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Suburban Propane Partners, L. P. (NYSE:SPH)

F3Q08 Earnings Call

August 7, 2008 9:00 am ET

Executives

Davin D’ambrosio - Vice President and Treasurer

Mark Alexander - Chief Executive Officer

Mike Stivala - Chief Financial Officer and Chief Accounting Officer

Mike Dunn - President

Analysts

Darren Horowitz – Raymond James & Associates Inc.

Unidentified Participant

Operator

Welcome to the Suburban Propane third quarter 2008 financial results conference call. (Operator Instructions)

Before we get under way today, I would like to read some Safe Harbor language provided by the Company. This conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended relating to the partnership’s future business expectations and predictions and financial condition and results of operation. These forward-looking statements involved certain risks and uncertainties.

The partnership has listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in its earnings press release, which can be found on the Company's website. All subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements.

With that being said, I would now like to turn the conference over to Mr. Davin D'Ambrosio. Please go ahead sir.

Davin D'ambrosio

Great. Thank you, Ken. Good morning, everyone. Welcome to Suburban's third quarter fiscal 2008 conference call.

I am Davin D'Ambrosio, Vice President and Treasurer at Suburban. Joining me this morning is Mark Alexander, our Chief Executive Officer, Mike Dunn, President, and Michael Stivala, Chief Financial Officer and Chief Accounting Officer. The purpose of today's call is to review our third quarter financial results, along with our current outlook for the business.

As usual, once we have concluded our prepared remarks, we will open the session to questions. Before getting started, I would like to re-emphasize what the operator has just explained about forward-looking statements. Additional information about factors that could cause actual results to differ materially from those discussed in forward-looking statements is contained in the partnership's SEC filings including its form 10-K for the fiscal year ended September 29, 2007.

And form 10-Q as of June 28, 2008, which will be filed by the end of business today. Copies of these filings may be attained by contacting the partnership or SEC. Certain non-GAAP measures will be discussed on this call. We have provided a description on those measures as well as a discussion of why we believe this information to be useful in our form 8-K furnished to the SEC this morning. The form 8-K can be accessed through a link on our website at SuburbanPropane.com.

At this point, I would like to get started by turning the call over to Mark Alexander. Mark?

Mark Alexander

Thanks, Davin and thanks everybody for joining us this morning. Let me begin by saying that we are extremely pleased with our continued strong operating performance in a very challenging energy environment, to say the least, characterized by a dramatic rise in commodity prices and a sluggish economy.

As you saw in our press release this morning the most significant item impacting our results for the third quarter of fiscal 2008 was from realized losses in our hedging and risk management activities amounting to $14.5 million. Mike Stivala will provide some more detail on this topic shortly.

However, it is important to understand that putting these losses aside, the operating results from our base operations were only slightly below the prior year third quarter ahead of our internal expectations, and we think commendable considering the negative operating environment.

Additionally with our streamlined operating platform nearly $119 million in cash on the balance sheet at the end of the quarter and continued strength of our distribution coverage, we are well positioned to continue to effectively manage through this difficult environment. And as evidence of that, and as announced on July 24, our board increased our annualized distribution rate by $0.10 per common unit to $3.20, emphasizing the confidence in our base earnings and overall outlook going forward.

This increase represents a distribution growth rate of more than 12% year over year. A little later I will discuss some thoughts on our increased quarterly distribution, as well as our outlook for the remainder of the fiscal year and beyond.

At this point, however, I will turn it over to Mike to discuss our third quarter results in more detail.

Mike Stivala

Thanks, Mark. While the third quarter continued to present many challenges for the industry as a whole, particularly with the precipitous rise in commodity prices, our operation performed very well.

The numerous proactive steps taken over the past several years to focus on our operating platform, streamline our cost structure and strengthen our balance sheet have proven quite timely, given the current environment. As we discussed these results to be consistent with our reporting for previous periods, I am excluding the impact of a $4.7 million unrealized non-cash gain applicable to FAS 133 accounting compared to a $200,000 unrealized loss in the prior year quarter, both reported within cost of products sold.

Consistent with the seasonal nature of our businesses we typically experience a net loss in the third quarter. Net loss for the three months ended June 28 totaled $18.4 million or $0.56 per common unit compared to a loss of $1 million or $0.03 per common unit in the prior year quarter. EBITDA amounted to a loss of $1.9 million compared to income of $15.5 million in the prior year quarter. The most significant factor impacting EBITDA and net loss for the third quarter of fiscal 2008 was the realized losses from our risk management activities that amounted to $14.5 million.

