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Sunoco, Inc. (NYSE:SUN)

Q3 2007 Earnings Call

November 1, 2007 3:00 pm ET

Executives

Terence P. Delaney - Vice President, Investor Relations and Planning

Thomas W. Hofmann - Chief Financial Officer, Senior Vice President

Analysts

Doug Leggate - Citigroup

Paul Cheng - Lehman Brothers

Chi Chow - Tristone Capital

Mark Gilman - The Benchmark Company

Daniel Vetter - J.P. Morgan

Neil McMahon - Sanford Bernstein

Nicole Decker - Bear Stearns

Operator

Good afternoon. My name is Amanda and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2007 earnings release teleconference. (Operator Instructions) Mr. Terry Delaney, you may begin your conference.

Terence P. Delaney

Thank you and good afternoon. Welcome to Sunoco's quarterly conference call where we will be discussing the company’s third quarter earnings that were reported last evening. With me today are Tom Hofmann, our Senior Vice President and Chief Financial Officer; and Tom Harr, Manager of Investor Relations.

As part of today’s call, I would direct you to our website where we have posted a number of presentation slides. I will be making reference to a number of them today to help highlight and supplement some of the commentary and statistics that were included in our release, so if you haven’t already done so, I would suggest that you go there now and be ready to refer to them as I progress through my remarks.

To start, for purposes of facilitating a good discussion, I would refer you to the Safe Harbor statement referenced in slide 2 and as included in last night’s earnings release. In the course of our remarks and in the subsequent Q&A, we may be making some forward-looking statements. While we feel that the assumptions underlying these statements are reasonable, our company and our businesses are subject to a variety of risks and uncertainties, which are highlighted here in slide 2.

I will also note again that in our remarks and in our financial and operating statistics, we refer to various external market indicators for our businesses. Let me remind you that these indicators experience significant volatility and are not to be taken as future projections on our behalf. While they can be helpful in considering market changes, the correlation of our actual results with these external benchmarks can and does vary from quarter to quarter due to a variety of factors.

With that said, let me make a few comments on our third quarter results before taking your questions. As shown in slide 3, we reported third quarter net income of $216 million, or $1.81 a share. Earnings in our refining and supply business were $171 million. Despite strong operations and higher production levels in the third quarter, results were down from the record levels seen in either the second quarter of this year or last year’s third quarter, as refining margins, particularly on the East Coast, declined as we exited the summer driving season and crude prices rose sharply.

I’ll discuss both refining margins and the quarter’s operating performance in a minute, but first let me make a few comments about our non-refining businesses which, in the aggregate, earned $65 million during the quarter. So if you would turn to slide 4, I’ll comment on each of these businesses individually.

Retail marketing earning $31 million in the quarter, similar to the second quarter performance although lower than the extremely strong third quarter of ’06. Retail gasoline margins averaged about $0.11 a gallon across our retail system for the quarter. The decline in wholesale prices in July and the relatively stable pricing environment in August provided good margins early in the quarter before the September run-up in crude oil prices began to squeeze margins again.

Total retail sales volumes for all channels were slightly lower than a year ago, due to lower distributor channel volumes. However, sales at Sunoco Direct locations, and they are the locations where we own or lease the site, were up about 2.7% per site from the third quarter of last year.

Year-to-date, our retail marketing business has earned $68 million.

In Chemicals, we earned $13 million for the quarter, higher than both the third quarter of last year and this year’s second quarter. Operating performance was strong and polypropylene sales volumes of 623 million pounds was a record for the business. This improvement in sales volumes, combined with relatively stable feedstock cost and modest margin gains, led to the improved results.

Still, in this high crude, high refining margin environment, most of the benefit for petrochemicals production has been captured in our refining and supply segment, and our chemicals business has continued to lag. Year-to-date, chemicals has earned $28 million.

Logistics earned $14 million, the highest quarterly result for the business unit since the formation of Sunoco Logistics’ partnership in February 2002. The SXL earnings release I think provides a more detailed discussion of its quarterly performance, but in general the increased earnings were largely due to strong operations of the partnership assets, including some acquired in the last year, and increased earnings from its leased crude acquisition business.

Year to date, the logistics business has earned $33 million for us.

