CVR Partners LP (UAN) 2011 Q3 法說會逐字稿

Greetings and welcome to the CVR Partners third-quarter 2011 conference call. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jay Finks, Director of Finance for CVR Partners. Thank you, sir. You may begin.

Good morning, everyone. We very much appreciate you being here for our CVR Partners quarterly conference call. With me today are CVR Partners' Chief Executive Officer, Byron Kelley, and CVR Energy's Chief Financial Officer, Ed Morgan, and Chief Operating Officer, Stan Riemann. Also sitting in today is CVR Partners' Executive Vice President, Kevan Vick.

Prior to discussion of our 2011 third-quarter 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 beliefs 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 and 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 2011 third-quarter results release that we filed with the SEC yesterday after the close of the market.

With that said, I will turn the call over to Byron Kelley, our Chief Executive Officer.

Thanks, Jay, and good morning to everyone. We certainly appreciate you joining us for this conference call to discuss our third-quarter results.

From both an operational and a financial standpoint, we had another very good quarter. I will discuss the quarter's highlights first this morning, and then Ed Morgan will provide additional details into the financials. And then at the end of the presentation, Ed, Stan Riemann, Kevan Vick and I will all be available to take your questions.

As you know, these quarterly results allowed us to announce last Thursday a distribution of $0.572 per common unit payable on November 14 to unit holders of record on November 7. As we mentioned in our earnings release, our results to date have us well positioned to meet or exceed the distribution guidance originally provided in our IPO prospectus of $1.92 per common unit for the 12 months ending March 31, 2012.

We also continued discussion with our Board and our management team about future business plans, and at our next quarterly conference call, we plan to provide you with distribution guidance for the calendar year 2012.

For the third quarter, CVR Partners reported net income of $36.3 million on net sales of $77.2 million. That compares with $13.5 million net income on net sales of $46.4 million in the third quarter of last year. Third-quarter adjusted EBITDA -- that is net income adjusted for depreciation, amortization, share-based compensation and interest expense -- was $43.3 million compared to $15.7 million in the third quarter of 2010. For the first nine months of 2011, we had adjusted EBITDA of $114 million compared to $45.1 million for the same period in 2010.

Our manufacturing facilities continue to operate at high onstream rates. The gasifier ran 99.2% at the time, the ammonia synthesis loop came in at 98.6% rate, and the urea ammonium nitrate or our UAN plant operated at 97% for the third quarter. In short, our facilities continue to benefit from our commitment to maximize reliability.

Meanwhile, the prices we get for our principal products, ammonia and UAN, continued to outpace last year's levels.

For the third-quarter 2011, we realized net-back prices for ammonia of $568 per ton compared to $317 per ton in the third quarter of last year. For UAN the net-back price increased to $294 per ton for this third quarter from $168 per ton in the same period last year. Prices realized are the principle driver of our results. The current commodity forecasts are correct for allowed prices should continue strong supported by agricultural commodity prices and world population growth.

In a report issued last month, [Lou Johnson] predicted that future prices for corn and wheat may come of recent weather-driven peaks, but will not retreat to trend levels preceding 2005, and that bodes quite well for nitrogen fertilizer prices going forward. We believe solid net-backs will continue through 2012, and of course, a little rain on the plains during the winter wheat season would be a nice turn of event for all of us in the industry.

In the third quarter, we have produced 102,700 tons of ammonia with 25,900 net tons available for sale and 185,800 tons of UAN. For ammonia that production is down slightly from the third quarter of 2010 when we produced 112,600 gross tons of ammonia, and that is because CVR Partners made a direct sale of hydrogen under our feedstock and shared services agreement to the Coffeyville Resources Refining & Marketing facility in lieu of converting that hydrogen to ammonia.

As you may recall, this hydrogen is sold under a keep whole pricing arrangement that approximates the value of hydrogen to CVR Partners had it been converted to ammonia. The $5.7 million of revenue associated with the hydrogen sales to the energy, which was equivalent to 8703 times of ammonia, shows up in CVR Partners' net sales.

In the third quarter, the nitrogen fertilizer plant was a net producer of hydrogen -- excuse me, in the third quarter of 2010, the nitrogen fertilizer plant was a net purchaser of hydrogen from the refinery, raising our capacity to produce ammonia that year. And that sort of further amplified the production disparity in comparing this year's quarter to quarter results, our quarter results against last year's.