Let me take a moment to comment a bit on a risk management activities and the losses incurred in the quarter. Consistent with our past practices and given the retail nature of our operations, we maintain a certain level of priced physical inventory to ensure our field operations have adequate supply commensurate with the time of year. Once priced our physical inventory is subject to the risk of prices declining. To address that risk our risk management strategy is and always has been to keep our priced inventory value close to or at current market.

In order to achieve this goal, we utilized a combination of futures contracts and/or options traded on the NYMEX or with third parties. Realized gains or losses on the futures or options contracts will typically offset losses or gains on the physical inventory once the product is sold. During the third quarter of fiscal 2008, we realized losses on short positions which were not fully offset by the sales of physical product.

Although our futures positions were relatively small, given the time of the year, the sustained rise in commodity prices during the third quarter of fiscal 2008 forced us to reassess our position relative to current market risks and conditions. Early in the quarter, we decided the prudent thing to do was to list all of our hedges in light of the continued market volatility and unpredictability. However, depending on the movement in commodity prices and the level of volume sold, we may recover a portion of these realized losses in future periods.

And unlike much of what you see being reported in the media, our activities were not speculative in nature. Rather, they were part of our historical practices of mitigating price risks. Putting these realized losses aside, our EBITDA was 2.9 million below the prior year third quarter, as a result of lower volumes offset to an extent by higher average margins. With respect to volumes, retail sales of propane during the quarter totaled 71.4 million-gallons compared to 80 million gallons in the prior quarter, a decrease of 8.6 million gallons or 10.8%.

Sales of fuel oil and refined fuels decreased 6.5 million gallons or 34% to 12.6 million gallons compared to 19.1 million gallons in the prior year quarter. In this environment of record high commodity prices, customer conservation continues to have a negative effect on our volumes. As do proactive measures we have taken to help our customers manage their energy budgets and to manage customer credit risk. The decline in refined fuels’ volumes was also attributable, to a lesser extent, to the elimination of lower margin gasoline and diesel business which occurred throughout much of fiscal 2007.

In the commodities markets average posted prices for both propane and fuel oil remained at unprecedented high levels, increasing 50% and 85% respectively over the prior year third quarter. Total gross margins of 87.8 million for the three months ended June 28 were $16.6 million or 16% below the prior year third quarter of $104.4 million. Obviously the $14.5 million of realized losses from our risk management activities had the most significant impact on overall gross margins. Combined operating and G&A expenses of $89.7 million for the third quarter of fiscal 2008 were flat compared to the prior year quarter.

We continue to experience savings in payroll and benefit related expenses including variable compensation resulting from lower earnings, as well as savings attributable to operating efficiencies achieved from our lower vehicle count. However, savings in these areas were offset by higher diesel fuel costs to operate our fleet, as well as higher bad debt expense in the higher priced environment.

Turning to our balance sheet, we ended the quarter with approximately $119 million of cash on hand. And our short-term working capital requirements continue to be funded through internally generated cash. We have not utilized our $175 million working capital facilities since April of 2006. Capital spending during the quarter totaled $6.2 million of which $3.5 million was deemed maintenance related.

In summary, the $14.5 million of realized losses from our risk management activities aside, our operating results were very solid in a difficult environment. Our balance sheet is strong with low leverage relative to our peers and nearly $119 million of cash on hand.

Mark?

Mark Alexander

Thanks, Mike. As announced on July 24, our board of supervisors declared the 18th increase since our recap in 1999 and ninth consecutive increase in the quarterly distribution from $0.771/2 to $0.80 per common unit. This distribution equates to $3.20 per common unit on an annualized basis, an increase of $0.10 per common unit since the previous quarter and is payable on August 12 to common unit holders of record on August 5.

As I stated earlier, this distribution increase represents an annual growth rate of 12.3% compared to the prior year third quarter. Despite the earnings impact from the volatile commodity environment, we are very pleased with our operational performance and as Mike clearly stated we remain financially very strong and have sufficient working capital at our disposal.

We are also poised to take advantage of opportunities that may arise in this challenging operating environment. Looking ahead to the remainder of fiscal 2008 and beyond, while we have experienced a recent pull back in commodity prices, the longer term commodity price environment is still unclear. Therefore, sales volumes may continue to be affected by customer conservation efforts.

