Andersons Inc (ANDE) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to The Andersons, Inc. 2007 First Quarter Earnings Conference Call. My name is Tanya, and I'll be your coordinator for today. [Operator Instructions]

I would now like to turn the presentation over to your host for today's Conference, Mr. Gary Smith, Vice President of Finance and Treasurer. Please proceed.

Thank you. And good morning, everyone. And thanks for joining us on our First Quarter 2007 Conference Call.

As you know, certain information that will be discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, and competitive conditions, conditions in the Company's industries both in the United States and internationally; and additional factors that are described in the Company's publicly filed documents, including its [34 back] filings and the prospectuses prepared in connection with the Company's offerings. It also includes financial information of which -- as of this date of this call, the Company's independent accountants have not completed their review of the 10-Q. So that's yet to be complete.

Although the Company believes the assumptions under which the financial information and forward-looking statements are based are reasonable, it can give no assurance that the assumptions will prove to be.

We are recording this, and you can access it on the website. Mike Anderson, President and CEO; and I will be [available for] questions after the call. Mike?

Thanks, Gary. Good morning, everyone. I've got a little cold today, so excuse me if I take a pause to get a drink while I'm giving this report.

Our first quarter income this year established a new high for The Andersons. While some one-time or nonrecurring items contributed to this achievement, I feel pretty good about our overall performance. As noted in our press release, we generated revenues of $409 million in the first quarter this year and net income of $9.2 million, or $0.51 per diluted share.

In 2006, we reported revenues of $281 million and net income of $3.8 million for the same three-month period. After adjusting for the two-for-one stock split we announced in mid 2006, we earned $0.25 in the first quarter last year.

Some of our businesses achieved solid growth versus their year-earlier results, and some others were below their 2006 performance. To fully understand the total Company results for the quarter, we need to talk about the business segments.

We'll start with Grain & Ethanol. It achieved an operating income of $10.2 million in the first quarter this year versus $1.8 million a year ago. Total revenues of $247 million were $118 million higher than they were in the same period in 2006. Of this $118 million increase, a little more than $30 million was sales of ethanol by The Andersons in accordance with the marketing agreement between our Company and our Albion Ethanol joint venture. That's the only joint venture that was operating in the first quarter, or producing ethanol.

In the first quarter of 2006, this sales number was zero. The Albion LLC produces ethanol and sells it to The Andersons. And we in turn market it to regional blenders of automobile fuel. In other words, 100% of the ethanol sales to customers will show up in our total revenue number. As marketers of the product, we receive a fee from the LLC to perform this service.

On the other hand, most of the gross profit will lodge in the LLC's accounts. And we, The Andersons, we record in our books our percentage share of the income generated by the LLC. This will show up on our statements as equity and earnings of affiliates.

I mention this simply to explain why the correlation between revenues and income will probably become weaker, as we begin ethanol production -- or even weaker, as we begin ethanol production at Clymers and Greenville plants.

Many of you recall that over the years I've often commented about the lack of correlation between revenues and operating income in the Grain business. Increases or decreases in grain prices over time in response to supply-and-demand dynamics don't necessarily move gross profit or income commensurately. Now the addition of this nuance regarding the Grain & Ethanol Group's Ethanol business will make the correlation even weaker, especially when the additional plants come on-stream and Ethanol sales increase significantly.

Having said that, what did Grain revenues look like in the first quarter this year? Excluding the $30 million-plus of Ethanol sales I just described, traditional grain revenues this year were more than $80 million higher than they were in the first quarter of 2006. Some more bushels were sold, and average grain prices were more than 40% higher. The mix between the four primary grains we handle -- corn, soybeans, wheat and oats -- raised the overall average further, and merchandising revenues were also higher this year.

Our earnings from storing grain, which are referred to as space income, also improved significantly in the first quarter of this year over last year. And the group's operating income was further enhanced by the fee income we earned by originating corn for the Albion Ethanol plant. This will continue to increase when the Clymers plant comes on-stream this month and Greenville starts production next year. All considered, our Grain business had a good first quarter this year.

I need to make one additional observation while I'm talking about the Grain business, however. And that is that corn planting progress in our region of the U.S. is quite a bit behind last year in the five-year averages. As of last Monday, the U.S. was 23% planted on corn versus 48% last year and 42% on the average. While it's possible to make up a lot in a short period of time if the weather cooperates, nonetheless, we're now behind.

Since the Albion plant was still under construction at this time last year and has produced ethanol throughout the first quarter of 2007, the group similarly achieved significant year-to-year income growth in the Ethanol business. Our operating expenses continue to include development expenses related to Clymers, Greenville, and other opportunities which are higher than those that we incurred in the first three months of 2006.

The fees we earned during the period for ethanol development work were significantly higher this year. Those fees were one of the nonrecurring items I mentioned in my opening comments and are included in the other-income line of our income statement.

In the first quarter of last year, the group's investment in Lansing Trade Group was able to take advantage of some unique market opportunities. While Lansing's trading business performed well in the first quarter of this year, our income from the investment was lower than it was in the first quarter of last year.

The Rail Group's first quarter revenues and operating income were lower in the first quarter this year, in part because fewer railcars were sold or financed during the period than had been in the first quarter of 2006. In the first three months of this year, the group generated operating income of $3 million on $26 million of revenue. A year ago, it reported operating income of $6.2 million and $34 million of revenues for the same period.

The group continues to increase the number of railcars in its fleet. Compared to March of 2006, it has grown by more than 1,800 cars. The utilization rate of our fleet, however -- a key performance measure -- has declined 2%. Demand for cars has dropped off in the last several months. As a result, railcar values and lease rates have softened.

As we've noted previously, maintenance costs have increased. Steel prices contributed to this as well as higher wheel-set replacements and noncapital maintenance and freight costs to move cars coming off lease.

The group's revenue and operating income were also impacted by a decline in its Railcar Repair business. This was due to completion of the large volume of repair work at our Mississippi repair shop in the wake of Katrina last year, which is now behind us. We have opened a repair shop in [Rain], South Carolina. And both of our shops in that state are performing well.

The group's Manufacturing business was also soft in the first quarter of this year. Of the $3.0 million year-to-year reduction in the group's first quarter operating income, over 90% can be attributed to the $1.9 million reduction in gains on car sales and shortfalls in repair shops and manufacturing. The remaining approximately 10% of the group's income declined related to rail leasing. And this essentially was due to an increase in net leasing revenues being more than offset by higher maintenance costs.

The Plant Nutrient Group had a very good first quarter. Those of you who were following us last year will remember that 2006 was a pretty tough year for this industry when dealers worked down inventories purchased in 2005, and farmers markedly reduced their overall nutrient purchases in response to high post-Katrina nitrogen prices.

Since November 2006, farmers are reaping the benefit of higher grain prices for last year's crops and intend to plant significantly more corn acres this spring. As a result, farmer spending for plant nutrients will be much higher this year. This pattern was apparent in our first quarter results.

Having incurred an operating loss of $1.2 million on $46 million of revenues in the first quarter of 2006, the group achieved an operating profit of $400,000 on $67 million of revenues this year, an improvement of $1.6 million over last year. We believe that our first quarter results are a clear indication that the Plant Nutrient Group will have an excellent year in 2007.

