid. We renewed 16 contracts prior to the fourth quarter bringing that total to 46 renewals this year.
The blended price decreased in all 2009 renewals was approximately 4% with liquid renewals at 6% declines and dry renewals at 3% declines. We have also seen declines in spot pricing for grain, liquids and coal.
On the next slide, all the key drivers of our earnings compared to prior year to both the fourth quarter and full year. Excluding grain the significant impact in volume price and mix shift in the transportation segment drove operating profit down $24.3 million in the quarter and $84.9 million for the year.
As to grain, the $16.6 million decline in pricing in the quarter drove a $4.2 million decline in profitability despite lower grain related fuel prices, and a 20% increase in volumes for the quarter. Despite a one third increase in full year grain volumes and lower fuel prices to ship grain, profitability for the year was down $14.8 million due to the $56 million lower range trade pricing.
The incremental cost of relocation of empty barges was $2.2 million in the fourth quarter down significantly from the average in the first three quarters. Our covered live barge fleet loaded miles ratio improved to 80% in the fourth quarter compared to 72% for the first three quarters. These negative factors were partially offset by $8.7 million in cost savings in the quarter and $41.7 million for the year in both improving productivity, lower repair and uninsured claim expenses and other operations related cost reductions.
SG&A expenses were $5.4 million lower in the quarter, and $8.5 million for the year compared to prior year, primarily attributable to the lower salary wage base in 2009 as a result of reduction in force actions, decreases in bonus accruals one-time bank-related costs in 2008 fourth quarter, and less advertising spending. Net fuel other than graining related fuel was not a significant driver of change in either of quarter or a full-year basis.
Manufacturing EBITDA was $3.5 million in the quarter, an improvement of $621 million over the prior year which was impacted by special vessel contract losses. Full-year manufacturing EBITDA of $25.1 million was almost double the prior year. The improvement for the year was primarily driven by a better mix as market price, non-legacy barges, higher productivity and safer operations.
Our consolidated EBITDA was additionally impacted by negative EBITDA of $14.2 million for the summit business sale primarily driven by the third quarter 2009 impairment charge of $4.4 million and the fourth quarter 2009 loss on sale of $7.5 million.
As you can see on the next slide despite of every difficult economic environment, we continue to generate strong cash flow. We have continued to focus on increasing available liquidity through cash flow from optimizing our operations, reduced capital spending selling excess assets and improving working capital management. We generated cash flow from operations of $45.5 million in the quarter and a $129.3 million for the full year.
The increase year-over-year on lower net income was primarily due to working capital changes mainly lower accounts receivable in inventory levels and higher accrued interest. We have continued to better manage receivables by lowering our day sales outstanding and have lower receivables due to reduced sales. We have also improved our sale inventory and supply chain processes in our shipyard and we have improved inventory forecasting, delivery scheduling and reducing safety stocks.
These actions have generated $10 million in steel inventory savings to-date exclusive of a lower steel price. The higher accrued interest of approximately $12 million was paid in January when we made the first semi annual interest payment on our senior notes.
Only $6.5 million net cash was used in investing activities during the year. As of $33.2 million of capital expenditures and other investing activities of $4.4 million were largely offset by proceed in the sale of vessels and now investment in Summit. The capital expenditures include 5 million to complete the liquid barges this year, that were started in 2008, and 4 million to start construction of some internal divide barges for delivery in 2010.
At December 31, the company 234 million in liquidity under its revolver and 354.6 million in total debt outstanding. We reduced our total debt during the year by over $64 million, despite the fact we paid $40 million in financing fees in 2009, and incurred $10 million of original issue discounts on bonds adding to these debt, both related to the extension of our former bank credit facility in February 2009, and the complete refinancing of our debt in July.
We believe we have ample liquidity to operate the business through the business cycles and to execute our plans. As we have announced, we currently expect to build at least 50 new divide hopper barges for used by our transportation segment in 2010, combined with our maintenance capital expenditures which extend to the life of our existing fleets and other expected expenditure we believe that our capital expenditure will be in the range of $50 million to $60 million in 2010.
I'll turn the call back over to Mike.
While we had a good fourth quarter, but the recession looms large for all transportation companies. Visibility into 2010 isn't very clear, we see more frequent volume upticks in several business lines, but we are yet to see any consistency in these very brief spikes. The economy maybe attempting to prime its pump, but we still do not have enough data points to declare that what we see are actually positive trends.
We are now all ready for questions. David?
Yes. And I'd like to ask our audience for those of you asking questions, please limit the initial round to your initial question plus a follow up and then if we have additional time we'll move on to further questions. Operator, we are as Mike indicated, ready for questions. Thank you.