Meanwhile, we are fully booked for the fourth quarter, and we are booked well into January. Our current book for orders for UAN deliveries in the fourth quarter is in excess of $330 a ton with sales booked in the first quarter of next year exceeding $350 per ton, and these prices are net-backs to the plant again.

Looking forward, remember that most of our production is sold forward and booked only upon delivery. So events in a particular quarter generally show up in the financials of future quarters.

And finally, let me update you on our $135 million UAN expansion plans. The weather in Coffeyville has been good, and as a result, we have made excellent progress on the foundation work for the new units. Recently we left a contract for mechanical work on the expansion and arranged for heavy halls of the major process units into Coffeyville. As of today, we are on schedule and on budget to begin operation for the first quarter of 2013. These new units will let us convert virtually all of our ammonia production into more highly valued UAN, raising our capacity to in excess of 1 million tons of UAN annually. That is a 50% increase from current levels.

With that, I will turn the presentation over to our CFO, Ed Morgan, to give you some more details around the financials.

Thank you, Byron. Good morning, everybody.

We experienced another strong quarter both financially and operationally, and I will walk you through some of the financial highlights.

As Byron stated earlier, adjusted EBITDA was $43.3 million, and net income was $36.3 million or $0.50 per common unit for the entire quarter of 2011 -- third quarter of 2011. For the nine months ended September 30, our adjusted EBITDA was $114 million versus $45.1 million a year ago, and our nine months net income was $91.2 million versus $39.5 million over the same period last year.

Last week we also announced the distribution of $0.572 per common unit. Year-to-date our distributions have totaled $0.979 per common unit. And our second-quarter 2011 distribution had been a full quarter over -- our year-to-date distribution would have been $1.10 per common unit. The primary drivers of this $0.123 difference relates to the $0.053 from operating cash flow and revenue recognized from prepaid sales, which accounted for [7/7th] an impact during those 12 days.

As we've discussed in our presentations and prospectus, prepaid sales represent a customer prepayment on contracts to secure price and future product delivery. Cash is not considered received and not distributable until the prepaid product is delivered.

Moving to capital expenditures, our total 2011 capital spending forecast is expected to be $45.4 million, of which $36.2 million is related to UAN expansion. In the quarter, we spent $4.5 million versus $1.9 million in the prior year. Maintenance capital in the quarter was just $800,000 and forecasted to be a total of $2.8 million for the remainder of the year.

Today we have a liquidity position of $291 million, which is comprised of $266 million in cash and cash equivalents and $25 million available under our revolving credit facility. To give you a sense of our future cash balance, if you adjust our current cash balance for this quarter's announced distribution and with less to spend on the UAN project going forward, our net cash would be $125 million.

In regards to questions we received on our feedstocks, let me provide some additional color. We reported petroleum coke at a cost of $43 per ton in Q3 versus $26 per ton in the prior year. Under our pet coke supply agreement with the refinery, our pet coke cost is capped at $40 per ton at UAN prices at or above $235 per ton. We purchased on average over 70% of our pet coke from the adjacent refinery. The remaining 30% is purchased on the open market. Note for modeling purposes, every $1.00 move in the overall pet coke price equates to an approximate $500,000 increase or decrease to annual cost of goods sold.

With that, Byron, I will turn the call back over to you.

Thank you, Ed. Before we open the call to questions, I want to reiterate our intention to grow CVR Partners. We are working hard to identify and to choose among a variety of opportunities as we work through our strategic planning process and business planning processes currently underway.

You probably noticed that during the quarter we did bring Randy Maffett onto CVR Partners. He joined our organization as Executive Vice President of Development. Randy has more than 30 years of experience in the industry, much of it in corporate development. He is already bringing a focus and energy to our development activities, and we are extremely happy to have him as part of our organization.

While we have much to do to achieve the growth objectives that I expect at CVR Partners, I do want to mention one early project that we have undertaken. We finalized the design and initiated construction of a 10,000 ton UAN storage facility at CVR Energy's terminal in Phillipsburg, Kansas. This will allow us to position product in Western Kansas during the field season for timely shipment to our customers during the planting season, and this is the beginning of a concept to build out a number of regional terminals that will allow us to arbitrage seasonal pricing. It is just one small project, but it does demonstrate our commitment to finding growth opportunities wherever they may be.

With that, operator, we will open the floor for questions. I would remind everyone that I am here, Stan Riemann is here, Kevan Vick is here, as well as Ed, and we are all available for questions.