Market conditions are not without some challenges, however. For example, labor issues with the Canadian National Railroad, and general supply tightness, particularly on phosphates and nitrogen, could create some supply shortages at some of our wholesale locations this fall.

The Turf & Specialty Group achieved another profitable first quarter this year, with operating income of $1.8 million on $36 million of revenues. These were down slightly from last year for two principal reasons. First, distributors bought heavily late last year, more so than they had done in the previous year; and secondly, the cold, snowy weather we had in March this year clearly slowed product sales. Our Lawn Products gross margins were good, despite higher raw material costs this year.

We have introduced several new products during the past year. And construction of a plant to produce our patented disbursable granules for professional markets -- primarily golf -- is moving along well. The new plant will begin production later this year. Our Cob Products business experienced lower average gross margins in the first quarter this year due to higher raw material costs resulting from tight cob supplies.

In our Retail Group, total revenues of $33.8 million in the first quarter were $1.7 million or 5.2% above the first quarter of 2006. The group's operating loss of $2.3 million for the period this year was slightly improved from the 2006 result. The winter weather we encountered during the first quarter was good for our sales of cold-weather goods like workwear and snow blowers, and our Food & Wine business continued to grow, I've mentioned in these Conference Calls previously.

That's very encouraging for our new food-only store concept. Last week, we opened our first Andersons Market in Sylvania, Ohio. It's being well received by our customers, and we'll be watching closely to see if it performs as well as we believe it can. The smaller-format store, with approximately 20,000 square feet of selling space -- which is more than 40% more than the food areas in our larger stores -- features an expanded line of all food categories we carry in our larger stores, mainly produce, deli, bakery, speciality foods, fresh and frozen meats, dairy, and an extensive assortment of wines.

Now I'll turn the floor over to Gary for his treasurer's comments.

Thanks, Mike.

Our first quarter 2007 effective tax rate was 35%, down about 1% from last year. We're projecting a full-year tax rate to be 35%, which would be down about 2% from the full-year 2006's effective rate.

2006, just to remind you, benefitted from a couple of things -- one, the small ethanol producers federal tax income tax credit, which we probably will not have available to us this year; and lower state and local income taxes.

Interest expense for the first quarter '07 totaled $5 million, about $1 million above the same period a year ago. Most of the change was due to short-term interest expense. The Company's average borrowing rates were up about 0.5% from a year ago. And our average borrowings were up about $53 million. And so we've been investing heavily in short-term things such as inventory and receivables.

EBITDA for the first quarter was $25 million versus $16 million a year ago. You'll notice that there was some significant other income in the income statement. And a couple of things to point out was that we had some development fees that came in from our ethanol transactions, from our ethanol development. And secondly, we had a sale of shares of the CBOT stock. Two thirds of the stock that we had was sold. We converted a [seat to] the shares as the Company went public. And then those shares were made as contributions, which is the tax-friendly way to handle our contributions for the year. And this effectively was over a two-year period, and we're using the same shares.

Turning to the balance sheet -- the current assets increased to $575 million by end of the first quarter from last year's balance of $414 million. The vast majority of the increase is in accounts receivable and inventory. Trade receivables and margin deposits increased $67 million. Higher grain prices and corresponding increases in margin deposits resulted in the Grain & Ethanol receivables and margin deposits being up by $59 million.

Plant Nutrient Group's higher prices and increased revenue pushed their receivables up by about $12 million. Turf & Specialty and Rail were each down about $3 million.

Inventories increased approximately $67 million to $329 million, compared to ending levels for the first quarter in '06. The largest increase by far came from Grain & Ethanol, with their inventories up about $57 million. Once again, the NPK prices were driving up Plant Nutrient by about $10 million. All the other groups were -- just about unchanged.

Our grain inventory at the end of the quarter was 64 million bushels. It's an increase of six million bushels from the year-earlier position. I just -- mention one other thing -- our prepaid expenses were up quite a bit. And that was for the purchase, the advance purchases, of Plant Nutrient, securing our position for future sales.

Networking capital ended at $156 million, an increase of $84 million from last year's first quarter. And of course, that's fairly close to the proceeds that we received from the August 2006 follow-on offering.

Our total assets at the end of the year -- end of the quarter were $904 million -- I think that's a record -- an increase of $203 million over last year's first quarter. Along with the increases in working capital, investments in advances to our affiliates added about $43 million.

At the end of the first quarter, our depreciation was $6.3 million. Our capital spending, including investments and affiliates at the end of the quarter, was $32 million, versus $25 million for the same period a year earlier. In addition, our railcar purchases and sales were $7 million and $17 million respectively for the quarter. And in the first quarter of 2006, the purchases and sales were $12 million and $13 million respectively.

As you know, we have significant income from equity and earnings of affiliates. Our ownership position in the major affiliates are made up of the following investments, just so you have a record of it -- Lansing Trade Group -- we own 40%; The Andersons Albion Ethanol LLC, 49%; The Andersons Clymers Ethanol LLC is 37%, and our investment in The Andersons Marathon Ethanol in Greenville, Ohio is 34%.

Long-term debt totaled $154 million. Of this, $68 million was considered non-recoursed. Our long-term funded debt-to-equity ratio is 0.29 to one. And that's exclusive of the non-recourse debt. The Company's 2007 year to date average interest on our long-term debt was just shy of 6%. And we have about 96% of our long-term debt at a fixed rate.

We paid a dividend on April 23rd, at 4.75 cents per share. And I would just point out that during 2007 the Company expects to receive the income for a business-interruption claim resulting from the elevator explosion and fire that occurred in 2005. The business-interruption portion of the claim related to 2005's activity was settled and reported in 2006. However, we're still working on the 2006 portion of the business-interruption claim. The elevator is up and running and doing fine today.

Mike?

Thank you, Gary.

Few more comments before we open it up to questions.

First, I"m really pleased with the growth we've been able to accomplish in a well-controlled and -delivered fashion recently, especially in the Ethanol business. The Albion plant is performing well for its investors. The Clymers, Indiana facility literally is starting up as we speak. We hope to have our first gallon of ethanol out of it today. And the Greenville, Ohio plant is on track to start production in the first quarter of 2008.

By contracting ahead to meet a significant portion of our corn and natural gas needs for Albion and Clymers for this year and next year, and similarly by forward-contracting the sale of a large portion of the ethanol we expect that they will produce during that timeframe, we've locked in margins for a significant portion of the Albion and Clymers plant through most of this year and next.

Through this process, we will intend to reduce the effect of short-term price volatility for all three of these. And by that, I mean corn, natural gas and ethanol. And I believe that our six-year history in the grain business puts us in a good position to do that.

I also want to continue to emphasize our intent to keep growing our Rail Leasing business. We'll continue to add cars to our fleet, re-balancing it when warranted. And we expect to continue to renew expiring leases at acceptable rates. While the business is encountering some bumps at the current time, it remains quite profitable and is our second largest income-producing segment.

We also expect to see a very improved Plant Nutrient picture this year. While planting progress is somewhat slow so far, USDA dada indicates a big increase in corn-planting intentions this year, and we expect that farmers will choose to apply greater amounts of nutrients in 2007 in order to maximize their production. Most of you are aware that as acres are switched to corn from other crops, more nitrogen is required.