Thank you. (Operator Instructions). Your next question comes from the line of Ken Hoexter. Please proceed.
Mike, it sound like in your opening comments maybe a little bit bigger of a focus on the liquid side, are you shifting back to that, or are you just highlighting how strong the market was in contributing to some of the, or potentially contributing to the gains going forward?
Ken what I think, we were doing when we were going into the recession is exactly what we are going to have, come and back out. We want to increase that percentage share of our total book of business, again to that 40% kind of range, and we were making that kind of progress, 2006, 2007 and then as that started to weaken, we didn't have the strength any longer. So, but we don't need to really build to achieve that or expand capacity to achieve that if we just sustain that existing liquid freight level, or capacity level, we should be able to achieve those levels we were looking for.
Okay. It's a pretty solid fourth quarter rebound, so maybe you can talk a bit about what you see now in and as far as the excess capacity in the sector and the mere need it sounds like Tom just mentioned you threw out there 50 new dry hoppers in 2010. What you plan on retiring to offset that and what kind of overall I guess increase in industry capacity do you see?
We are going to stay right at that retirement level of 150 to 175 on the dry side a year. So, the replacement of 50 is pretty modest in comparison to what's still coming out of the market. If we need to ramp that up later to catch up obviously we have Jeffboat we do that. But right now we think its kind of a prudent percentage to take kind of one for three, one for four kind of approach to what comes out and what the market type [knobble] over.
And your next question comes from the line of Jimmy [Gilbert]. Please proceed.
Mike, it looks like you guys are making some real progress in cost reduction in transport and in Jeffboat. How much more can you go there?
I think there is still upside in both areas, to quantify I'd rather report it when I finish this and then I guess out of going forward, but I think Jimmy there is a message there on both sides, transportation and manufacturing is just executing. When you talk about your team, it's just blocking and tackling. And we hadn't been doing that as a company and as we continue to do that in a recovering economy it's really going to accelerate what we are able to achieve both in earnings and kind of a competitive advantage as well we think on the service side. But to quantify that, I don’t know, we'll keep scoring and we'll just keep sharing it with you.
Okay. On sort of the boat productivity and the (accruing) productivity is that just sort of an improved scheduling I guess dynamic that you guys have worked out prior what was going on before?
It's a combination of thing going on Jimmy, one is obviously the freight levels because there is less activity we have to run fewer boats, so there is component of it that's just there is not enough demand to keep that many boats going, but in the past we would run full out just to kind of pound our chest and say we were going a little faster and I think what you are seeing now is a more strategic view of the network, and how you run in combination with other fleeting areas. And you are going to see more of that as we remove the people out to the field in the de-centralized operation you are going to see these guys coordinate between terminals in the North and the South, so that we look at how many assets we actually need to run the same amount of volume or more and our thinking is that fewer assets which is good for us, because if there are excess we'll sell them and we'll have some cash.
And you talked a little bit about retirements, did you scraps any barges in the quarter?
In the fourth quarter of 2009, yes we did scrap some.
And what are you getting for a Jumbo hopper these days when you scrap it, if you all can say that. I think in the past, you have said how much you were getting.
It's in the $40,000 range.
Okay. And then the only other another question I had was I'm looking at these slides, and it might be helpful if you could explain, would you include in the category, other bulk in the transportation segment. What's included in other bulk?
The way we look at bulk and non-bulk, if you can count it, it's non-bulk. If you can't count it, it's bulk. So grain, and fertilizer and things like that will be bulk because you can't count it. If it's steel, you can count it. So you'll see things like that. Now we do classify steel separately, but any bulk products that is either in a package or a unit size that you can count is non-bulk.
Well, so is this like limestone, aggregate gravel?
And was there a pickup issue, I was reading something about the salt shortages in the northern states; they throw salt on a bit. That was the product that you guys had started moving again after it would have been a real quite market, was that a factor in this quarters of salt?
It's been a factor most of the year. It's a good natural backhaul for us, when we shift the grain south. The salts are pretty steady, return move north and actually that's been a good performer for us since about 2006. Good steady customers that are signed up for the long-term deals.
Okay well that's good to know. And then the last thing I was going to ask about is the fertilizer business if you maybe you could comment, I guess its sort of begins the end of February, beginning of March, its sort of a north bound business that's been good in the past, is that shaping up to be a good year fertilizer?
Yeah I think for any number of reasons farmers took a year off from buying as much and applying as much and as the skipped years have now caught up with them, so we are seeing more activity of bidding and contract wins, so we are optimistic, we are going to see a good fertilizer mover here in first half of the year.
Your next question comes from the line of Chaz Jones.
My first question was just in terms of where you are at on your business, on the contract versus what's the breakdown and maybe how that compares to a year-ago in the follow up, kind of relating to that question is just in terms of a spot pricing on your non-grain business below contract range?