Nonetheless we believe that our flexible cost structure, continued focus on operating efficiencies and financial strength are all factors that will help us to effectively manage through this challenging environment and to continue to deliver increasing value to our unit holders.

Lastly, I would like to thank our operating personnel, who continue to do an outstanding job of managing their local operations during these unique times while still maintaining the highest level of quality service to our customers. As always, we appreciate your support and attention this morning and would now like to open the call up for questions.

Ken if you could help us with that please, I would appreciate it.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Darren Horowitz.

Darren Horowitz - Raymond James & Associates Inc.

Good morning guys.

Mark Alexander

Good morning Darren. How are you?

Darren Horowitz - Raymond James & Associates Inc.

Good, how are you guys?

Mark Alexander

Good.

Darren Horowitz - Raymond James & Associates Inc.

Mark, I wanted to ask my first question on the heels of a comment that you just discussed when you were talking about, obviously what is going on in the market volumetrically. You reflect back to 2007, specifically the progression from the June to September quarter, you saw about a 20% volumetric decline sequentially. When you look at the same time frame now as we progress into the September quarter, from a pricing or an end user consumption standpoint, it is obviously a slightly different environment. Do you expect the same type of volume shortfall? Or maybe even that sequential volume shortfall to be a bit exaggerated just because of this end user consumption or end user curtailment we are experiencing broad-based in the market?

Mark Alexander

Well. Let us look at it from a macro perspective. One, I think we do expect to see continued conservation and volume drop. Maybe not as dramatic as it has been and we do expect it sometime in the near term to level out. One of the things we see from a consumer's perspective is we have all, as consumers, experienced a dramatic rise in our energy costs, particularly in heating your home and driving to work as well.

But what we think will happen, and what we are seeing is happening, is that we have entered a new era, where the consumer is forced to change their behavior because of the increase in costs of doing those day-to-day things. We think that is a permanent change.

On the bright side, what we also see is, we think, that their inventories at our customers' locations are the lowest they have ever been. So there is probably some pent-up demand in there as well.

But certainly in the near term, Darren, we expect to see continued conservation on behalf of the consumers because they have no other choice. They just simply cannot afford it. But at some point in time you can only conserve so much. And I think with behavioral patterns and the like, that things will level out.

Darren Horowitz - Raymond James & Associates Inc.

Do you think then, I mean, with all that being said, obviously this is an environment that the broader market has been experiencing for the duration of this year and as a result of those higher prices experienced in Canada, the margins in even June quarters, do you think that maybe people that are pushing off their fill for the winter might have to fill a little bit earlier?

Because they were trying to draw their inventories at their tanks lower throughout the course of this fiscal year i.e. running below what they would normally keep as base volumes and maybe might need to get a slightly larger fill earlier before the winter?

Mark Alexander

That is possible. But the consumer is feeling the pain of the rising commodity prices. I think they will just push off as far as they can. I think what you might very well see, and these are crystal ball type of questions - when you get your first freeze, that is when panic buying might set in.

Now, on the bright side of this, as well, Darren, we have planned for this type of perfect economic storm for years: in driving efficiencies, in driving specific procedures that our operating people are performing on the front line. And we have actually freed our operating people up to offer even better quality service and also be more efficient. So we are ready for that.

And we have been ready for this economic storm. And we are ready for when things turn. So it could happen. Darren, it could happen that you get an early fill, if you will; I think what would be more likely is you will get a pop in some volumes once it gets cold.

Darren Horowitz - Raymond James & Associates Inc.

Sure.

Mike Dunn

Hi Darren, it is Mike Dunn, how are you?

Darren Horowitz - Raymond James & Associates Inc.

Good, Mike how are you?

Mike Dunn

Good. To put price into perspective, okay which I think is important in psychology of volume today. Last July, August, September you were looking at propane base value of $1.18, crude oil was in the 60s to 70s, and heating oil was around $2.

Okay. Today you have the same commodities. Crude trades today at $120, heating oil was around $3.28, propane $1.72. However we have come off of $140 for crude, $4 for heating oil and $1.92 for propane. So that is a lot of numbers that I spout out but I think a lot has to do with the explosiveness of price, that we experienced during the course of calendar 2008, obviously put people in shock and they were not able to adjust to the high cost of heating their home or whatever they use these commodities for, in addition to driving their cars and so forth and so on.