(Operator Instructions). Vincent Andrews, Morgan Stanley.

I'm just wondering if you can give a little more detail on two components of the quarter. The first was, one, we are aware in the area where you are primarily positioned there has been difficulties with drought, particularly as it relates to the latest wheat crop. So I wanted to understand how your volume either in the quarter or for future orders -- I know you said you were sold out -- but has there been any -- has demand been affected at all by the growing conditions down there, and does that have anything to do with the sales of hydrogen in the quarter? Maybe the other question is, what determines whether you sell hydrogen to the plant or whether you buy it from the plant? How does that work?

Okay. Well, first of all, we don't really think that our sales have been impacted by weather, certainly not in anything that we have seen for the fourth quarter. You have to keep in mind that on our hydrogen sales to the refinery that is a two-way agreement that we purchased hydrogen from them some time during the year. They have excess hydrogen we purchased. And then other times they have a need for hydrogen, especially in periods like the turnaround where we will sell hydrogen to them. We are basically neutral when it comes to pricing on that in terms of we essentially get market prices tied to ammonia when we make those sales. So we are revenue and price neutral to that transaction.

We did two things and deferred -- you are talking about production versus sales on ammonia. We deferred some of our sales into the fourth quarter looking at what we thought would be a little bit stronger net-back. And then we were building up a little inventory because the refinery does have a turnaround in the fourth quarter, and we knew we would be making some hydrogen sales to them. But it was not weather-driven at all. And you may have noticed UAN production was higher than sales, and essentially we don't book the UAN sales until we make the delivery for fall fill sales. So some of those deliveries just ended up being deferred into the fourth quarter from a logistical standpoint.

Okay. I'm just going to try to repeat that back. You said that your point is that the weather has not had an impact on you. You made a decision, a tactical decision, to delay some shipments of ammonia from 3Q to 4Q because you were offered a more attractive net-back at that point in time? Is that correct?

Well, we made a decision that we thought and I think in reality turned out that we would get a little bit better net-back. And then also we were building some inventory to make some -- we knew we would be making some additional hydrogen sales for the refinery as they have got a fourth-quarter turnaround.

Okay. But it was not demand related is your point?

Yes. But it was not weather-driven at all.

Jeff Dietert, Simmons.

Nice operations during the quarter. Ed, I wanted to follow-up on your comments on coke costs, and with the Coffeeville refinery being down, I'm assuming you are buying some third-party coke in the fourth quarter. Could you talk about the potential impact for that on the fourth quarter and if there were any impacts on the third quarter as well?

Sure. Actually there will not be a fourth-quarter impact. The turnaround at the refinery started just before October. So we built some additional coke during the third quarter in July/August timeframe. If you think about the potential impact for that over and above our interrelated contract price, market price for coke in that timeframe would have been probably another $10 to $15 a ton higher than our interrelated price. So overall impact probably not more than $0.25 million and would have been in our numbers in the third quarter. But there will not be any carryforward of that issue or those costs into Q4 at all.

Does that help you?

So that has already been recognized?

That is correct.

All right. Good. And secondly, on a strategic front, you guys obviously have your UAN expansion contributing to organic growth as we move forward. I was wanting to ask about the M&A strategy and if there is potential growth on that front as well, and if there are specific things that you are interested in or not interested in on the M&A front?

Well, I will tell you first that we are interested in M&A. If the opportunities come up, we will definitely be looking at opportunities. We are doing some of our own initial work right now around what might have interest to us out there in the market that we might go out and see if we have any party -- you know, some parties sometimes have assets that are not as desirable to them as they might be to us. So we are doing some analysis around there. If someone were to put an asset on the market, we will certainly be taking a hard look at that. But, in general, we are interested in M&A right now. There is not a lot of M&A activity going on in the fertilizer sector. But what does get on the market we will be taking a look at.

Chris Damas, BCMI Research.

Could you drill down on cost of products sold both on the affiliate side and third-parties because I'm a little confused. I thought cost of products sold included pet coke costs, as well as freight, which would total $11.6 million. Yet the total for affiliates and third parties is $10.9 million.

I would be glad to. In regards to the COGS, it does include pet coke and transportation. I guess those are only two components. You are just looking for kind of a breakout?

