CVR Energy CEO Discusses Q4 2010 Results - Earnings Call Transcript

Mar. 3.11 | About: CVR Energy, (CVI)

CVR Energy, Inc. (NYSE:CVI)

Q4 2010 Earnings Conference Call

March 3, 2011, 11:00 am ET


Stirling Pack – VP of IR

Jack Lipinski – President and CEO

Ed Morgan – CFO

Stan Riemann – COO


Kathryn O'Connor – Deutsche Bank

Joe Citarrella – Goldman Sachs

Ed Westlake [ph]


Greetings and welcome to the CVR Energy fourth quarter and year-end 2010 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation (Operator instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Stirling Pack; Vice President of Investor Relations for CVR Energy. Thank you, Mr. Pack, you may begin.

Stirling Pack

Thank you, Rob. Good morning, everyone. We very much appreciate you being here for our call this morning. With me on the call today are Jack Lipinski; our Chief Executive Officer, Ed Morgan; our Chief Financial Officer and Stan Riemann; our Chief Operating Officer.

Prior to the discussion of our 2010 fourth quarter and year-end results, we are required to make the following Safe Harbor statement. In accordance with Federal Securities laws, the statements in this earnings call relating to matters that are not historical facts are forward-looking statements based on management’s belief and assumptions, using currently available information and expectations as of this date and are not guarantees of future performance and do involve certain risks and uncertainties, including those noted in our filings with the Securities & Exchange Commission.

This presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliation to the most directly comparable GAAP financial measures are included in our 2010 fourth quarter and year-end earnings release that we filed with the SEC yesterday after the close of the market.

With that disclosure statement said; I’ll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Jack Lipinski

Thank you Stirling, good morning all and thanks for joining us. You have seen the results we released last night; we ended the year pleased with our results. I will first give my remarks and provide insight into the numbers you saw in the release, then Ed will report on our financials and afterwards I will give you my view on the current operating environment and after that we will take your questions.

In the fourth quarter, we filed an S-1 that addresses our plans with respect to our fertilizer business. In accordance with SEC rules, the Company cannot comment on matters discussed in the S-1, we will do so when appropriate, with that let me get started here. Overall, we are satisfied with the way the year turned out especially given where it began. If you recall, last February compared to Group 3 2-1-1 Crack Spread had fallen to its lowest $4 a barrel, during the year margins improved and ended with the group packages over $12.

For the year, we reported net income of $14.3 million or $0.16 per fully diluted share. On an adjusted basis, net income was $39.8 million or $0.45 per diluted share and that's on revenue of just over $4 million. For the fourth quarter, we had net income of $2.3 million or$0.03 per diluted share.

The adjusted fourth quarter results are a net income of $12.2 million or $0.14 per diluted share. Ed will walk you through the details on how we compute adjusted net income. We think the best measure of our success during the year was $163 million of net cash flow generated from operations. We began the year with $37 million in cash and ended it with $200 million.

Even after voluntarily paying down our debt on our first lean [ph] bonds, Ed will again speak to our cash and overall liquidity position during his remarks. Year-over-year refining operations continue to improve, during 2010 we set a new annual throughput record of 113,600 barrels a day, total throughput including all food stocks averaged 123,700 barrels a day.

In the fourth quarter, average crude throughput was 116,300 barrels a day and our total throughput exceeded 130,000 barrels per day. Operating income for the year from our petroleum segment was $104.6 million. In the fourth quarter; we recorded operating income from refining of $60.4 million. As noted it in our previous SEC filings, we had a non-anticipated outage on our SEC on December 29.

The end of return to full service on January 26, the net effect of this outage on lost production will show up on our first quarter results. We estimate that approximately 1.8 million barrels of crude processing will be lost in the first quarter. Despite this outage, we continue to generate positive refining income in the month of January. Our crude gathering business continues to perform well; during the year we gathered an average of 31,060 barrels a day of crude, which is a new annual record.

These fairly priced gathered barrels are an important part of our oil refinery economics and we continue to move forward on a number of opportunities to expand this business. As you know from prior calls; we have 25,000 barrels a day at capacity on the recently completed Keystone Pipeline Cushing expansion. Our first delivery was made on March 1.

This supplements to 12,000 barrels a day capacity we have on the spearhead system. We now have the ability to shift all our heavy Canadian crude needs on contracted pipelines base. This also allows us optionality to ship other grades as well. Contango for 2010 averaged $0.87 per barrel per month with a high of $4.59 and a low of $0.12; it ended the year with $0.84 per barrel a month.