So I guess the point I am trying to make is, now that we have come off of these highs, is the consumer a little more comfortable thinking we have seen the top for the moment? And that there is an opportunity today to buy something that seems a little bit more reasonable, even though from a price basis we are still looking at near 50% chance quarter over quarter, year over year?

Darren Horowitz - Raymond James & Associates Inc.

Sure. That is helpful, Mike. Let me ask a follow-up question that is along those same lines. One of the things that, I think, you guys have demonstrated on the quarter and the quarter out basis relative to some of your peers is obviously better margin per gallon and to the extent that you are not sacrificing price, just to try and maintain some sort of stability in volumes.

At the end of the day, as you accurately pointed out, what the market shows you in terms of volumes of consumption is largely a situation out of your control. So, when you look at focusing and trying to keep that margin per gallon high, can you talk a little bit about a lot of the internal things and the leverage that you can pull in order to keep focused on price? Because I agree with you, I think it is one of the things which is most challenging in this environment.

Mike Dunn

Over the course of the last three years we have developed a pretty helpful environment with respect to our systems and we were able to look and see the kind of business that we are doing. Our general managers are more attentive to the type of business we are doing. We are also trying to manage ourselves through a risky credit environment with respect to margins and credit write offs and so forth and so on.

From the efficiencies’ perspective, we measure our truck utilization on a monthly basis. Our tank needs, our capital needs. We could go on and on and on. This is an ongoing process, as to Mark's point, not knowing we would be in the environment we are in today we began a process probably four years ago where we actually started looking at our business and anticipating a system that was going to allow us to create bigger service centers, bigger territories to operate within, which obviously created an enormous number of synergy dollars for us.

Mark Alexander

A couple of things, Darren. One, that makes us more confident than ever, that we are ready for whatever is going to be thrown at us from an economic perspective and we are also ready to expand our footprint.

So we would love to see…we are working hard to try and get our people the ability to do that. Also, when you talk about margins, a straight up comparison of margins between us and our peers is, while we think we do a pretty good job with that, it is difficult because they may have some fees in other places that do not get lumped in with your margin calculations.

So just the heads up as to when you are doing that kind of analysis but you are right on and I appreciate it. Anything else, Darren?

Darren Horowitz - Raymond James & Associates Inc.

Yes. Just one more, quick question your last comment there, Mark, I think laid a pretty good foundation for it. When you look at the opportunity out there in the marketplace inorganically obviously your cash on you balance sheet continues to grow, it is up about 19% sequentially…

Mark Alexander

As we speak.

Darren Horowitz - Raymond James & Associates Inc.

Sure. And I agree with you. I think that it sets the stage and puts you in an optimal position to consolidate in a very fragmented market. As this market continues to be challenged and you have got a lot of small, regional players that might be feeling the magnitude of the challenging market to a greater extent.

How has that changed the type of multiples or potential acquisition-type prices that are being discussed today? Has it made some of these smaller regional guys come to the table and be a bit more willing to negotiate? How has the overall competitive landscape changed?

Mark Alexander

I think it is certainly brought people to the table. But I do not think it is affecting multiples as of yet. It will only affect multiples if there is a discipline amongst the buying group. We have that discipline, which, in a lot of cases, means we are number two in bidding things.

And you are only as good as the last transaction you did, Darren, as you know it could screw up a good thing if you make a bad transaction. We can be more aggressive and we will be more aggressive within a range of doing the right thing. So, we are poised to do some things and this is not a hint or foreshadowing anything.

We are more comfortable with the operating platform than we have ever been. It is about as nimble and as efficient as it has ever been and can get more efficient. So we are excited about the opportunities. There are still a lot of opportunities out there to buy. It is just a matter of, if rational thinking is going to stay in the game.

You can always have the irrational buyer that comes in and beats all the rest of us. Typically if one of us has more of a strategic fit with the target, logically speaking that is the group that should win the day.

Darren Horowitz - Raymond James & Associates Inc.

Sure.

Mark Alexander

But we are out there pounding the pavements.

Darren Horowitz - Raymond James & Associates Inc.

Well thanks, guys I appreciate the time.

Mark Alexander

Thank you, Darren. Appreciate the questions.

Operator

(Operator Instructions). We are going to a question from the line of Yves Siegel Please go ahead.