There is a possibility of some supply logistic issues this spring, especially for phosphates and nitrogen. But overall, we're optimistic about Plant Nutrient's outlook.

In our last conference call, I mentioned that the final business-interruption insurance settlement-related 2006 portion of our claim regarding the elevator in Toledo -- was heavily damaged in 2005 -- had shifted from 2006 into 2007, and Gary just mentioned that. It's not quite completed during the first quarter, but we'll likely settle that in the second quarter.

And finally, at the time we announce our first quarter earnings, we traditionally give some guidance about the outlook for full-year earnings per share. At the present time, there are a couple big things to consider. First, the crop is not in the ground yet, and it's behind last year in historical norms. And second, the Clymers Ethanol plant is only just now getting into production. Frankly, we hope to start right at the beginning of this quarter, and we're starting now the first of May.

Plus there's other -- numerous other variables in play, like energy prices this season, et cetera. But those factors notwithstanding, and given the usual assumptions about normal weather and the Safe Harbor qualifiers, we believe that our 2007 earnings per diluted share could be in the range of $2.35 to $2.60 per diluted share, and that's based on 18.5 million shares. This compares to our 2006 EPS of $2.19 a share, which was based on 16.6 million shares.

When some of these variables come into better focus, we'll review our forecast and issue new guidance, if warranted, possibly even before we release our second quarter earnings.

Considering everything, I'm pretty optimistic. And I think our future looks good.

That completes prepared comments. Now Gary and I will be happy to address any questions you have. So Tanya, we'll turn it back to you.

[Operator Instructions] Preeti Dubey of Thomas Weisel.

Hi, Gary. Hi, Mike.

I have one question regarding ethanol marketing [scale] sales. Could you please tell me what gross margin do you make on ethanol marketing sales? And also, what is the implication of ethanol marketing sales on your working capital? Again, should we expect increase in inventory or accounts payable because of that?

Well, the fees -- we have not disclosed our arrangements with the LLCs or anybody else that we're marketing ethanol for. And for competitive reasons, I think we want to keep it that way. Will it have an impact on our working capital? It'll have some impact. I don't believe it'll be a huge impact. And frankly, we have lines of credit that will support a significant increase in demand for working capital, mainly because of the volatility in the price of grain.

But for the most part, ethanol is not carried as long as the other kinds of products that we have. So I don't believe it'll be a big number, so --

[inaudible]

Okay.

Okay. And regarding Railcar Leasing business -- I was expecting a decline in these rates because of reduced demand. But you have not provided any indication of what kind of decline in these rates you have seen in this quarter. But any color that you can provide there will be very helpful.

Yes. I'll take a stab at that.

One -- first of all, on the kind of gross lease revenue that we're getting, before I talk about declines -- for the most part, we're renewing leases that are coming off lease, many of which were put on at lower rates. So we're, on the average, actually experience a little increase compared to what we were getting on those cars. On new cars we acquire, they're coming in at whatever the rate is.

But if we talk maybe from where we were at the peak on, say, a workhorse covered hopper -- a 4,700-cube grain covered hopper -- we could be down as much as 20% from the peak of last year. But then you've got certain types of cars that are much more stable in usage, where there's not been a big uptick in production, like pressure-differential flour cars, where you've not -- you didn't see much move up, and you haven't seen much move down.

I wouldn't be prepared to give -- because I just don't have the data -- I don't have good enough data to give you kind of an average amount, but we've certainly come off the highs of where we were last year.

Gary, do you have any color to add to that or not?

Oh, I think that's pretty good. Because it is an average number. And it hasn't been a huge decline; I know that.

And I did mention -- if you get right down to the revenue from the leasing side of the business, as opposed to car sales or manufacturing, a slight improvement in overall gross revenue's been more than offset by the maintenance we've been talking about for sometime. That's been the -- that's been the big hit, frankly, on the 'net.

Okay. All right.

Just a few housecleaning questions -- I didn't catch the D&A number that Gary had provided. So if you can just repeat that again?

The -- what number's that?

For depreciation.

Depreciation is $6.3 million.

Okay.

And on your balance sheet, I did see a minority interest. And if you can just elaborate on that, what is it related to?

It's a minority interest in an investment that we have in an ethanol plant, where there's a minority owner in it. And while we have -- what we've created is an LLC that has a 50% ownership in Greenville -- The Andersons Marathon Ethanol partnership, if you will. And then that LLC is an investor in that particular LLC. And then the one that we have the minority interest in, we have consolidated with our books, because it's more than a 50% ownership. But it's a total of 34% ownership in The Andersons Marathon Ethanol LLC. If that's not clear, let me know. I'd be happy to share with you how it works.

All right. I'll give you a call on that one.

And -- actually, that's all. I'll get back with you. Thank you.

Okay. Thanks.

[Heather Jones of BB&T Capital Markets].

Good morning.

Good morning.

Morning, Heather.

Someone's going to have to do it, so I guess I figure I'll do it.

Let's see, guidance.

Yes.

Oh. Heather, such a surprise.

I'm very familiar with your conservatism, and I appreciate it. But I want to go through your thinking. If I take the low end of your range -- it implies down earnings from last year, for the next few quarters -- the high end implies basically no growth. And then looking at it another way, if you take out the ethanol development fee from the quarter, it's implying practically no growth from last year.

So what I'm trying to figure out, beyond your concerns regarding the planting progress and the impact that could have on Plant Nutrient and Grain -- I'm wondering if there's other issues out there. And clearly, Rail is soft, but it doesn't sound like it's fallen off a cliff. I wonder if there's other issues out there that the street may not be aware of that is causing you such caution, or if it's just your typical conservatism regarding weather, et cetera.

Couple things -- one, I want to contest the first point you made, which suggests that at the low end of the range -- if I heard you right, it suggests a drop in earnings for the last nine months; and at the high end of the range, it's just flat earnings for the next nine months. I think that is true if you look at our EPS projections. But if you translate the EPS into earnings, given that we had 16 million shares in the $2.19 EPS from last year; and we have $18 million -- and if you go through that calculation, you'll actually see growth on the low end of the range, and more growth on the high end, just on earnings, as opposed to EPS. But that's just a -- I just wanted to make that point.

Now, to your other points -- and you hit on some of the one-time stuff. You talked about the caution on the acreage. And that is somewhat embedded in our thinking right now is the fact we are behind in acreage. So as we take -- you use the word "conservative" -- and I understand that, versus the last couple years' experience of the last half, versus where we saw it in the first half of the year -- if you went back in time, you'll see that at times, it's not always that way.

But this is the first time in the last couple years where we've had planting progress as delayed as it is here. And it is the first of May. And the fact is, we can catch up. And we often talk about, as we look forward, giving kind of a normal harvest. And we've seen quite a bit of variance in yield over the years between -- from year to year, sometimes high, sometimes low versus a trend line. In general, if you get the crop in late, two things happen -- sometimes you lose acres -- that's a negative -- or sometimes you lose yield.

So we've got, right now, as we look forward -- as you appropriately hit -- a little downward bias on what we'll call normal.