I would say that we had traditionally been about two thirds contract and one third spot, and most of the spot screen, obviously the grain hasn't changed at all, but there has been some movement back towards spot with shippers who think they can find a better rate in the short term. In some cases they have there are some negative price activity in the short term on liquid end drive in the spot market, so they are taking advantage of it, but I think the shippers who think long term and are planning on their pipelines for the long term, they understand that you not overplay that card if there is an opportunity to negotiate a fair adjustment on the rate that you still get the renewal and it still stays in the contract. So, but to be honest with you we've had more activity I think in non-renewals, people trying to figure out a different that we have had probably in the last two or three years.
Okay and then Mike just in terms you alluded to potential grains spill over in the first quarter maybe some pent up export demand, are you seeing that happen in January and has weather had any type of impact on January so far?
Well first on the spill over on grain there has been volume activity, but again without the non-grain bulk activity to tighten up the fleet it really doesn't give you a lot of price leverage, but it is attractive business, so its unfortunately you have got everybody chasing it. So there isn't the opportunity for pricing leverage and traditional there isn't anyway in the barge industry if it was a normal harvest in the first half of the year would have been slower anyways. So, but there is some spill over because of the delayed grain and we are taking advantage of that.
On the weather side, it was winter time I mean we had ice again and everybody has had to go through it, and it gets cold we get the blocks and locked up areas, then they melt and they all flows out so nothing added to the ordinary I don't think for what we are looking at here going into the first quarter.
And your next question comes from the line of (inaudible). Please proceed.
Good morning guys, couple of quick questions is there a way for you to quantify what the net impact would be from the contract renewals on the transport side on EBITDA margins for 2010.
I don’t think we break it down that way publicly I mean we would have those as internal dynamics but we would roll that up to a total EBITDA number.
And you guys have target for which you set for either the manufacturing or transport side for margins for 2010 that you may be this year.
No they would be internal and as a fact is now because we don’t give guidance we don’t give that type of forecast activity we just report on actuals around that end of quarter basis.
Okay, maybe the third time of those 50 barges you plan to build internally any estimates as to kind of what barges are going for these days had to think about the revenue from that.
How much across the bill demand?
They variant price that depending on the type of barge it be anywhere from 450 to 500 in a quarter depending on the weight and the thickness that’s desired by the buyer. So that’s probably a pretty good range right in there on a new dry hopper.
I guess I am trying to think about what you guys internally or trying to solve for from a revenue perspective in the manufacturing side of the business.
It’s a on the bill side its actually to put a more efficient unit on the water the older units that we have are ten times more expensive to maintain and they are out of service about, on average about one-month a year for repair. So, we are looking for a more reliable and actually a more fungible unit too. We can't use the old units on all of your commodities and you can use the new units on any commodities that you have. So, it helps us get back to a more consistent fungible fleet when we are going after business. So, on the build side that’s what we are doing for getting new barges out.
On the manufacturing side, it's to right size the production so that we are not playing different idle periods when demand does not exceed our production capacity. We are trying to right size to a point where we have got steady demand, a steady book of customer bookings and a more predictable and steady return performance at Jeffboat.
If you look back a couple of years, we expand it by twice the size that we are over there and left ourselves prone when the market moved away from us. So we are not going to do that going forward.
Final question would be in terms of your long-term desire to be more of a market share leader in the liquid side of the business. Just based on the number of barges, it seems you got a wave to get there. Maybe kind of elaborate on how you plan to ultimately get the number of votes you need to get to, it seems like it would be quite a ways before we get there
We are not really hung up on being the leader on the liquid side. It's more of function of increasing the percentage of our portfolio of business to that 40% target level. To do that we had a fleet size of between three and 325 on the 10,000 barrel barges and between 70 and 80 on the Jumbos, the 30,000 and if you look at that just maintaining that fleet size as barges fall out will position us perfectly to recapture in a recovering market. So we don’t need to spend a lot of money to achieve that end and we certainly don’t need to be number one in the industry, we just want to increase our percentage of that portfolio for us.
Your next question comes from the line of (inaudible), please proceed.
Couple of question, can you talk a little bit more about any potential asset sale as you may have upcoming excess real estate anything you might do to further reduce your debt?
Adam everyday we are looking at something whether its land or assets or whatever, if we needed to execute the program we keep it, we upgrade it, we maintain it. We don’t need it in our long-term plan, it's on the market. And that's barges, boats, lands, facilities so now we are not having any type of fire sale or anything like that but the way we are looking at it is because it has got someone's name on it, it doesn’t mean we are married to it.