Lastly, Coke, which earned $7 million in the third quarter, continues to provide ratable income from operations but was impacted by a $6 million unfavorable partial phase-out of alternative fuel tax credits due to higher crude oil prices.

As a reminder, our Coke business benefits from certain non-conventional fuel tax credits. As experienced in 2006, a significant portion of those credits are Section 29 credits, which will expire at the end of this year but until then, are subject to phase-out on a ratable basis if the annual crude oil price, and here I’ll talk on a WTI basis, averages over approximately $62 a barrel, with a full phase-out at an estimated annual average for WTI of about $76 a barrel.

The total potential 2007 impact of these credits to our Coke business is approximately $30 million after tax. With the significant increase in crude oil prices in the third quarter, average crude prices through nine months exceeded the low-end limit of the range and resulted in the partial phase-out of approximately 30% of year-to-date credits that we had recorded in the third quarter, which resulted in a $6 million after-tax charge to our Coke results.

Operationally for our Coke business, the remainder of the four Coke batteries at our newly constructed facility in Victoria, Brazil, started up in the quarter. In addition, construction continued during the quarter on the previously announced Haverhill 2 project at our Haverhill, Ohio facility. We continue to target a second half of ’08 start-up for that project.

The addition of these facilities, combined with a contract pricing change for Coke at our Jewel plant more then offset the expiration of the section 29 credits I just mentioned, and are expected to increase Coke’s annual after-tax income to approximately $80 million to $85 million for 2008. Through nine months of this year, Coke earnings were $31 million.

Finishing out the non-refining discussion, corporate expenses were $11 million after tax, and net financing expenses were $9 million after tax for the third quarter. Both were lower than the second quarter corporate due to lower accruals for stock and performance related incentive comp, and financing due to lower interest expense and higher interest income.

Now let’s turn to refining and supply which, as I mentioned, earned $171 million in the third quarter. Margins were clearly lower than the very strong levels in either the second quarter of this year or last year’s third quarter, and were impacted particularly by higher crude acquisition costs. The impact, however, was partially offset by strong operations and higher production volumes at our refineries.

First, a few comments about refinery operations, and I’ll give you an update on the performance of the two major projects we’ve been focused on this year. In general, it was a very strong quarter operationally, with net production of 87 million barrels for the quarter, or about 943,000 barrels a day, slightly below the quarterly record we set in the fourth quarter of 2005.

In the Northeast, we ran the system at 98% of rated crude capacity, with higher production levels across the system. In our first full quarter following the completion of our Philadelphia Catcracker expansion and modification project, the unit performed well and provided us with continued flexibility in crude processing and residual fuel upgrading that helped enable the better utilization of the entire Northeast complex.

As shown in slide 6, the Catcracker unit ran at an average rate of 84,000 barrels a day during the quarter and was as high as 95 a day during maximum rate trials. We averaged residual fuel input to the unit of 23,000 barrels a day, with much of the upgraded production in the higher valued distillate pool.

For the quarter, we estimate the benefit from the expansion and modification project to be approximately $15 million after tax.

In the mid-continent, our Toledo refinery average crude runs of 160,000 barrels a day and Tulsa, which completed its facility-wide maintenance turnaround in mid-July, average 70,000 barrels a day for the quarter.

The Toledo crude unit debottleneck project, also referenced in slide 6, was also completed in early July. All of the hardware modifications associated with the project were installed and are working as designed. Although we average near historically high crude throughput rates instead of quarterly production record for jet fuel, operations were limited by several unrelated, unplanned outages during the quarter, including a power failure to the facility, which reduced throughput rates by approximately 5,000 barrels a day and offset much of the benefit from the debottleneck project.

Looking ahead, as we have pushed the Toledo system to increased throughput levels, we have encountered some fouling limits within the crude unit around which the debottleneck project was done. As a result, we have been forced to pull back on crude rate versus the project design and the unit capacity, until we have the opportunity to address the fouling issues, which we expect to do in conjunction with some planned maintenance work in 2008. We expect refinery crude runs at Toledo to be limited to 165,000 to 170,000 barrels a day, and incremental light product production from the debottleneck project to be limited to approximately 7,000 or 8,000 barrels a day, instead of the planned increase of 15,000 barrels a day.