Since the beginning of this year, we have seen a marked dislocation of Brent and WTI pricing. With the increased volume of crude coming into Cushing, contango has moved as well. This is the result of vast amount crudes finding their way to Cushing with no easy way off being shipped to other locations. Refiners able to access WTI related crudes or related grades of crudes are now the beneficiaries of this price dislocation.

Our nitrogen fertilizer business performed well as mentioned in our last conference call, we had an incident on September 30 that our Helium Plant where a high pressure vessel ruptured, no one was injured and damage was localized with no significant outside impact. Fortunately, we were preparing for the biannual turnaround at the fertilizer plant which thereby minimized downtime.

The gas fire and ammonia complex returned to service on October 29. The UAN plant was restarted on November 16, the repair costs were $10.5 million and we had a $2.5 million deductible under our insurance policy. As of year-end, we recorded $4.5 million of insurance recoveries again for this plant. For the year, nitrogen fertilizers had an operating income of $20.4 million, please keep in mind that 2010 was a turnaround year.

Fertilizer prices began the year of $275 a ton for ammonia and $210 per ton UAN. Year-end pricing was approximately $600 per ton for ammonia and a $330 a ton for UAN and prices continue to move upward. On this note, I would like to turn the call over to Ed who will discuss our financials and liquidity position; after he has done I will come back and discuss our outlook for the year and my view going forward. Ed?

Ed Morgan

Thanks Jack and good morning everyone. As Jack previously mentioned, with respect to the fourth quarter our net income was $2.3 million or $0.03 per diluted share and our adjusted fourth-quarter net income was $12.2 million or $0.14 per diluted share. We did look at the company adjusted net income to evaluate our results, let me just what you through the adjustments necessary to reconcile back to this adjusted net income.

First, remember that our management team stands as equities at quarter as share-based compensation under FAS 123 and is directly linked to moving our stock prices. During the fourth quarter, our share price increased 84% which increased the non-share stock-based compensation expense up [ph] $23.4 million net of taxes or the equivalent of $0.27 per share in the fourth quarter.

Also with the compilation of the secondary offering in February and based on our current stock price, we are projecting the share-based compensation to impact for the first quarter to be $7.5 million net of tax and approximately $1.8 million net of tax for each of the final three quarters in 2011. Our second adjustment to a net income in the fourth quarter of 2010 is the increase of inventory values that we realized under our FIFO accounting inventory message equating the $17.8 million after tax or $0.20 per share.

These are quarterly adjustments included in after-tax turn around expense of our fertilizer plant are $2.5 million, $800,000 related to assets written off during the turnaround and a loss on extinguishment of debt equal to $1 million after tax.

If you will recall, we do expense rather than capitalize our turnarounds. In the fertilizer business, as Jack mentioned, has a turnaround in each calendar year that ends in an even number. The loss in extinguishment of debt is results to the write off of cost associated with our voluntary repayment of $27.5 million on our first keynote last December. One of the most substantial impacts on EPS for 2010 resulted from a 49% effective tax rate for the year.

As I just highlighted, our stock-based compensation was substantially higher this past year and totaled $37.2 million on a pre-tax basis. For tax purposes, $19.4 million was not deductible resulting in unfavorable impact to our income taxes equivalent to $0.09 per diluted share.

With respect to liquidity, at the end of the year we had cash and cash equivalents of $200 million, an increase of $163 million since the first of the year. This change is primarily due to the high levels of operating income, favorable changes in our working capital, we were a net receiver of a prior year tax refund and lower capital expenditures. Net debt or total debt at the end of the quarter – at the end of 2010 was $477 million leaving us with a net debt position of $277 million. This compares very favorably with the year-end in 2009 when total debt was $491 million leaving us with a net debt position at that time of $455 million.

On a net debt to capitalization ratio, we have seen significant improvement moving from 40% at the end of 2009 to 24% at the end of 2010. Maintaining ample liquidity or generating excess cash flow allows us to continue deleveraging and it is a key component of our strategy to enhance shareholder value moving forward. On February 22, we entered into a $250 million asset back revolving credit agreement with a new group of lenders.