If you total the pet coke, $43 times whatever it was 113,000 tons, I think, it comes out to $5.6 million, and freight was $6 million. So that is $11.6 million in excess of $10.9 million, so I must be missing something. That is excluding D&A, I guess. So I just wanted to find out what the components are of cost of products sold, what is in there?

Hold on just a minute, we are going to look up --

We are digging.

We are digging a little deeper here.

Sure. Sorry about that. Can I ask also did Mr. Kelley mention $135 million for the UAN expansion because I thought that was $100 million?

Well, $100 is what we have in -- there were some expenditure spent on that before 2010. And so the $100 million relates to expenditures in 2010 and 2011 and whatever might carry it -- I mean 2011 and what might carry over into 2012 and by the end of 2013. So it is essentially this year and go forward expenditures is what that can firm to.

So there was $135 million of historical costs? Because I know you had this on the back burner for a while.

While Ed is doing reconciliation, I think he is going to find that most of that delta is in the inventory.

Right.

(inaudible) is inventory build.

Okay. Thank you. I guess I can talk to Jay after --

Yes, absolutely. We can bust it down to the dollar, but I know that is where it is at.

So that would be changing inventory of those -- pet coke?

Obviously, with the turnaround down, Kevan and [Neil] built their coke inventory for that turnaround. And they do that opportunistically on the price of coke anyway, but they certainly purchased more coke in the August/July/September timeframe than they normally would because they knew they were going to be without a coker for 10 or 15 days in refineries, so absolutely. And that is the only thing easy for those guys to do.

[James Chantell], [Height Hedge].

Rentech's fertilizer operation has since gone public this week. How will this impact you? Do you compete with them?

I will just answer yes or no. In one sense we compete with everybody in the fertilizer market. But when you look at our sales that are pretty regional in nature, I don't see us as a lot of overlap with competition. But, Kevan, do you want to add to that some?

Well, I mean, first of all, the production has obviously been there in the marketplace. So the tons are selling into the market, and they are going to continue to sell into the market. They have come to the market as an MLP. I don't think that fundamentally changes our competitive business environment. And, as Byron said, we have very little overlap. We have a little bit of ammonia sales into Illinois. But, as far as UAN is concerned, we really don't overlap with their market territory.

But it does not represent any new products on the market.

But, as investors, we have a choice as to how to gain exposure, pure-play exposure to increase demand for fertilizer. So I mean should we sell a portion of CVR Partners to invest in Rentech? I guess -- (multiple speakers)

Obviously we don't invite you on what to do around your investment, whether to buy or sell our stock. But I think you'll just have to look into the thesis of where we are going with our UAN expansion and what our product mix is going to be and our position and our strong position in our market region. And obviously we are fairly new to the market, but I think we have two good quarters of meeting expectations around -- on our distributions as well.

No, I mean we don't dislike CVR. What we are wondering, though, is that it seems that there is single client risk involved and pet coke risk involved. And so it would seem to be on our end that it would be prudent to expose ourselves to natural gas as the feedstock and another plant location as well. Am I misthinking it, or --?

Obviously you will have to dig into that as to what parameters are important to you. I mean we are both single plant facilities, and we are unique in the market in that we are the only pet coke facility out there. And in that pet coke arena, 70% of our pet coke purchases come from our sister refinery next door. The other 30% we do buy on the market, but recognize we use a total of -- and, Stan, you can correct me on this -- but around 1200 tons a day of pet coke.

So, if we're buying just roughly 30% of that, that is under 400 tons we are buying off the market. And there is far in excess of that being railed right by us every day from other facilities that are shipping pet coke to the Gulf Coast. So we don't see pet coke as any kind of a supply issue for us, and we certainly have very good predictability around what we pay from our affiliate on pet coke since it is tied essentially to the sales of our product. And so yes, you have got a little bit of risk in your third-party purchasers as those prices move, but so do natural gasifier fertilizer plants have 100% risk in how those commodity prices move as well.

So do you see your particular location in southeast Kansas as providing an advantage versus someone who is located in Iowa or Illinois?

Well, I mean I think you really look at both plants or where they are located. They are both in good market areas. Their market tends to focus in the regions that we are not currently focused on and are not having focused on. And, as Kevan was saying, just a little bit of ammonia overlap in Illinois; otherwise, we really are not -- we are really both chasing different markets. They are moving much further East than we are. We are moving generally in the Western direction.

And you guys mentioned winter wheat. Is it more wheat or corn that you guys fertilize?