Then, another thing, just as you look -- if you look into the first quarter -- I'm not talking about one-time stuff -- but a year ago, in our Grain & Ethanol Group, we had about a $1.8 million operating profit, and a little over $10 million this year. And a year ago, we talked about how poor the first quarter was in Grain. If you look at -- that's kind of a first half. So we have much improved Grain business this year versus a year ago. If you look out annually, just on Grain, not Ethanol, and you can -- and you look at the last half of the year last year, we had very little Ethanol earnings at that time. We had some Albion earnings, but we were also having pre-opening costs. And frankly, Lansing was flat in the last half of the year last year.

We had really, really good last-half earnings from our Grain business, including in that little over $4 million of business interruption in the last half. But it was quite a good year; an extremely good year. We would not expect -- although we're -- assuming we get the crop in, assuming we have more bushels to handle -- we expect a good year. We just wouldn't expect to duplicate that second half in Grain this year. And I don't look at that as any fundamental positive or negative; I call it -- what I'll call the more normal cycles of what we get into.

So that -- I mean, that is a big, big point in there. The Greenville thing -- I would say this, too -- we're just starting Greenville up today.

Clymers.

Clymers, I'm sorry, Clymers -- Greenville next year. We're a month behind. So we got a month more operating costs, with all our crews there and everything. And we have a month less income. And we're expecting good results there.

But -- and we had a pretty doggone good start up at Albion. We think it was one of the better ones for these ICM plants. And we're expecting things to go okay at Greenville. And there may be a little conservatism in the expectation of Greenville, simply because this is twice the size of the plant. And we're just getting it going. And that's kind of embedded. One of my points that I made, that if we -- as things go forward between now and second quarter release -- if we feel it's appropriate to make an adjustment, we'll deal with that. So -- we're just getting the doggone thing started.

And I guess I'd say we had a great startup at Albion. Hopefully it's the same, but we're not necessarily counting on it being perfect, as it were.

And you're right about the Rail. Mean, it's not falling off the cliff. There's some things that are a little soft. But it's solid. So there's nothing -- really, if I got right down to it, I -- one way of saying I'm contesting your point about earnings growth as opposed to EPS. And I made the comments about the Grain side of the business.

I want to go back to the Grain side. Q3 and Q4 combined for last year was better than Q3 and Q4 of '05. But -- and this is where I'm not contesting; I'm more just wanting to know what I'm -- how I'm thinking about this incorrectly. But as far as your Storage business there, there's an enormous bushel differential between corn acreage versus soybean acreage. And in the states that you all are heavily concentrated in, there's anywhere from like a 14 to 16% increase in corn acreage. So thus, you would assume -- again, assume that you make decent progress on planting, et cetera -- that there's going to be enormous increase in bushels.

And if the USDA, or in stuff that we've read, as far as information on storage capacity is correct, there's been very little build. So I don't understand why you wouldn't have a pretty strong second half.

And I -- Heather, let's say I would expect us to have a strong second half, given what you said. Last year was -- if you look over the cycles we have -- was really, really strong. The other thing that I would say that -- despite the fact that -- USDA -- we're talking 90 million acres -- the last supply-and-demand report that was done, that was done by the World Board, suggested ending stocks next year, at the end of the '07-'08 -- of a little under 800 million bushels, compared to ending stocks this year of about 900 million bushels. USDA's coming out on May 11th.

The World Board, by the way, we believe, used 87.5 million acres in its base. USDA will likely use 90 million. So we'd expect a little higher carryover.

But one thing that is changing in our neck of the woods -- it is the rapid pace of the opening of ethanol plants, all of which have some amount of storage, and all of which are consuming corn, right through the harvest timeframe. And we would expect -- we already see it -- we would expect basis relationships -- the basis last year, on what we were able to accumulate corn at, got quite cheap. And you make -- and that's a big driver. I mean, quite cheap relative to a 10-year history. We'd expect the demand for crops for ethanol, and the ethanol consumption that will take place during harvest, to cut into the ability to accumulate at the very, very low basis levels.

And if you look out at the spread relationships between the futures months, from December of next year -- September to December to March to May -- you'll see that those spreads are not reflecting what I'll call a full-carry situation. Now some of that, I believe, is based on a wait and see what happens with the crop here.

Right.

So if the crop develops well, those spreads should widen. But we would not expect to buy -- we know we're not going to buy basis corn at the levels -- I shouldn't say "know" -- we wouldn't expect to buy corn at the basis levels this coming fall that we did last fall. We don't expect to duplicate last year's great second-half income. And I don't consider that weakness in our business. I think there's a lot of fundamental positives. It's just last year was so good.

Right.

And then my final question is on Rail. If you could give us some color on for Q2 through Q4 '06, do you have a rough estimate of how much of that income was related to car sales? And do you expect a --

Yes.

-- significant --

Yes. Last year -- and these are -- the last-year numbers are all in the Qs. And we, I think, disclose them most of the time. Last year, we had $2.8 million -- $2.7 million, $2.8 million -- in gains on sales in first quarter; this year roughly, I think, $950,000. And if we look out last year, we had a total for the year of $5.9 million in gains on sales. And if we look out for this year, we're not -- that's much harder for us to predict exactly what will happen, Heather. Because we don't sell to get income; we sell because we think it's an appropriate management of the portfolio.

So I kind of treat that as -- in my own way of things -- as -- it's good to take a look at it every quarter, but it's not something that we necessarily plug into what I'll view as the ongoing earnings of the business. And frankly, if we sell and make good income, it also means we're giving up the ability to earn income over time. So --

Right. I mean, what does your guidance assume? Does it assume that you only make what you made in Q1?

No.

No, we're --

We had -- we had --

We were looking kind of at what we've been doing over the last several years, and we're putting in some amount of car sales. So it's not -- and I'm not going to disclose the exact amount -- but we've got some sense of I'll call kind of an average experience. But it's not based on knowledge that we will or won't.

Okay.

We've put some into the guidance, because we expect to have some.

Okay.

Hope to improve --

All right.

We hope to improve the quality and age of the fleet as we do those things.

Yes.

So there's a buy-side discipline, and there's a sell-side discipline.

Okay. All right, thank you.

Yes.

[Bryan Milberg of Piper Jaffray].

Morning, guys.

Morning, Bryan.

Good morning, Bryan.

Let's stick with Rail for just one second. My understanding of the freight picture in the United States was intermodal traffic was off significantly, but general freight was not. Am I wrong in that assumption?

I'm not going to attempt to answer that, for fear of being wrong. I --

Because my understanding your fleet was it's mostly container cars, not -- do you even have any intermodal cars?

We're not really in the intermodal --

I didn't think so.

Now -- but I got to check back on that. And if we had a Rail guy right here, he'd be able to just nail it. My understanding is that we've got -- and we -- one thing I know, I know orders for cars other than intermodal are down. New car construction -- you've seen that in some press releases here -- my understanding it was broader than that. Gary?

No, I don't -- I can't tell you.

How should -- you want to follow up --

Yes. If there's -- if I can give you any color that is publicly available, I'll be happy to do that.

Well, I'll get back to you on that.

Yes.

Okay.

And [CNR] -- utilization down about 2% --

Yes.

-- not huge, but we just know it's a little tougher to place --

Yes.

-- cars.

Okay.

Not a lot, just a little.