The ABL Credit Facility is scheduled to mature in August of 2014 and does replace the existing $150 million revolver. The ABL Credit Facility was used to finance ongoing working capital needs and the issuance of letters of credit as they may be needed. This new facility also has a $250 million recording feature; should we need to expand the facility over the course of its term. The pricing on this new ABL is based on an accessibility [ph] grid with an initial rate of LIBOR plus 3%.

Compared to our prior revolver, this represents over a 5 percentage point interest rate reduction which could result in annual interest savings of $2.9 million assuming our current utilization of $58 million. The current utilization is tied to letters of credit. Currently, we have no amounts outstanding under the revolving credit facility and aggregate availability is $192 million. Today, we have cash and cash equivalents of $103 million and additionally we are using our excess cash to carry 1.2 million barrels or approximately $110 million of crude inventory to capture the advantages in this contango market environment that Jack discussed earlier.

Turning over to capital expenditures; for 2010 they totaled $32.4 million versus $48.8 million in 2009. During the fourth quarter of 2010, we incurred turnaround expenses associated with the fertilizer business that approximated of $3.5 million plus $1.4 million in related asset write-offs. In addition, we incurred about $1.2 million of expenses in preparation for our late 2011 and early 2012 refinery turnaround.

Looking at 2011, our capital spending forecast is forecasted to be about $90.8 million of which $78 million is budgeted for the petroleum business which does include a Cushing tank project, $10.9 million is at the fertilizer business and $1.9 million at the corporate level. We also expect the expense of approximately $55 million at the (inaudible) refinery in connection with the turnaround starting in Q4 and $50 million of this expense will be incurred in 2011.

As a reminder for accounting purposes, we expense our turnaround costs as they are incurred. Jack, I’ll turn call back over to you.

Jack Lipinski

Alright, thank you Ed. Just looking ahead, Mid-Continent refineries are very much favored by current world’s crude environment. For example yesterday, West Texas Intermediate WTI was selling for $102 a barrel. At the very same time, Gulf Sweet grades [ph] comparable to TI such as LLS which is Louisiana Light Sweet were selling for over $120 a barrel or almost $19 a barrel more than TI.

NYMEX crack spreads are reflective of Brent crude pricing and those refineries capable of accessing crude priced off of WTI are clearly advantaged. 100% of our crude supply is priced based on WTI. Yesterday, the NYMEX 211 settled at $25.60 a barrel. At the end of last year, the crude contango did not warn us using much of our excess cash to carry inventory. That is no longer the case as I described. We will continue to maximize the return on our cash by storing excess crude in this favorable contango market. So far, we have seen contango range between $0.73 and $3.92 and year-to-date averaged just shy of $2 a barrel per month, that’s $2 a barrel per month.

In 2006, we looked forward and realized that at some point in time, we might have used for additional crude storage in Cushing. At that time, we purchased 183 acres of land with attractive pipeline write-aways right in the heart of Cushing. We are now proceeding to build a million barrels of storage on our portion of our property to supplement the 2.7 million barrels that we currently lead.

For the first quarter, because of our SEC issue, we expect throughput of our refinery to average between 95,000 and 100,000 barrels a day. The Brent TI dislocation will continue until adequate pipeline capacity is built to alleviate the bottleneck attrition. Increased production in Canada the Bakken, DJ Basin and other fields will likely exacerbate the problems in short term. Well solutions to take crude out of Cushing or out of the Bakken or other areas are economic, but we will have a limited impact because simply there aren't enough railcars to move as much crude as people would like. My expectation is to crude glide [ph] Cushing will not be resolved until 2012 or perhaps longer.

Turning to our fertilizer business; due to world demand for grains and hence strong pricing, we see continued strength in the fertilizer market. We have had strong order activity through the spring season. We are currently taking orders in excess of $620 a ton for ammonia and $330 a ton per UAN for second quarter delivery and please remember, these are net back to (inaudible), so our transportation is netted out.

Finally, with the completion of the last two secondary offerings in November 2010 and February 2011; whereby the funds of Goldman Sachs and Kelso & Co sold down holdings. We are no longer a controlled company. In fact, the funds of Goldman Sachs no longer hold shares in the company. With this transformation, many of you on the call today are new investors and we appreciate your support. I encourage you to reach out to our investor relations team as you have questions in the future and of course, I will be happy to answer your question today.

On behalf of myself, Stan, Ed and others on our management team, we look forward to speaking with many of you over the course of the next year. With that, we are ready to take questions, Stirling can you take the call?

Stirling Pack

I will, Rob would you go ahead and put the investor call through at this time then?