[Yves Siegel –Wachovia Capital Markets]

Good morning,

Mark Alexander

Good morning, Eve and I just want to remind you that we erased the distribution and I am here. Okay so, go ahead.

[Yves Siegel –Wachovia Capital Markets]

First question is - is it bigger than a bread basket?

Mark Alexander

No. It is what it is.

[Yves Siegel –Wachovia Capital Markets]

Okay. Two follow-up questions: One is in terms of the opportunities in front of you is it mostly propane or are you still looking at the mid stream stuff?

Mark Alexander

Both, Yves. And we also expand our efforts on the mid stream side. We certainly think long-term is important for us to have a lot of footprint. And I think that will be the case for some time.

[Yves Siegel –Wachovia Capital Markets]

Okay. The second question, both you and Mike said you are pleased with the results of this quarter. So my question would be - what kind of bench marks are you looking at when you make that statement? How are you thinking about volumes? How are you thinking about, what kind of bench marks are you thinking about when you make that statement?

Mark Alexander

Well, what we are thinking of is that the bottom is coming close. Just like everyone is trying to predict with their crystal ball as to what is going on with our economy, that 2008 and probably 2009, we will be bouncing along the bottoms and things will start to turn. So we are seeing what we think is getting close to the bottom, as far as our overall economics are concerned.

[Yves Siegel –Wachovia Capital Markets]

No but I mean more in terms of the volume, given conservation, where should volumes sort of have come in for the quarter? Given rising expenses, are you pleased with the profit margin? Is that in line with what you were sort of budgeting?

Mark Alexander

Yes, it is. We are certainly not pleased with a $14.5 million loss in risk management. But that is what it is. It is also in the wake of an unprecedented move in commodity prices. Commodity prices moved almost 50% in a matter of a few weeks.

[Yves Siegel –Wachovia Capital Markets]

Right.

Mark Alexander

And frankly, you are seeing other energy companies that are responsible risk management people announce very similar experiences. Some large dollars but all of us, you have seen several people out there announced they have lifted their hedges as well. And it was a prudent thing to do.

Mike Dunn

Keep something else in mind, too Yves. We could pretty much point to all of the gallons or certainly a high percentage of the gallons that we missed. We can attribute it to conservation. We can attribute it to aggressive competition. We can also credit some of it to credit management.

Mark Alexander

On our own part, by the way.

Mike Dunn

When you look at the volume you see the numbers as an outsider but as an insider you can almost point to all of them. The conservation percentage has not really deviated much from the norm which is a good sign, to Mark's point, that we may have approached near the bottom with respect to the conservation issue.

[Yves Siegel –Wachovia Capital Markets]

Then I just have two other questions. One is, what was the experience on write offs this quarter? How did that relate to historical experience?

Mike Stivala

Comparison historically, Yves, it is right in line with the typical percentage of write offs to revenues. Obviously on an absolute dollar basis it is up a bit. It is up about $500,000, but not much when you consider what the commodity price has done. So our field has been managing collections very, very closely and to Mike's point not just the collection side but the situations that we will put ourselves in relative to credit risk. So bad debt is really not an issue at all.

[Yves Siegel –Wachovia Capital Markets]

So that is less than 1%?

Mike Stivala

Less than 1%, absolutely.

[Yves Siegel –Wachovia Capital Markets]

Okay. And then the last question. Could you explain again the inventory management and the hedging policy going forward? Specifically how much inventory do you typically have on hand? Is it three days' worth of inventory? And secondly, because of conservation, is it possible to get into a situation that volumes are dropping faster so you are almost in a position where you are over hedging?

Mike Dunn

That is, you are absolutely correct to a certain extent, Yves. As far as raw numbers I think that is proprietary. In terms of number a week and the breadth and the logistics involved and so forth and so on, obviously, you are coming out, or going this quarter, you are coming out of your peak volume period so your volume numbers were not all that great. But let me try to frame for you the price explosion that we experienced so that we can reflect back on what we looked at.

Beginning of our fiscal year crude oil is trading in the 80s. In June it traded up to $140. Heating oil was trading at $2.15, it traded up to $3.95, propane was $1.31 and it traded up to $1.91. That is more of an issue than anything else. Obviously, when you see a market that has that kind of a dynamic rise, your desire and need in our opinion, because we are conservative to hedge, becomes even that greater. So in principle, we were managing our book pretty close to spot from a hedge perspective.