Can we talk a little bit about the development fee -- this semi, ongoing, one-time stream of income? You really haven't spoken much in the past on how this works. Can you give any more color on -- is it a percentage of completion? Is it based on sales? How does it work?

I'll let Gary answer. But I like -- I wish I had written that down -- that semi -- what did you say, the semi --

The semi-recurring one-time fee.

Yes. This is better with the recurring income than recurring losses. But Gary, why don't you sweeten that?

Yes.

We've developed three different plants today. And we've also been studying and spending time and energy and research on probably three to five other facilities that either have air permits filed or places that we've considered. And all the expenses that we incur literally are booked as a period expense. And so when we bring outside owners in, and we create a JV, it's only fair that we be reimbursed for the direct expenses and be rewarded for the risk that we're taking to get into these transactions. And those other owners are then giving us a development fee.

Okay.

So looking forward, it's dependent on the ability -- our ability to want to, and actually execute on serving up good opportunities.

Right.

Well, speaking of these outside agreements and partnerships, did you mention -- on the Greenville, I thought the original plan was 50-50.

It was. And --

And when did that -- now I hear it's 34%.

Thirty-four percent.

When did that change? And --

During -- it's been within the last --

First quarter.

-- this last quarter.

Okay.

And that's the reason that we have that minority interest on our balance sheet, I think, as I explained -- it was 50-50 before. And now we're a 34% owner in the total. But it's through another LLC that's been created. That minority interest then is what you're seeing on the balance sheet.

So, if this Greenville plant puts out 100 million gallons, are you going to get 34% of that, or 50%?

It's 110 million --

Yes, I know. I'm just throwing a number out.

And it will be 34% will be in our --

Okay.

-- bucket.

Okay.

And just so you know, we've disclosed in the past who our investors have been. You know that Mitsui is involved in the Albion facility. They're also involved in Clymers. And they're the minority interest coming into the Greenville plant.

Okay.

It's Mitsui USA. Long-time trading partner with The Andersons.

Okay. I'll turn it over and maybe come back with some more questions.

Okay.

Thank you.

[Farha Aslam of Stephens, Inc.]

Hi, good morning.

Good morning, Farha.

Hi, Farha.

Couple questions -- could you quantify your one-time items that were in the quarter, kind of the -- as you would say, what would be the fees, and any other income you would think would be one-time in nature?

Yes --

For modeling purposes.

Yes.

We will have more information on the income from joint ventures, as well as other income and those kinds of things, in the 10-Q, Farha.

Okay.

And then, when you -- let's just start with your Fertilizer business. That sales number really was surprising to me. Could you just break down kind of volume -- the portion of the sales increase that was volume, and the portion that was price?

Yes. And you're talking about the agricultural fertilizer? Is that right?

Yes, exactly.

Doggone it, I asked Phil, my buddy, to have a good analysis for me on the range side of volume and price. And I did not ask on the Plant Nutrient --

Then maybe just on --

Yes. I mean, there's no question that price is a -- I mean, price is a significant issue. But volume is up, too. And we're searching, because we got the data. We've got the data somewhere.

Yes -- and kind of what you think pricing is going to be up for the year, roughly.

Yes, hold on just a second.

Okay.

Gary -- I don't think -- we don't have those. We don't have the value per ton. But our tons sold are up 108,000 tons.

One hundred eight?

They're up about 50% frankly in the first --

So your volume was up basically 50%?

It was --

Yes.

-- it was big.

That's correct.

And then for the full year, what would you expect your volume to be up?

I can't give you that.

Yes, we are -- I mean, last year, we said all through the year, it was a bad year on volume. And we thought we didn't lose market share. And this year is going to be a real good year on volume. And margins -- it's not so much the sales dollar -- somewhat like grain. It's not like the sales dollar, revenue dollar per ton goes up, and you just clip off the same margin, necessarily. But we're expecting reasonably good margins that we tend to -- with all the storage space we have -- that we tend to do reasonably well in periods of time when price is escalating, because we've been able to inventory quite a bit of product. So it's going to be a very good year.

Yes. And if we had any issues with the Rail, that's got us into shortage positions. We're feeling very good today. But that can turn on us. But at the same time, it's looking very good. So --

And it's the kind of business -- once we get through the first half, the bulk of the volatility in the business is in the first half. So we get a pretty good view of the year once we get through six months, as opposed to Grain, which is so much of the volatilities in the last half.

Okay. And would you say 2005 was a good year in your Plant Nutrients business as well?

2005 was the best year that we ever had in our Plant Nutrient business. And we made a little over $10 million of operating income --

Right.

-- and our viewing point going forward -- that's in sight.

Okay.

And that was up from $7 million the year before, in 2004. And there were some nice elements in 2005 that were -- I'm not going to say one-time, but we had a lot of wind at our back. And we've got some similarities this year.

Okay.

Between 2000 and 2005, we had -- four out of those five years were records. So we could see this being another record. So --

Yes. That's a target that we have in mind, and we got a lot of the year to go ahead of us.

That's helpful. That helps.

But directionally, that's a number that you can focus on, plus or minus.

Okay. That's very helpful.

Now, going into Rail -- you had talked about how in the quarter your revenues weren't particularly impacted by the weakness in the rail rates. But kind of going forward, we're hearing that folks that are now leasing railcars are taking advantage of this current weakness in the market demanding kind of two-year rates on ethanol cars, if they're going to take them, and being pretty tough in their negotiations. So kind of looking forward in your Rail business, do you think that the current weakness is going to impact that business longer term, kind of over the next year -- maybe even two years?

Yes, there's -- I think we talked before that -- a typical lease term we have is around five years. Now we also have per diem leases, one-year leases, some 10-year leases, monthly leases. But --

-- average is about five.

It's about five. So this year, one fifth is rolling off. And five years from now, one fifth is rolling off. So right now, we're rolling off leases that were -- on the average -- that were put on back at the bottom of the last cycle. Or -- not the bottom; the bottom third. We've dropped off kind of the peak of the cycle, which occurred last year. So on the average, two to three years out from last year, those high-price leases will be dropping off. And there's no question; when there's a shortage of cars, those who have the cars have more leverage than those who need them. And it's the opposite when there's a little bit of a surplus.

But we're not sitting here with just huge surpluses of cars; we're seeing new car orders slow down. So I'd say right now, as opposed to a few years ago, there was great leverage to those who owned the car or those who needed cars, when we were at a bottom -- and last year and the year before, a lot of leverage to those who owned them.

We're in more of a balanced situation, frankly, right now. So this -- I would call it appropriate equal leverage. But there's no question the bloom's off the rose.

And if you look at -- if you take what I said, we have -- with our historic fleet that we own, we've got a little running room here, where the stuff that we'll be letting out is coming off leases from lower levels than a few years out. Possibly the opposite happens if -- depending on where we are in the cycle.

Half of those cars are owned. We own approximately 50% of the 21,000 cars that were managed outright. The balance of them were on the sale-leaseback types of leases. Just keep in mind, as we depreciate those cars down, our basis in those cars continues to decline. And [inaudible] make a profit in the future, that makes it easier.

Another point I want to bring out is that you specified ethanol cars. And we do have some ethanol cars that we lease from somebody else, who are all-ethanol businesses. But we're not leasing ethanol cars; we're leasing some DDG cars -- distilled or dry grain cars -- but not leasing out any ethanol --

Yes, a rail business.