Question-and-Answer Session


Yes sir, we will now begin our question and answer session. (Operator Instructions) Our first question this morning is from Kathryn O'Connor of Deutsche Bank, please state your question.

Kathryn O'Connor – Deutsche Bank

Hi. Good morning.

Jack Lipinski

Hi. Good morning Kathryn.

Kathryn O'Connor – Deutsche Bank

Just may be on your last comment about the WTI Brent differential and what’s happening at Cushing, you said that you think it is going to be until 2012 or longer before the situation gets settled. Can you give us some more parameters around the shortest, do you think it would take to work that out and the longest and just some ideas around sort of sign posting?

Jack Lipinski

Well you know, the main line – the line that will resolve the congestion in Cushing is the Excel line, which is having some problems with permitting and they are just not 100% ready to go, but they are expected to be operational in 2012, but other people are suggesting that they might be delayed until 2013. I do not expect in the short term lines to be reversed. It is quite economic to do so, but I just don’t see that happening overnight.

People can actually truck route from Cushing with a $20 differential and take it down to Gulf Coast as you can with unit trains and frankly, we are even looking at unit train options for ourselves, but the short story is the way this will get resolved is actually with pipe, not with trucks or with rail and we do not see anything in the immediate future that is going to alleviate that, but when you have this wide a dislocation, the market will react.

The wider the dislocation the faster the correction, so while we think the ultimate solution is going to be the Excel line maybe something else will happen, I just don’t know what that is at the current time.

Kathryn O'Connor – Deutsche Bank

Okay and then just given that backdrop can you talk just about, obviously you are using some cash and tying that up with contango currently, because I think at the end of the quarter you had $200 million of cash, and I think you said that you are closer to $100 million now today in terms of cash but besides that use of cash, can you just talk about where you will use your cash and remind us how you feel about acquisitions and it seems like you have some increased flexibility in terms of liquidity just based on the new ABL that you have put in place.

Jack Lipinski

Yes, we do obviously, we will look at all opportunities the company functionally is in a much better place than it was any time in its history. It should be pretty obvious that we are generating free cash flow at these margins today and we have $100 million of our excess cash tied up in the inventory to go under the contango.

We have our bonds which you very well know and we have limited ability to redeem them so we are looking at ways of using our cash in the short term and the best way for us to do that is doing the contango play, because ultimately we will absorb those barrels back into our system, it is not like we have two sell them to anybody else, we will simply process them, we’ll drill them down.

As far as acquisitions and other opportunities, we will look and see what makes more sense for our shareholders. Right now, liquidity is good having an ABL at the level that we have is clearly helpful to us, we have more than adequate liquidity, we don't see the markets turning on us, even if you look at our NYMEX crack spread right now; all the way through the end of the year.

There is the 211 is all above $20 as far as you can see all the way to July of 2012 and that is all I have on my screen is so if you are looking at that kind of crack spread, our inabilities of buying fairly priced Canadian crudes, gathered crudes and have a optionality on our pipelines. With those kinds of numbers; it is pretty attractive for us. I am dancing around the question, I don't have acquisitions target in mind right now but certainly, we are all here.

Kathryn O'Connor – Deutsche Bank

Yes, I just was going to touch on a couple of things, you said so a follow-up in terms of seeing those crack spreads that far out to 2012, many of your competitors this morning ended up hedging a considerable amount of their 2011 production, how do you think about hedging or the possibility of hedging.

Jack Lipinski

That is something we are actually discussing but by the same token, it could go both ways, but these are very attractive levels. The only problem with edging is given the short-term these are really good numbers. But if crude were to run because of the major a disruption in the Middle East and your crude price goes up by $20, $30 or $40 a barrel, those cracks won’t look as attractive.

Kathryn O'Connor – Deutsche Bank

Right and then I guess there is a threshold there. I think the competitor only hedged 10% of their output.

Jack Lipinski

And at percent you can never be wrong, it can’t be all right or all wrong.

Kathryn O'Connor – Deutsche Bank

Right and then just a follow up to the ABL in the extra liquidity with the ABL. I think on documents, you guys can do a permitted acquisition at would be, do you up to 4.5 times leverage. It seems to be the upper bound. Could you just talk about your comfort level in terms of any acquisition you made do – if you find them attractive. What your level of comfort is in terms of leverage?