Turning to margins, overall margins were lower than the very strong level seen again last year’s third quarter or this year’s second quarter, but were good by most historical measures, with the mid-continent region retaining greater relative strength, rather than detail the various comparisons of realized margin versus benchmarks and third quarter results versus other quarters, let me just make some brief comments about the respective regions.

In the Northeast, our realized gross margin was $6.35 a barrel and was reflective of declining margins for gasoline and diesel fuel as we exited the summer driving season. Higher crude prices, particularly toward the end of the quarter, also pressured margins and we continue to see a very expensive market for light sweet crude in the Atlantic Basin, with premiums for light sweet West African grades reaching close to $3 a barrel over [inaudible] during the third quarter.

In the mid-continent region, lingering industry downtime contributed to keep in margins stronger than in the Northeast and most other U.S. regions. Our realized gross margin in the third quarter was $13.10 a barrel. Gasoline margins fell seasonally from the second quarter but there was sustained strength in diesel and jet fuel margins.

With respect to crude costs, the price of Canadian Syncrude, which on average, I’ll remind you, accounts for about half of our crude slate in Toledo, continued to trade at a premium to WTI due to upgrader maintenance and other downtime among Canadian producers through most of the third quarter.

In addition, with the increased demand in the region for sweet crudes, the WTI time structure moved into backwardation resulting in -- excuse me. Amanda, I think somebody has an open line. If you could block that off.

Operator

Yes, sir.

Terence P. Delaney

The WTI time structure has moved into backwardation, resulting in a higher price for crude purchase than the industry markers would suggest. So far in the fourth quarter, the continued rise in crude oil prices has further pressured refining margins and exacerbated normal seasonal weakness.

Near term, margin recovery is likely dependent on either some crude price relief or the onset of increased winter demand. Longer term, we believe a constructive fundamental outlook for refining remains intact.

Lastly, I would like to note that we are currently planning to host a meeting for security analysts and investors on Wednesday, December 12th here in Philadelphia. At that time, we will discuss the strategic outlook from each of our businesses, including an update on some of the specifics of our capital spending plan for 2008. Details regarding the meeting, which will be webcast on our Internet site for the public, will be forwarded shortly.

So with that, I will ask Amanda to open up the lines for any questions folks may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Doug Leggate with Citigroup.

Doug Leggate - Citigroup

Thank you. Good afternoon, Terry. Terry, a couple of things from me; first of all, a non-refining question -- can you update us on where you are on Coke negotiations in terms of incremental new projects expected over the next year or two?

Terence P. Delaney

Was that a question on the Brazil project, Doug, or --

Doug Leggate - Citigroup

Incremental projects beyond the existing assets. My understanding is that you’ve got about six different opportunities that you’ve been pursuing, so maybe just an update as to how you think things are going there, what the likelihood is that we can get to that $150 million run-rate on this business down the line?

Terence P. Delaney

I think at this point, Doug, I would say discussions continue on those projects and other, but until we are able to have signed contracts and have something concrete to announce, I don’t think I have much to project.

I would say that by the end of the year, we should conclude our negotiations on the final structure of our Brazil contract. We’ll complete Haverhill 2 next year and those two things and the change in contract pricing at Jewel, as I referenced, will bring next year’s earnings to the $80 million to $85 million range, but I have nothing beyond that to announce at this time. Perhaps we’ll talk a little bit more about that in December but again, I think we feel optimistic in the prospects for that, but our ability to deliver $150 million by 2009, I’m not so sure about because any project will take at least 18 months from when we announce it to get concluded.

Doug Leggate - Citigroup

The only other one I have is back to Philadelphia and the upgrade project there. If you look at your residual fuel yields, they’ve been kind of flat at around 9% through the first nine months of this year, despite the start-up of the Philadelphia upgrade -- can you just help us understand what’s going on there?

Terence P. Delaney

The primary reason for that, Doug, is that we’ve kind of heavied up, if you will, the crude slate that we use and that’s allowing -- that’s bringing with it more bottoms. We are destroying more through the unit, as evidenced by the rates I talked to you about. But we had a -- we used over 73,000 barrels a day of the high acid crudes during the quarter and we’ve introduced some other crudes instead of some of the West African grade, super-sweet grade that we normally use. That crude slate would have normally, under pre-project specifications, brought us over 80,000 barrels a day or so of residual fuel, but we were able to destroy more of it through the units. It’s a change in the crude mix more than anything.