-- rail business --

-- correct.

We're using them internally. But --

Okay. So the ethanol cars that you've ordered you're using internally. And you're --

[inaudible] those in those LLCs that we've created.

Right.

Okay.

And kind of when you look at the maintenance cost of your Rail business --

Yes?

-- you've talked about it being high. Do you anticipate that coming down at all going forward?

It's been about a year we've been this way. Roughly half of that cost is -- there's been a change in the railroads, and how they measure where on tracks, that has resulted in a significant increase in the amount of wheel sets that need to be -- that are replaced, where they'll measure and say, got to take that car off-line and replace the wheel set. And roughly half of our maintenance costs right now are these wheel sets. And they are the most significant driver of the increases.

On top of that, raw steel prices have gone up. And I don't expect steel prices to come down. So I'd expect that element that's steel-price driven not to come down. The wheel-set issue -- we're not -- at some point in time, this plays itself out. And we're -- given the size of the dollars, we're putting a lot of focus on that to try and understand the dynamics of what's going on here. And I really can't tell -- I'm reluctant to try to attempt to answer whether we see that coming down or not in the foreseeable future. But -- so, I think the sum of it is that we think we're into a higher maintenance-cost situation now than we were in for the previous five years.

And I can appreciate where you don't have as much kind of forward look in your Rail business as you do in your Plant Nutrients business. But would you point us back down to like the 2004 type kind of profitability levels in Rail? Are we just going back to that 2004 level?

Oh, no, no. No, we've got a much larger fleet now. We've got a nice position in that fleet. I think we're -- this statement here is kind of made in the absence of income from car sales. But I think we're in much more of a consistency kind of -- from the '05, '06, '07; as opposed to going back to '04. I don't see those -- I don't see that as a likelihood in this timeframe.

Okay.

And then, we get to your largest business, the Grain Ethanol business. Your comments on corn today are much, much more cautious than your comments on corn your last conference call. What do you think is the difference -- and the fact that you've gone out, and it seems like you've locked in corn prices for all of 2007 in '08 -- really is reflecting that. What changed your view on corn?

I'm going to ask for clarification. When you say "comments on corn were more cautious," could you just elaborate? Because I'm not --

Last conference call, you had mentioned that you hadn't gone out and hedged your corn needs for 2008, because you felt like there was an opportunity to maybe hedge at a better level. Today it sounds like you've positioned your books, and you've locked in corn prices for '08.

Okay. Yes, we -- well, in the -- I should be clear -- we didn't really close on the Greenville deal with Marathon till right around first quarter this year. So comments from before that went back to prior time would have related only to Albion and Clymers. And we -- as we've had the ability to lock in a combination of corn, ethanol and natural gas -- whenever we feel we can lock in the relationships of all those together, we will do that. And we've had some success on that. And we're not going to try to get too cute.

And I would say that, frankly, as things are unfolding here, and the continued escalation of demand for ethanol, demand for acres for corn -- it appears as if we're going to be in a high-price situation for corn for the foreseeable future.

When you say high-priced, you're thinking like $4 corn? Or do you think there's a real --

[inaudible] -- yes, I'm thinking more like $3.25, $4.25 range, as opposed -- for years, we were $2 to $2.75.

Okay.

And so -- just so I fully understand -- you've completely locked in your corn price for '07 and '08 --

No, no. Most of '07 we have. And for Clymers and Albion, we have -- I'm going to say -- three quarters, roughly, for '08, and very little for Greenville.

Okay.

Just to make sure that we are all talking about the same thing, it's the corn that's going to be consumed in the ethanol plants, correct?

Correct. Right, right, right.

This is not corn that we're storing and --

Right.

-- stuff like that. That's a different topic, so --

Yes.

And then, when you look at your ethanol -- now, you're completely hedged on ethanol for '07?

Right.

And how much into '08?

Actually, the corn and ethanol relationship's pretty tight. So most of '07 in corn and ethanol, but not all -- and it's a similar relationship of corn and ethanol for '08. And it's in the three quarters range for --

Two plants that were in --

-- the two plants that were in operation --

Today.

-- today, and very little for Greenville.

Would it be fair to characterize the fact that -- for kind of your hedges into '08 -- that you took advantage of the recent increase in oil and gas prices that we've seen over the last kind of two or three months, and kind of the drop-off in corn prices we saw right after the March plantings report -- would that be kind of a good range for us to think about '08? Or will we start getting our margins way too high for you for next year?

The challenge is that you can't look at the spot -- I don't know what market you're looking at when you say that; what period you're looking at. Because typically ahead, the corn is at a premium to the spot or nearby market. And typically ahead, the ethanol is at a discount to the spot or nearby.

So unless you're looking at those margins out a year -- but I would say your point is, when we get a relaxation in corn, we get ethanol going up, and we think we can lock in good margins, we do it. But typically to do it ahead, you -- at least, the way the market's been here recently -- that would mean at less margin than the spot margin, which has been reasonably good. And we're willing to do that on a portion, if we feel that it's a healthy enough return on investment.

Okay. And two more questions, and I promise I'll pass it on.

When you look at the curve versus gasoline, are you thinking of like that $0.42 historic range, spread between ethanol and gasoline, as a good range?

No. No.

Or you think that's --

When you say $0.42, you mean ethanol --

Premium.

-- premium?

Yes.

No. In fact, right now, in the cash market -- and I can't speak to today, because I haven't looked at it today -- but yesterday, cash ethanol was $0.20, $0.25 below cash unleaded.

But that's just because of the Brazilian ethanol coming in, right?

Well -- okay, right. We are not -- we think -- put another way -- we've increased the amount of ethanol production substantially in the last year and will continue to do it for the next several years.

We think the market will continue to convert across the U.S. to more ethanol use. We would hope to see a positive-basis relationship; that is, ethanol trading at a premium to unleaded. But -- and actually, if you look at the futures market, frankly, not too far out -- which is not just a Brazilian influence in the cash market -- you'll see that the relationship is much closer to even, as opposed to $0.42 premium.

We really think it'll be a challenge to have basis levels at those $0.42 levels. We would hope to have positive-basis relationships. But we've got a lot of ethanol that we're going to be bringing on-stream.

Now, some of that also depends on what does unleaded do. But we're not expecting $0.42 positive-basis ethanol over unleaded on the average.

Okay.

We would expect below that.

And then my last question is -- you guys seem to be now taking the ethanol in and flowing it through your top line. Does the DDG also flow through your top line? Or is that still at the JV level?

Off the top of my head, I can't tell you that, but I will figure it out.

Yes. And for some reason, I don't think so.

[inaudible]

I think there's reasons why it doesn't have to, but we --

Right. I think it goes direct --

Yes.

-- out of the LLC.

Okay.

Thank you very much for your answers.

Yes.

[George Askew of Stifel Nicolaus].

Yes, hi, good morning.

Good morning, George.

George.

Well, some of my questions have been asked.

The -- let's see here -- the development fees -- clearly -- I mean, I assume that you've still got Greenville's development fees ahead of you. I mean, there's no reason to think that the plant that opens a year from now would have -- all those fees would have shown up this quarter. I mean, is that fair to say?