Jack Lipinski

We really haven't gone that far with any others at this point. The ABL was simply closed last week and we – the first- one of the first things we received forward approval on was again just this Cushing tank project. It's good for us; we believe contango given this mark will be around for a while, maybe now that these current levels but certainly enough to pay out the steel that we would put down there in the meantime gives us an opportunity.

We are being very judicious with our cask. We don't want to do anything silly or just do something on a on a whim, if we believe- I believe that the cracks are a very attractive right now but a lot of the numbers in the crack substitute for WTI and the crack. Okay, if you were to look at the Gulf Coast crack using LLS instead of WTI, you have a $5 or $6 crack. I am not saying cracks will revert to those numbers but at some point, those two shell crack and I would not overpay for somebody, given this high margin environment thinking that it is going to last forever due to some (inaudible).

Kathryn O'Connor – Deutsche Bank

Okay. And then just a last question I would like to ask. The tank project is going to be exactly how much did you say of the total CapEx number?

Jack Lipinski

It's roughly $25 million or in but it will be completed in the first quarter in next year, so will have some of that the majority of that spent this year with some carryover next year.

Kathryn O'Connor – Deutsche Bank

And I presume what these kind of – this kind of contango would be a pretty good payback.

Jack Lipinski


Kathryn O'Connor – Deutsche Bank

Like less than a year.

Jack Lipinski

Not sure, if you were to do it, let’s say pick a number, if you say it is going to be $1.50 a barrel a month okay times 12, so you store 1 million barrels, 1 million barrels going to cost roughly $25 on shell barrel so it’s not quite the year payout but it’s certainly in the – within a reason could be two years that's one of the reason a of folks are building tanks in Cushing.

At some point in time the contango may flatten. And at that point, we will actually have tanks that we will own for our own use. Then we could choose to locate what we do with our leases long-term or perhaps even built our even build out our tank going further.

Kathryn O'Connor – Deutsche Bank

Okay great thanks so much.


Thank you (Operator instruction) Our next question is from the line of Joe Citarrella with Goldman Sachs. Please go-ahead with your question.

Joe Citarrella – Goldman Sachs

Thanks very much, Jack, with the keystone line just coming in last month staring to bring additional barrels from Canada into the Cushing region and competing with some of the lighter and sweeter barrels. Can you just comment on both how that impacted this kind of WTI and may be also what kind of Canadian discounts you are seeing at (inaudible) and maybe what that means for heavy Canadian run that you would expect in this kind of environment.

Jack Lipinski

You are starting to see a little bit off strengthening in the Canadian grades they have some upgraded issues up there right now. So the sweet grades have actually won, we're seeing April [ph] injectors staying in the $21 range right now discounted from the WTI. That is nice, it’s just if you think about it, it costs you about $6 to bring a home from (inaudible) so that means you’re delivering at the Canadian about $14 under WTI its still economic to run the heavy barrel and we are running maximum and amounts a heavy barrels which we actually put some of these in.

The other thing is in the shipping you may actually get one sometimes even two what was of contango as the material you purchase in the hardest thing to move down to Cushing, so improves your differential of that. We are seeing more barrels; Cushing has hit a new record just off of the stats this week. You see increase – Bakken not that Bakken moves directly to us. But as matter-of-fact way have ship Bakken which is called really UHC out of Clearbrook it's a Bakken over LSP bottoms which is (inaudible) and we have received and we are receiving some of them on our spearhead system.

We will run somewhere near 25,000 barrels a day of heavy Canadian crude, be that WCS or Coldlake or similar grades. The more Bakken we can get our hands on, the more heavy Canadian we run, because we run through a blended number. The heavy difference was nice, but it's not what drives our business right now what is driving us is to run as much as we can given this Brent TI differentiation and again I think more term, when it’s this good, it will crack, that was my view when cracks got as bad they did instead – they did in a slight turnaround that they would correct.

The fact that – the more dislocation the faster the correction, but I think fundamentally we have an issue in Cushing that won’t be resolved completely for perhaps two years. Now maybe the dislocation will be $3 or $4 a barrel or $5 a barrel and not $14 or $15, but basically that's the advantage $10 per barrel that in Mid-Continent refinery will have over any of this.