Well, obviously I think corn is the biggest driver for us, but we do sell into the wheat market. And you will see fall wheat market. Those plantings then roll over into the spring. So we are into both markets. Kevan, do you have a breakdown on our numbers versus corn versus wheat? It is pretty high.

Yes, we can get you specific numbers if you are interested, but at a high level, it is probably about two-thirds of our nutrient tons go towards the corn market at the end of the day.

I think maybe the other point worth mentioning around our geography relative to in the case of Rentech is that we are not on the water, which exposes you to some relatively low pricing or some price pressure from import product coming up the river off the water. So we are in the corn belt and removed from that price pressure, and we certainly appreciate that position.

James, one other point I might make, although our processing technology is different, I mean we do operate two gasifiers, and our on-stream rates are well in excess of 99% year-to-date. So it is just something else to be considered when you compare the investments.

Thank you very much. I appreciate your candor.

Farooq Hamed, Barclays Capital.

Just a few questions I have. Some of it is really just some housekeeping. First off, on your UAN production at 185,800 tons, so were you running at above your capacity of 20, 25 per day?

For part of that period, we do. As we change out the gauze in our unit, you can get production that runs higher than 20, 25 for a while. Then that production over time will decrease. So that number averages out a little different every cycle we go through, but we probably ran a little higher than that, yes.

Okay. So that accounts for why you have production a little bit higher than what one would expect normally?

Right.

Second, on your guidance distribution of $1.92, maybe just a point of clarification. Is that $1.92 based on the stub period or $1.92 based on the full four quarters?

What we have said is, in spite of the fact that we had sort of a short second quarter, that our distribution for that period will still be $1.92. So there will be a cash payout of $1.92 through the fourth quarters that end the first quarter of 2012.

Okay. Good.

So you are not being penalized by the sub-period is basically what we are saying.

Right. Okay. Good. And then just in terms of your hydrogen sales, I think that somebody touched on this earlier in the call, but what are you seeing for Q4? Are you expecting hydrogen sales in the fourth quarter?

Yes. The refinery has a turnaround in the fourth quarter, and so we will be making additional hydrogen sales to them in that quarter. And so I mean we knew that coming into the year.

Okay. Great. And then last question and then I will pass it on. In terms of your forward book, you mentioned that your Q4 pricing will be in excess of $330 per ton. Is that on a blended basis?

Well, I mean that is -- we -- go ahead, Ed.

That was just UAN.

Okay. That is just UAN. And then in excess of $350, I think I wrote down $350 per ton in Q1.

Well, for what we have booked. (multiple speakers) The fourth quarter is not booked at this point.

(Operator Instructions). [Len Chen], [Hyatt Investment].

My question has been answered. Thank you very much.

Charles Neivert, Dahlman Rose.

One quick question, for the next quarter or maybe two, do you guys expect that sales on UAN in particular but possibly ammonia as well will be in excess of your production numbers? Meaning you are going to be selling some out of inventory over the next couple of quarters or first quarter versus fourth? How does that look going forward?

Well, I think what we mentioned to you earlier is on UAN that we had 3000 tons that moved into the fourth quarter, and we would expect that basically we will be shooting to sell our production in fourth quarter plus the 3000 tons. But, again, sometimes logistical issues will have you push something from one quarter to the next. So I think you should essentially figure out a figure that we will be selling production -- close to our production in that quarter with maybe a little excess.

Got it. Okay. That is a help. Well, I guess you talked to the split between your corn and wheat, and I guess you will bring that up later. Do you think on a going forward basis does that -- is that going to have any impact as corn starts to shift acres, things like that. Do you guys see more of a constant ratio between those two crops, or does it shift around a lot from year to year?

Well, there is some year-to-year movement. I think with what we are seeing in the strength in the corn market, obviously I don't think you are going to see a lot of shift there. You have seen some variable numbers that have come out of some of the government reports, and there are still some questions around that. But I think everybody believes next year is going to be still looking like it could be one of the best years for corn planting that we have seen even in excess of what we saw this year from the amount of acreage that is planted. So I think you could stay with those percentages, and we might see, if you actually see that you get 92.5 million acres planted next year of corn, you might see that percentage move a little bit.

Kevan, please feel free to add to that.

No, I think that is an accurate statement.