We are not keeping things just for sentimental value, if it makes sense for us to shed an asset we visit that with potential buyers and if the deal is good we make the deal. I think you have seen that on our power side probably the last four or five quarters and we will continue to do that whether it’s a sale or a swap we are going to do things that position us for greater strength.
But is there anything that you see, there is $5 million here, $10 million here, there is a couple of more tugs that we can sell anything specifically or just like you mentioned generally?
Just in general, there is dialogue in every one of the areas that I just covered, and on a quarterly basis we will record and tell you how we did on those.
Got you. In terms of scrappage, I know you guys have talked to the past about the industry fleet reduction. Can you give me an idea of how big your fleet is on the drive side, and where you think the industry is at year-end?
I think our fleet number at year-end was close to 2500. 2500 and that's a combination of covers and opens. That is obviously shrinking because of the scrapping that we're doing, but we think that we're still several 100 barges above on our barge count above an optimal level of a younger fleet for the model that we want to execute. So, obviously, we think we need fewer barges that run more efficiently and run more often than an older fleet of more barges. So that's the model that we're pursuing.
On the industry side, I think there is been a lot of CapEx that’s been staying at home. Just looking at Jeffboat demand which is why we didn't want to get out in front of ourselves on that. So I think the retirement activity has continued on liquid and dry barges, but that CapEx to replace has really shown itself.
But where do you think is the industry is at year-end? Any Industry Day that you've seen or conferences you've been to give us more color on what the other players have done?
I don't know the numbers exactly, but in former runs, if you're familiar within former at Memphis, they run industry counts on the other carriers and as a rule the carriers that are about our size, are shedding just at about the same pace. And you can see that in the former data. I haven’t seen the latest and former at year-end numbers but they are definitely going to be listed in there.
Okay so if everybody is keeping pace as you mentioned it still looks like another two to three years before you get to optimal size and age of fleet and perhaps the industry of south shrinks to a level where just the passage on its own without any increase on demand is going to start moving up?
If our biggest competitor on the manufacturing side its Trinity and all of their units, facilities are down and (inaudible) because of the recession and the CapEx restriction. So there hasn’t been a lot of new build activity as far as net gains. So everything that we were anticipating taking three to five years just replenish the fall out is just moved forward. We are still going to see that tightening of capacity during the recovery period and we are also going to see an industry that even building full out we will not be able to finish that catch-up play for about three to five years.
But you guys kind of get a double benefit in terms of scrappage and non-replacement and also you are picking up business from Trinity on the Jeffboat side?
What does the Jeffboat side stand on legacy contracts, those have lacked completely now or it looks like they are getting close because margins moved up nicely on Jeffboat even on decline in revenues.
There is one option left on a legacy deal that we will come up to here in 2011 and the way the productivity has improved at Jeffboat I know there is a negative connotation attached to legacy but we have actually got to the point where the legacy contract deals actually generate a modest kind of single digit EBIDTA number as well so even the one that we are wearing the bad stickers in the past they are actually positive contributors going forwards so we really don’t have a lot of things hanging over our head there it’s the book of business that we have there for this year, we've looked more on a short term basis as we try to rebuild the portfolio.
And the last question I had is on the liquid side I know currently reported a week or so ago and talked about spot market and some them longer term contracts coming off can you talk more specifically about your liquid side where you stand on spot versus charter and how things have effected you versus, the other industry heavyweight?
Yeah I think just reading and listening to what I heard about the Kirby comments. I think, their end of year activity I think ended a lot of there charter type deals. First of all we didn’t have as many as they did so we were already in a spot type of arena so we had already started to experience the price pressure but the renewal activity that they had I think is just kind of introducing them more to the environment we were in for most of 2009. So we are not anticipating a lot more negative activity on the contract side but that's spot price pressure will be there in 2010 un till we see some sustained movement back into the market by the chemical players.
And with no further questions in queue, I would now like to turn the call over to Mr. Mike Ryan for closing remarks.
Thank you. We had a profitable fourth quarter despite the continuing recession and weak shipping environment. The weak economy still weighs heavily on our ability to generate the results we know we're capable of producing, but we're not waiting for the economy. Reducing cost by operating safely, replacing our oldest barges, improving our billing and collection procedures and right sizing and realigning our management personnel will remain a major component of our strategic charge in good and bad economy.
And our focus on business mix improvement in what we transport and what we build will continue to be our charge as well as we improve our margins and the stability of our two major lines of business. Executing the fundamentals will keep us profitable; executing the fundamentals well in a recovering economy will make us very profitable. We look forward to keeping you posted on our progress in all these areas. Thank you for joining us today and enjoy the snow when it reaches you.
Thank you for joining today's conference. That concludes the presentation. You may now disconnect, and have a great day.
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