Doug Leggate - Citigroup

That’s perfectly clear. Thanks very much indeed, Terry.

Operator

Your next question comes from Paul Cheng with Lehman Brothers.

Paul Cheng - Lehman Brothers

Good afternoon. Terry, Tom, and Tom, do you have a number for 2008 capital spending? Any revised number on that?

Terence P. Delaney

2008 -- no, that will be something we’ll update in December, Paul.

Paul Cheng - Lehman Brothers

Okay, the second one, if WTI stays where we are for the remainder of the year, what’s the incremental phase-out of the alternative fuel tax credit in the fourth quarter, in addition to what you did already in the third quarter?

Terence P. Delaney

If we stay over $90 the rest of the year?

Paul Cheng - Lehman Brothers

Yes, sir.

Terence P. Delaney

We could probably phase out another $12 million to $15 million or so in the fourth quarter.

Paul Cheng - Lehman Brothers

Pre-tax?

Terence P. Delaney

After tax.

Paul Cheng - Lehman Brothers

Twelve to $15 million after tax?

Terence P. Delaney

Yes, so of the overall 30 that we would have, we would have ended up getting to take maybe 10 or so.

Paul Cheng - Lehman Brothers

I see, and a last one on the share buy-back, I assume the strategy would be using just the free cash flow and not going to borrow money?

Thomas W. Hofmann

Yeah, Paul, it’s our consistent strategy of doing just what you said and maintaining our debt-to-capital right in that 40% range.

Paul Cheng - Lehman Brothers

I see. And Terry, on the Toledo, talking about the fouling issue, can you elaborate a little bit more what those relate to?

Terence P. Delaney

I’m sorry, what was that, Paul?

Paul Cheng - Lehman Brothers

In your earlier comment, you were saying that Toledo is currently limited to 165,000 to 170,000 barrels per day, related to some issue and it’s unlikely going to be fixed until next year when you get a chance to go into with your major plant turnaround. Can you elaborate a little bit more what are those issues that we are talking about?

Terence P. Delaney

I’ll try the best I can, Paul. One of the issues related to -- we have two crude units out there and one of the crude units is experiencing fouling at the top of the unit when we push the rates up to its maximum limits. So they are either going to have to do a surgical strike sometime next year or try something during a planned maintenance turnaround to increase the limits there.

Also again, this debottleneck project was work around the crude units and work downstream. That’s working but when we want to push this one crude unit to its limit and one of our hydro crackers has been limited by some hydraulics, we are not able to get the facility up to the 175 to 180 that the project should enable.

So the net result of it is at this time, instead of having a facility that before the project generally ran at limits of 155 to 160 a day, we are able to get up to 165 to 170 but not get the full 20,000 barrel a day, 15,000 to 20,000 barrels a day increase on the project that w want. But we think that next year, we should be able to do some things to achieve its full benefit.

Paul Cheng - Lehman Brothers

And what’s the incremental cost?

Terence P. Delaney

The incremental cost will be small dollars, Paul. The overall project prior to that was about a $50 million project, so the economics are still nice but we need to do a little bit more work, not big dollars to get the full benefit.

Paul Cheng - Lehman Brothers

Very good. Thank you.

Operator

Your next question comes from Chi Chow with Tristone Capital.

Chi Chow - Tristone Capital

Good afternoon, guys. I have a couple of questions on chemicals, and maybe there’s a question more for the analyst meeting, but do you have an update on your strategic study for the unit, the chemicals unit?

Thomas W. Hofmann

We don’t really have anything new to tell you. Obviously it’s what we’ve been talking about for a while and we continue to look at our strategic alternatives, but at this point, we don’t have anything more to say about it.

Chi Chow - Tristone Capital

Okay, and then on polypropylene, with the record sales levels, what was the cause of that? Was it an increase in demand or production capacity? What’s the dynamic there?

Terence P. Delaney

It wasn’t production capacity. It was more demand and there were some export opportunities during the quarter that opened up, so that was the main thing.

Chi Chow - Tristone Capital

And are those continuing here in the fourth quarter?

Terence P. Delaney

But the volume part of the story remains favorable, but the margin part of the story does not. Again, as you would expect, with crude running up the way it has, it’s dragged along propylene prices, so the chemical business in the fourth quarter will be challenged further by rising feedstock costs. But for now, the demand story, not bad and should be at least similar to the fourth quarter of last year.