Joe Citarrella – Goldman Sachs

Yes, that a very helpful comment and as you mentioned the imbalance look between production and growth coming in and what can make its way out in terms of infrastructure, is there any color for numbers you could provide around your expectation as you said some of the near term numbers clearly can widen out and as sharper they are the quicker they can come back in, but on the other hand, you also mention that some of the solutions like trucking and rail are either too smaller maybe not economic enough to move the needle, Perhaps for you know through during 2012 or 2013 time frame is earning numbers between imbalances that you are expecting coming into Cushing from Bakken, DJ Basin, Permian whatever it might be versus what could ultimately make its way out economically.

Jack Lipinski

That’s where we are looking at if any solutions. If you look at a rail solution, a unit-train carries 50,000 barrels, that’s 100 carts, okay. Bakken production is going up 15,000 barrels a day every month. Okay, how many potential – and turnaround on our rail system maybe 20 or 30 days so how many railcars can be built quick enough and unit train loading and unloading facility to be built quick enough to handle this tsunami occurs [ph].

You have got Niobrara, the DJ Basin you have got all sorts of other fields coming on and the logical point is for them to hedge Cushing, but you need a major outflow, you need a relief valve the relief valve will be the Excel pipeline. But again you could literally you can still fill your trunk with crude and drive it to the Gulf Coast and pay for the gas it is $20 a barrel, I mean, it is pretty phenomenal.

Joe Citarrella – Goldman Sachs

It definitely – Jack and that's very helpful color, I really appreciate it thanks so much.

Jack Lipinski

Alright thanks.


(Operators instructions) Our next question is from Rakesh Advani from Credit Suisse please state your question.

Ed Westlake

Hey, it’s Ed Westlake. I’m actually back, congratulations on the quarter. I guess you said you can’t say anything about the S-1 in the fertilizer business. Does that means you can’t sort of – in the S-1 also you gave some guidance about EBITDA sensitivities to the strong environment that you are currently enjoying I mean can you make any sort of color on how long you think that environment will last?

Jack Lipinski

We could talk about pricing because it is not just in general as we do. We are actually have taken orders in the last 24 hours that are for June delivery that are higher than some of the numbers we sold a month ago for was actually in season delivery. So, if these numbers hold and there is really a limited amount of UAN that is for sale, it is simply because most people were sold out, were seeing strength in the UAN. Stan would you like to add any comment to that, I mean.

Stan Riemann

I think if we just take a step back and look at the fundamentals that are driving that fertilizer price in terms of grain production and economic recovery and until (inaudible) and ending stocks corner by corner and I think you come to conclusion that this is current fertilizer pricing scenario, it's got some legs under it and probably sustainable.

You don’t recover from ending stocks worldwide in one harvest or two, I think it is a general opinion of most economists they cover the edge of market at 2011 we were very good year, and 2012 looks very good too and it will be several harvest two or three before you get the ending stocks back into a reasonable level so we are looking at a good 18 to 36 months run in my opinion and others as far as strength of fertilizer pricing worldwide.

Jack Lipinski

And to give you sensitivity in an average year, we will produce somewhere between 650,000 and 680,000 tons of UAN. Price is a 100% goes to the bottom-line, so a $10 change in the UAN price will generate somewhere around $6.5 million to $6.8 million a year and we produce right now about 140,000 to 150,000 tons of net ammonia, so if you do $10 on that as well, you can figure that that’s about a $1.5 million.

So if you see prices moving upward by $10 in both products, you can then assume that if both go with $10, you are looking at something on the order of $8 million of the incremental EBITDA and we are actually seeing the market be stronger than that.

Ed Westlake

Yes and just switching back to the topic of uses of cash, obviously you got cash pilled, you have got some uses for which payback very quickly, but once exhausted those, what are your thoughts about sending more cash back to share holders.

Jack Lipinski

Well, under our indentures right now we have some limitations obviously that could be a point of discussion.

Ed Westlake

And those will last all the way through December end [ph] or is there a reopener.

Jack Lipinski

No, right now there – but it depends to I have to be very careful about where we go – we don’t have any plans to do that, but certainly at some point in time we pay trading our debt becomes a question for the Company. Should we do it, pay the premium or not.

Ed Westlake

Thank you.


Thank you; there are no further questions at this time I would like to turn the floor back to management for further comments.

Jack Lipinski

Well thank you all for joining us again welcome to our new shareholders and thank you all for those of you who are accumulating our stock. We are happy to be here to actually serve you. Our goal is simply to return the best performance we can and earn as much money as we can for our shareholders and on behalf of (inaudible) and our entire management team, we thank you and thanks for joining us.


This concludes today’s teleconference; you may disconnect your lines at this time. Thank you for the participation.

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