The majority of them will be coming in -- already in. And it's because of all the things that it took to get facilities -- the groundbreaking and permit-approving, and all those things -- it's all of those kind of things that we're being compensated for.

Okay. So --

There is a management fee that's being charged. And that's ongoing, based on the day we start turning dirt.

Right.

So the majority of those fees are in.

Okay.

So if we -- I mean, -- can you kind of articulate, within the guidance range you've provided for 2007 -- how much of that would be development fees? I mean, it sounds like most of it's already --

Frankly, I don't think -- I mean, not I don't think; I know -- we have only a very small amount of a development fee in there for the finishing of a plant.

Yes.

If something else would go, then additional income could show up.

Correct.

Right. Okay. That's fair.

And --

Look for more granularity in the 10-Q.

Okay.

The business-interruption insurance -- is that built into your forecast as well?

Yes. Yes, it is.

Okay. So you've made an assumption there.

Yes.

And I assume you're not going to tell us how much.

That's correct.

The -- your ownership percentage appears to have changed at Albion and Clymers versus my notes --

Right.

-- only by a handful of percentage points. But I'm curious -- is there something going on there? I mean, partners leaving, or --

No. Between Albion -- and we had one called IBEC -- which is Indiana Iroquois Bio-Energy -- that we're a $2 million investor in on a book-value basis. And we literally swapped our ownership position in that entity for our ownership -- for incremental -- equal increase in Albion.

Oh, I see. Okay.

The Clymers shouldn't have changed.

No, Clymers did not.

Well, now I'm looking at it -- I wrote down 34% -- that has to be Greenville.

That's correct.

Okay. All right.

What is the life span -- if you think of the old -- within Rail -- the old wheel sets -- how long would they last, versus the new wheel sets? I mean, is there -- they had a two-year life.

These new wheel sets should last a long time. But this is an industry issue that's been developing over the last year that is getting quite a bit of attention and -- as to this change in measurement and its impact, and it's affecting everyone. And I'd say it would be premature to really try and say what the long-term impact would be --

Right.

-- from the change-outs that we're getting. We'd expect them to last. But frankly, we've had some instances where a new set was put on, and a railcar is pulled off very shortly after it moves with a new set, and it's replaced again. And that's a little disconcerting. Or maybe it's a lot disconcerting. It's getting attention, and not just by us.

Right. Okay. Okay.

And then I guess last question -- comparing sort of the operating income of Plant Nutrient and Rail, excluding any railcar sales, do you think you could see a situation where the Plant Nutrient business could actually have a bigger year in '07 than Rail?

I don't think so. We're talking about excluding sales. I don't --

Basically --

I don't think so. But I bet our operating presidents are on the line right now. And I'll bet that Plant Nutrient guy, Denny Addis, is -- loved that question. And will stimulate him to be getting -- trying to figure out how the heck to meet that expectation by him going up, not Rail going down.

Right.

Good question.

[That's a challenge] to Rasesh Shah in the Rail Group. Rasesh, I'm sure you heard that.

Okay, fair enough. I'll stop there. Thank you.

Thanks.

[Charlie Rentschler of Wall Street Access].

Yes, good morning, Mike and Gary.

Hey, Charlie.

Hi, Charlie.

Couple questions -- I know we're well out of time here.

Mike, you said that Lansing trading did well in the first quarter, but the income was down. And I wondered if you'd just say a few words to try to reconcile that.

Yes. Last year, in the first half -- and I don't think -- if you went back in time, Lansing wasn't big enough, Gary, for us disclose some of the income numbers in the Qs, if we went back a few years.

Yes.

But last year -- I can't remember exactly what Q we would have had stuff in -- but the first half of last year, on a couple of areas -- one in the area of trading of wheat and wheat spreads, and another in the area of really getting in the middle of some opportunities of trading of ethanol in some space where there were some wide margin opportunities and some running room -- they just had a phenomenal -- and phenomenal's not an understatement -- quarter or first half, actually, compared to the equity investments that we have, or all the owners have.

So it would be nice to say that we would just continue to increase our investment and duplicate those returns. But it would have been pretty hard to do.

So what I'm trying to say is they had a good quarter, relative to the assets we have in place, relative to the equity we have in place -- even though it's well below a phenomenal quarter.

And Mike, are they doing more and more in ethanol, terms of trading?

Yes, their volume's up in trading of ethanol. And in that, it's the physical purchase of ethanol and sale of ethanol and movement of ethanol. But the margin -- like anything in the commodity business, where there's large margin opportunity, there's lots of smart people that'll come in and figure out how to get the margin maybe where it needs to be. And they're doing well in this space. I couldn't be more proud. But you just -- you hit some home runs; it's hard to duplicate those.

And then my final question -- there was a report in the local newspaper out in Champagne-Urbana that you guys seem like you were at least delaying any thoughts about constructing another ethanol refinery there. I guess it was an article about some intersection that was going to need $1 million or $2 million upgrade, or something like that. But I don't know if you're in a position to talk about that or not. But I guess my broader question is, are you kind of satiated now with the three plants that you've got built or under construction? And will you kind of rest at that?

I think the last quarter -- I can't remember -- conference call, I can't remember exactly what I said. But I gave a little bit of a slowdown comment -- take a pause, digest. But we're not satiated. We are actively attempting to make sure that Champagne's in a position to be able to expand if we commit to go forward. We're still waiting on an air permit. There are issues around the community.

And maybe the pause is in the sense that we're just not saying, by God, we have to get this done at a certain amount of time. And we have not made a commitment. But we are actively looking at a couple of sites. And Champagne is a good site for us. We have tremendous infrastructure there. That grain elevator is a 12 million-bushel elevator, Class 1 railroad. A long time we've been there; we know the community, and would love it if things come together well, such that we're able to move forward.

Now, if we look back versus a year ago, cost of -- or six months ago -- cost of plants are higher. Corn price is higher, and ethanol price -- actually, it had come down a little; it's come back up a little. But the economics are reasonable. But we've not made a commitment to go forward. But we're working on that. Gary, do you want to --

No, that's very [inaudible].

And it's not the only one we're looking at.

Yes. Well, that's good.

And coupled with your earlier comment that you're really focused on hedging all those inputs and outputs, and trying to lock in those relationships -- that to me makes a lot of sense.

Yes. And it's -- one could say, jeez, you get the spot market, you could have made more margin. And there's some truth. That's a little bit of kind of buyer or seller's regret. But it's kind of like if you're a grain hedger, and you buy corn from a farmer and hedge it, and the price goes up, you say, Oh, jeez, I shouldn't have hedged it. Well, that's great, till it goes the other way.

And frankly, if we get in a position where -- from our perspective, if we get a year or two years out, and the margin structure's better than what we locked in, it probably means the forward-out years are looking good also.

So appreciate that comment, Charlie. And that's just the way we're going to manage it. We're not trying to swing for the fences.

Okay. Thank you.

[Naraj Hapell of GLG].

Yes, hi. It's actually Jeffrey Shu from GLG Partners.

Hi, Jeffrey.

Jeffrey.

Hi.

The first question pertains to Rail. You'd mentioned during your comments that 90% of the year-on-year decline in EBIT was related to lower sales of railcars and Katrina.