Chi Chow - Tristone Capital

And one final question, down at Tulsa, what’s the dynamic on your [lubes] margin, given the current high crude price environment?

Terence P. Delaney

Lubes margin?

Chi Chow - Tristone Capital

Yes, lubes margins, right.

Terence P. Delaney

Again, generally there what will happen as crude prices go up, the lubes margin will trail and so margins will lag until prices can catch up, so fourth quarter lubes margin will not be expected to be at third quarter levels.

Again, we do about a million barrels a quarter of lubes, but it’s been a pretty good market this year, even in the face of pretty high crude prices, but relative to the third quarter, I wouldn’t expect it to be as good.

Chi Chow - Tristone Capital

So it’s going to decline in margins fourth quarter versus third?

Terence P. Delaney

That’s what I would expect, yes.

Chi Chow - Tristone Capital

Okay, thanks a lot.

Operator

Your next question comes from Mark Gilman with Benchmark.

Mark Gilman - The Benchmark Company

Terry and Tom, good afternoon. Just some clarifications, I guess, Terry, on a couple of things you said. When you were talking about the catcracker expansion, if I heard you correctly, you were saying that most of the upgraded product was going into the distillate pool. Is that in fact what you indicated?

Terence P. Delaney

That’s what I indicated. There were some in the gasoline but a little bit more went into the distillate pool.

Mark Gilman - The Benchmark Company

Isn’t that a little odd in terms of catcracker being primarily a gasoline unit? I’m just wondering why?

Terence P. Delaney

Well, part of what we got for the conversion coming out of it was some light cycle oil that we blended with -- blended into the distillate pool. We [did have to increase] gasoline production as well but the light cycle was a little bit more than that. And the distillate margins favored that during most of the third quarter.

Mark Gilman - The Benchmark Company

Was that the original intent, Terry?

Terence P. Delaney

Well, the intent was to provide us with flexibility, Mark, either to go into the distillate pool or to have gasoline conversion.

Mark Gilman - The Benchmark Company

I think you also made a comment regarding the impact of the shift to backwardation in terms of crude for the mid-continent unit being priced at above the benchmark. What in fact were you getting at there?

Terence P. Delaney

Our benchmark is a one-month out price market for the mid-continent, so when it shifted from contango to backwardation, in reality relative to that one-month out price, we are paying a higher price than we were earlier in the year. That’s all.

Mark Gilman - The Benchmark Company

I see, okay, but versus a spot price?

Terence P. Delaney

Right.

Mark Gilman - The Benchmark Company

That was probably not a factor?

Terence P. Delaney

Right, versus spot price, not a factor. More of a versus the benchmark explanation.

Mark Gilman - The Benchmark Company

Okay, and just one final one, if I could. Any derivative related factors that you might want to cite that contributed to margin pressure within the quarter?

Terence P. Delaney

No, not really, Mark.

Mark Gilman - The Benchmark Company

Nothing ethanol related or otherwise?

Terence P. Delaney

No, no. Anything we do ethanol derivatives is matched to the physical, so no.

Mark Gilman - The Benchmark Company

Okay, guys. Thanks.

Operator

Your next question comes from Daniel Vetter with J.P. Morgan.

Daniel Vetter - J.P. Morgan

Good afternoon. You mentioned that in the Northeast refining system, you ran 73,000 barrels per day of high-acid crude, as well as some other low quality crudes. Can you just elaborate on volumes and discounts to WTI the crudes you run, other than the high-acid crude?

Terence P. Delaney

I don’t have specifics at hand, Dan, but again, I wouldn’t call them low quality crudes. It’s all relative. It’s relative to the super sweet West African that we might have previously run but [inaudible] from the Caspian Sea, we’ve been doing more of that. We’ve been doing some things from North Africa, some things from Eastern Canada. So it’s all relative to what we were before.

Daniel Vetter - J.P. Morgan

Okay, and one more if I may; could you just give us an update on the proposed Philly hydrocracker conversion project? Is that still moving forward?

Terence P. Delaney

Yes, it is, Dan. I think that will be one of the items that we most definitely will highlight in December, so why don’t I just hold off a little bit more for that and we’ll let our refining guys direct some attention to that next month, okay?