Obviously you come out of March where crude oil was $105, heating oil was $3 and propane was $1.50. And you look at where we ended the third quarter with June, crude was $140, heating oil was $3.90, propane was $1.90. You are looking at a significant and I think when used in the press release - dramatic rise in the marketplace.

At that time in May, if everyone remembers, we were talking about crude oil going to $200. I think Pickens was stocking about $300. And we were looking at a smaller position as we had; rolling it forward, every month with the dramatic change in price was costing us a lot of money. It was costing us a lot of money because we do not mark to market the physical side, okay?

So we made a decision early in the quarter to stop bleeding with respect to rolling our hedges forward. And I mean it is that simple. When you look at numbers, I am going to tell you, Yves, our number the hedge position was less than 4% of our annual volume.

[Yves Siegel –Wachovia Capital Markets]

Wow.

Mike Dunn

Exactly. But again, look at the numbers. Look at the change in values.

[Yves Siegel –Wachovia Capital Markets]

Yes.

Mike Dunn

Okay? That is the important part.

And unfortunately, because the propane market is not as liquid as you would like it to be and because we do not like to do over the counter stuff and take on another credit risk, we will typically use the NYMEX for all of this and we were using heating oil and crude oil as our hedge benchmarks and they saw the most dramatic rise.

[Yves Siegel –Wachovia Capital Markets]

Do you guys have to post margin on this as you go along?

Mike Stivala

Sure. It is very small given the level of positions that Mike just indicated. Obviously the margin requirements were very small. And the other just to answer your question as well Yves, in terms of whether we were over hedged. No, the answer is we were not over hedged. Our hedges are always backed by the physical product. By no means were we over hedged. I think it is really a reflection of just how dramatically the commodities moved in a short period of time.

[Yves Siegel –Wachovia Capital Markets]

Right. But also, I would think, given the increase in commodities, conservation was probably higher than you initially thought during the quarter.

Mike Dunn

That is the part where the volume, in other words when you are running a hedge book, a real hedge book, I know the definition of hedging has gotten expanded beyond hedging in the world we live in. But the reality of it is you buy one, you sell one. You have a zero price risk, right?

The issue was you were not selling one and the monkey thought you were selling one, so one got rolled over and you had them roll the futures over. I think that is what you were talking about. As far as being over hedged is concerned we were basically running our position, our price risk exposure as close to spot as possible which essentially meant we had zero price risk exposure, which meant our full physical position was hedged.

[Yves Siegel –Wachovia Capital Markets]

Got it.

Mike Dunn

You see? It is just in numbers. Again, Yves, it was a combination of some of the volume shortfall but we never commit to 100% of what we think we are going to need anyhow. But the dramatic change in the marketplace is really what made us think twice about things.

[Yves Siegel –Wachovia Capital Markets]

Can I just push it? One other question and this is for the CEO. Given the current environment and given the robust distribution growth and given the strong cash position. How are you thinking about, and given the fact that you have a lot of cash that you can make an acquisition with, how are you thinking about future distribution growth?

Mark Alexander

Well, we are constantly thinking about future distribution growth and $0.10 this quarter is evidence of our confidence level and as I said before, Yves, it is always it is an exciting topic with our board and something that is a recurring topic, obviously. We have got room, certainly relative to the rest of the MLP universe. And our board is very active in those discussions.

So it is, those are good discussions. Unfortunately from some of your guys’ perspective, we have tended to be more conservative than our peers or other members of the MLP sector. The discussions we have about, as the board is getting closer to the way other people run their distribution growth rates. Our growth rates have been very good. As a matter of fact it is terrific.

Our coverage is, but our coverage is so strong, I guess, your arguments are distribution should go up even faster. I do not have an argument for you other than to say that our board looks at it that way and actually the $0.10 is evidence they are going to look at it even harder going forward. As a CEO, no CEO wants to get ahead of its board. But I appreciate the question Yves. It is a good topic for us, fortunately.

[Yves Siegel –Wachovia Capital Markets]

Thanks, guys. I appreciate it.

Mark Alexander

Thank you.

Operator

Thank you, and at this time then I would conclude the question and answer session.

Mark Alexander

Okay. Kent, I appreciate that. Since we can conclude that there is nobody else in queue. Kent we appreciate your help today and everyone we appreciate your attention, time and support. And we look forward to reviewing our full year results in a few months. Thank you very much and have a great day.

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