Lower sales of railcars and our Manufacturing and Repair business of which --

Right.

-- we had some Katrina pop last year.

Exactly.

Yes.

So what portion was Katrina pop versus railcars? And looking forward --

Yes. Well, gain -- I'll tell -- can I answer that one, then --

Sure.

-- get your second one? The gain on -- we're down about $3 million in gain on sales. Last year was about $2.8 million; and this year, about $950,000. And so that -- so about two thirds -- if I'm doing the math right, Gary -- is about two thirds of --

-- $3.2 million --

-- of the $3.2 million is --

Yes.

-- is --

Little more than two thirds.

-- is Rail sales-related.

Right.

And then the rest would be in the manufacturing area. And it's -- just to be clear -- it's not all Katrina; that's just one material element.

[inaudible]

Okay. And your second part of the question?

Just in terms of how much more Katrina activity benefit was there, say, in the second quarter over the third quarter of last year? So in other words, what kind of a difficult -- is there still a persisting difficult comparison?

Yes -- I -- starting about second quarter of last year, that dropped off. So we've got -- we've got a little -- some numbers in the second quarter for Rail Repair Shop. We're going up against some good numbers from a year ago. So we'll likely show a little attrition there. But again, that wasn't the only element in the manufacturing side. So if you take the roughly $1 million drop, and say a portion of that -- I'll just say -- I'm not going to be perfectly accurate, because I don't have the numbers -- but I'm going to say 50% of that -- is Katrina-related. Then you could probably say -- so 50% of a million; that's 500,000. I mean, round numbers; not perfect. That might be in the zone of a second quarter number we got to go against that'll be hard to hit.

Okay. But sequentially --

We're also coming up --

But sequentially it eases.

Pardon?

But sequentially, it eases.

Yes, it eases. And we've got -- we've opened up a shop in [Rain], South Carolina. So we got some other stuff giving us some lift. So we'll be past that impact here shortly.

Got it.

My other question just goes back to some of the questions that Heather Jones had asked you about. I mean, when I sort of think of your business, conceptually, when there's more abundance of corn that's coming out of the ground, it needs to theoretically compete to be stored, processed, and so on and so forth. So when that occurs, I sort of conceptualize you having greater sort of pricing power on the farmer, so that you can hopefully pay less for the corn, which you then turn around and sell at whatever the market price is that you can lock in. So conceptually, your spread should be widening in high-volume corn environments.

Yes. Try and repeat that -- I don't disagree with that, fundamentally. Couple things -- historically, when we had situations like that, you also had much lower flat price, because you had situations of supply surplus outstripping demand.

We got a situation this year where the projections are, despite the increase in supply -- granted, it all comes to market in a three-month period -- despite the increase in supply, the expected increase of demand -- driven by kind of some known stuff, as opposed to speculation -- virtually equals that. And that is a little difference versus prior.

And the other important thing is, I'm not down at all on our Grain business second-half performance. It should be a good year, if we get the crop in the ground. But if you just go back and analyze the second half of last year, it was a very, very good year. So in some sense, much like the Lansing number -- and you'll see this in our commodity business. The year-over-year comparisons are not the easiest things to do. So I am not one iota negative about Grain, assuming we get the corn in the ground.

I just don't --

And just --

-- think we'll hit last year's numbers, because last year's were so good.

Okay. And just in terms of -- just help me, in terms of frame of reference, and how guidance was set -- you had mentioned that typically when the plantings are late, either yield or ultimate acreage ends up suffering?

Yes.

So if we look what the USDA -- if we just use that as a benchmark -- has said -- 90.9 million acres, and a yield of 153.5, or whatever it may be -- so do you sort of look at that and say, Okay, this is how much planting's been delayed this year. Let's haircut those numbers by x and y, and sort of, Here's what we think corn out of the ground is going to be, here's what we think for the states that we operate in, and hence here's where our guidance comes from?

I would say it's -- at this stage, May 3rd -- what's the date today, 3rd --

Third.

-- we're not quite far enough along to do a big haircut. We're getting -- or a haircut. What it is -- it's a caution on that. And the next several weeks are a big deal on that. So it's more of a caution flag. And if we start gaining on crop progress the next couple weeks, our caution gets a little less. If we start staying the same, or losing ground, then our pencil's got to get sharper on the impact. And --

But just from a guidance standpoint, though -- so I'm assuming you're using -- so, as you see it today, the worst-case scenario, downgrade from the 90.9 million and the 153.5 million is kind of what your guidance assumes then?

Oh, no, no, no. It's, I mean, worst case -- [inaudible] worst case, I forget what the year was a few years ago, where we lost substantial corn acres that didn't get in from rain. Or worst case is 1988; it comes on with a drought. We're not --

No, no, I mean, within the spectrum of reasonability. I mean --

Yes.

You're taking a haircut --

Taking a little haircut to the average.

So, you're taking a little haircut to the average; i.e. --

I.e. --

-- the current USDA guidance --

Exactly.

-- is actually above what you embody in your guidance.

Exactly.

Got it.

Yes.

And of course, the USDA, despite its [acreaging], has not come out with the supply-demand, and won't do that till May 11th --

Right.

-- which is an important -- really important report also.

Right.

But I mean, the way I understand it is all these farmers have insurance. So they're pretty much incentivized to just pump as much corn out of the ground as possible, which, unless it sits on the road, has to go somewhere, right, regardless of what the end demand really is. So it still needs to get processed, doesn't it?

Yes. Well --

Say they have insurance, they have the ability to get insurance. I don't know --

Yes.

-- what percentage have -- actually have insurance.

Yes, right, well --

But the higher the percentage, the better it is for you, right?

Well, hold on. If you get into a situation where you get to prevented planting dates, and someone has insurance, you're incented not to try to get into the ground. They may be more incented to collect their insurance.

Got it.

And there are certain elements of the insurance program that protect them. And it doesn't always necessarily mean, therefore there will be higher yields.

Got it.

That becomes a big date. Says, Well, heck, I don't need to plant now. I'll collect.

We're not negative on Grain. Just year-over-year comparison, we're saying -- especially if you look -- if you penetrate into the first quarter number in Grain & Ethanol -- good it is -- and we say that Grain was a lot better this quarter than last year -- quite a bit better, whatever I said -- then you look at the last three months of the -- three quarters of the year for this year versus last year, it's very low odds that we could repeat that.

It's just that simple. It was so good in the last nine months of the year last year. I mean, enough said.

Okay.

And it's not -- I'm not being negative.

Okay. Thank you --

Were great conditions. It's odd we could -- it would be low odds we could repeat that. Because it was a wonderful year.

Okay. Well, thank you for the insights. And hopefully we can catch up off-line. I'll give you a call.

Yes. Okay.

Okay.

Ladies and gentlemen, this now concludes the Q&A session. I'd like to turn it over to management for closing remarks.

Thanks -- this is Mike -- thanks for joining us. Hope you can do so again on Thursday, August 2nd, when we review second quarter results.

And as I said before, if there's any reason to update guidance because of things that change between now and then, we of course would do that. Have a great day.

Thank you.

Thank you for your participation in today's Conference. This now concludes the presentation. You may disconnect. Have a great day.