Daniel Vetter - J.P. Morgan

All right. Thank you.

Operator

At this time, there are no further questions in queue. Excuse me, you do have a question from Neil Monahan with Sanford Bart.

Neil McMahon - Sanford Bernstein

I’ll help you. It’s Neil McMahon with Sanford Bernstein. I was queuing up, I don’t know why it didn’t go through. Just a few very quick questions; on your press release, you indicated higher refinery expenses and I’m interested to know what drove those higher refinery expenses up, and was it related to the new capacity you brought on? And I’ve got another question as well.

Terence P. Delaney

Well, that’s certainly a portion of it, Neil. As we bring on new units, whether they be sulfur recovery units, expanded catcracker units, low sulfur gasoline units, they bring with it catalyst, maintenance, depreciation charges, so that’s part of it. Obviously we also had some higher variable costs, given the high utilization rate, particularly in the Northeast during the quarter.

And we were incented to buy as much fuel as we could, given the low relative natural gas prices versus using our own produced fuel? So those three things kind of brought that along but I think where we were in the third quarter is probably a good spot to model for the fourth quarter as well though, with respect to expenses.

Neil McMahon - Sanford Bernstein

And just finally, given, as you mentioned with various other comments, the change in the shape of the forward curve throughout the quarter, were you making any money on potential storage opportunities prior to this quarter? And if so, how much did that go down as you went through the third quarter?

Terence P. Delaney

Not of any significant amount, Neil, so

Neil McMahon - Sanford Bernstein

So it would be under 1% of your earnings sort of thing?

Terence P. Delaney

Yeah, I would think so.

Neil McMahon - Sanford Bernstein

Okay, thanks.

Terence P. Delaney

Okay.

Operator

Your next question comes from Nicki Decker with Bear Stearns.

Nicole Decker - Bear Stearns

Hey, Terry. I’m wondering if you could talk a little bit about marketing margins in the fourth quarter to date. Have they continued to be squeezed?

Terence P. Delaney

Well, particularly over the last 10 days to two weeks, yes. October was probably about $0.03 a gallon or so less than the third quarter average, but point in time, they are not very strong.

Nicole Decker - Bear Stearns

Okay, and secondly, Terry, maybe could you comment on the heating oil supply situation in the Northeast? It’s hard to tell if supply is tight, but as a Northeast producer, do you have any insights in whether perhaps you’ve changed your yields to accommodate any supply shortfalls?

Terence P. Delaney

I think with respect to the supply, not a whole lot more insight than the data you look at and what you see. As you said, I think it’s modestly below the normal averages at this point in time. Our ability to respond to that is an advantage. If we get an early winter being here in the Northeast, we do have some -- we have an ability to swing a lot of our distillate production to that market if that’s what it calls for, but we’ll have to wait and see what the weather brings for us.

Nicole Decker - Bear Stearns

Thanks, Terry.

Operator

Your next question -- excuse me, you do have a follow-up question from Mark Gilman with Benchmark.

Mark Gilman - The Benchmark Company

Terry or Tom, it looked to me, and maybe it’s just me, that the interest income and interest expense numbers in the quarter were a little unusual, relative to the underlying level of debt as it relates to expense and the underlying level of cash on average, relating to income. Anything in particular influencing those two numbers?

Terence P. Delaney

No, not particularly. I mean, over time, our Coke amortization expense diminishes. A little bit of rounding of one, but there is nothing in particular in the third quarter, Mark.

Mark Gilman - The Benchmark Company

I mean, the debt averaged about the second quarter level and the expense number was, gross interest expense down quite a bit, the cash number was about on average equal to the second quarter, but the income number was up quite a bit.

Terence P. Delaney

Well, the big thing was, Mark, it was the timing during the quarter. We generated a lot of cash and made most of our money in the first half of the quarter. We did most of the share repurchase and had negative cash flow in the second half of the quarter, so I think if you lined out the averages versus the actual months of the third quarter versus the second, it would explain more of the change.

Mark Gilman - The Benchmark Company

Okay. Thanks, Terry.

Operator

At this time, there are no further questions in queue.

Terence P. Delaney

Okay. Appreciate your interest and any other questions, please feel free to call Tom Harr.

Operator

This concludes today’s conference call. You may now disconnect.

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