Okay. Lastly, in general, how far do you tend to move your product? I mean if you sort of do a circle around the plant, how big would the circle be in terms of how far the product moved on average? I know there will be some things outside, but within what range do you move of that support from your product, either ammonia or UAN?

Kevan, you or Stan either one, feel free.

This is Stan Riemann. The predominant states we ship to are Nebraska and Iowa and Missouri and Kansas, Oklahoma and the Panhandle of Texas. That would probably represent 90% of our shipping points.

But, keep in mind, we ship based on rail efficiency, and the fact that we are a Union Pacific mainline shipper, you can probably follow our sales trail by following the UP mainline. And the UP mainline goes through the middle of Nebraska, etc., etc. But Nebraska, Iowa, Missouri, Kansas, Oklahoma and the Panhandle of Texas is probably 85%, 90% of our sales. We do go to the West Coast at times. We do go to the Pacific Northwest at times when we have a freight advantage or a price, but that is opportunistic sales. And then we go to 1 million tons a year at UAN, you are probably going to see that just move out a little bit.

Okay. And last question, just review with me the normal -- well, normal or average price premium that you guys get from your area versus the Gulf Coast price on both UAN and ammonia? Your tendency to be above, let's say, New Orleans pricing for each of those?

Normal is an interesting term. I mean there is some volatility in that. But in the case of UAN, of course, which we are primarily focused on, we would look for a premium somewhere in the range of $15 a ton.

So basically it is -- I threw the question to Kevin because it's not an easy -- the answer will differ. But it is normal for freight basis. (multiple speakers) We have a $15, $20 freight basis on UAN, probably $40 on ammonia, and more days than not you would see that reflected in the price of midcon versus Gulf.

Okay. Yes, that is what I was trying to get at just the tendency to be at a premium. I know that will range, but I just wanted to get a sense of where it tended towards.

It will get big in the spring season and get small in the summer season, but predominantly that is what it does.

Michael Cerasoli, Goldman Sachs.

Just real quick while we are talking about UAN ammonia prices, I'm just curious about the slight sequential decline in UAN ammonia in 3Q. Clearly pricing is up strong year over year, and you are expecting continued strength in 4Q and 1Q of 2012. Is there just an element of seasonality that I'm missing?

Well, the answer to that is yes in that when you do our prepaid sales, a lot of those prepaid commitments in the sales process were done much earlier late in last year. And so some of those numbers roll forward into the different quarters in which we actually make those deliveries. And so there is not a one-to-one correlation between current pricing for our product or a change from one quarter to next that rolls through one-to-one when you look at the fact that we do do a lot of prepaid sales.

Okay. And then separately, just in regards to the 10,000 UAN storage facility that you mentioned, is this going to be built at the CVR Partners level or the general partner and then also if you could give us some insight as to how repeatable and what type of multiple there would be on that type of storage?

It is going to be a CVR Partners asset, and it is a terminal facility that we will move product into and try to cycle through a couple of times in each year and try to gain some additional arbitrage out of that. And that number will vary year to year and from season to season as to what we think we will get out of that. I would more say that we would expect that our internal rate of return on a product like that is going to be at least in the 20% range.

Okay. And then just my final question is just on your financing strategy as you implement your long-term growth plans. How do you think about financing these projects and potentially acquisitions given your one-time coverage policy and the general volatility of the fertilizer sector?

Well, I mean I think you will see that what -- when you really look you are talking about the general volatility of the sector, it will mean that as we look forward and the future of the growth and do any kind of financing, we will take a fairly conservative approach about the leverage we maintained at the Company level so that we will not get over-levered recognizing that there is volatility in pricing in the commodity pricing.

Generally right now, as Ed mentioned, even after the expansion, we have cash on the balance sheet to do some additional growth. Whether we do the generic or do some type of a combination of smaller acquisitions, we have cash already available to do that.

To the extent that we get beyond that, we will look at combinations of debt and equity that give us the kind of conservative ratios that we want with our balance sheet to finance anything major.

Do you want to maybe quantify or define what you consider to be over-levered or what kind of target rate, debt to equity ratios and ratios you would have in mind?

Mike, it has not changed since we went on the road originally. But we targeted not over-levering more than 2 times unleveraged. I realize now we are well less than 1, but that would have been our target, and that has not changed.

We have no further questions in the queue at this time. I would now like to turn the floor back over to management for closing comments.

Again, I would like to thank everyone for joining us today for our third-quarter call. We definitely appreciate your time. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.