REX American Resources Corp (REX) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the REX Stores fourth-quarter financial results conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, you will be invited to participate in a question-and-answer session. (OPERATOR INSTRUCTIONS).

As a reminder, today's conference is being recorded Friday, March 24, 2006.

I would now like to turn the conference over to Mr. Stuart Rose, Chairman and Chief Executive Officer of REX Stores.

Please go ahead, sir.

Thank you, operator.

This conference call contains or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements can be identified the use of forward-looking terminology such as may, expect, believe, estimate, anticipate or continue or the negative thereof or other variations thereon, or comparable terminology.

Listeners are cautioned that there are risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements.

These risks and uncertainties include, among other things, the highly competitive nature of the consumer electronics industry, changes in the national or regional economies, weather, the effects of terrorism or acts of war, consumer spending patterns, the availability of certain products, technological changes, new regulatory restrictions, the tax law changes related to the Company's synthetic fuel investments, the fluctuating amount of quarterly payments received by the Company with respect to the sales of the partnership interest in synthetic fuel investments, and potential for Section 29 tax credits (inaudible) phased out -- phaseout based on the price of crude oil adjusted for inflation, and the uncertain amount of synthetic fuel production and tax credits received from time to time from the Company's synthetic fuel investments.

On the Company side, we are happy to report sales for the year were up 396 million versus 379 million last year.

Comps for the year were up 5% for the quarter.

Sales were up from 121.4 million last year to 130.6 million this year, up 7.9%.

Net income for the year was up 28 -- was this year 28.3 versus 27.5.

I want to make it very clear that, in the 27.5 last year, we actually had a tax credit of 6.7 million.

In the 28.3 million that we made this year, we actually booked taxes of 7.4 million, so there's a large, large swing between those two numbers.

For the quarter, net income was 6.6 million versus 16.8 million.

Last year, we had a tax benefit of 8 million included in the 16.8 million.

This year, we had a provision for income taxes at 2.5 million included in our 6.6 million, so again, we're talking about a large swing, about a 10.5 million swing.

Also this year, we took an impaired assets charge during the fourth quarter, which is in the operating income of 1.3 million.

This is mostly related to closed stores, of which eight of those stores have been leased to a national chain which will net us approximately, in future years, 750,000 per year rental income, net rental income.

In terms of the Company's sales, audio this year for the quarter was down significantly; television was up significantly.

The bulk of the same-store sales came from the sale of television.

The good news is that's where we want to be; that's where the excitement of our industry is, in the LCD and plasma area.

The bad news is it was highly competitive; margins were down roughly a little bit -- well, approximately 134 basis points.

Again this reflects the competitive nature of the television business.

It also reflects a decline in audio.

Audio was a very, very tough business for the Christmas season last year.

This year, it's a little bit higher-margin business, and when you lose those sales, that affects the margins.

We offset the decline in profit margin of better economies of scale, which was caused by a comp-store increase.

Excluding that 1.3 million impairment charge that I talked about earlier, operating income for the quarter was actually up.

In terms of synthetic fuel, for the year, we earned 30.5 million pretax versus 18.6 million last year -- for the quarter, 5.7 million versus 4.8.

Next year, that number -- these numbers are very much up in the air.

We have the potential -- or if everyone produces like they did last year -- to show greater earnings than the 30.5 million.

On the other hand, if oil prices stay high or go higher, the tax credits could be phased out.

If the tax credits get phased out, our payments get credit out.

Also, there is always a fear that people will stop producing if their tax credits are being phased out.

So we are extremely worried about what may happen to synthetic fuel next year, and it's truly up in the air and I wouldn't -- it's a true wild-card for next year.

In terms of tax credits, we have sold all of our synthetic fuel investments.

There will be no additional tax credits next year.

We carried forward a lot of tax credits and we will actually be paying, we expect to be paying an alternative to minimum next year, although since we're not generating any new tax credits, we expect to book a full tax rate or at least not book any additional tax credits related to synthetic fuel.

In terms of our synthetic fuel profits, we are making a true concerted effort to replace those profits and to become a real factor permanently in the energy business.

We have done extremely, extremely well in the energy business, and we think we can be a major player in the ethanol business.

As of this state, we have made agreements to invest in three plants.

Again, these plants still need their senior debt, so they are not -- our part is done but they -- the managers of the plants still have to get senior debt, so that it's not a definite yet.

But should these three plants go, we will be the largest shareholder of each of the three plants, and we will be the largest shareholder of plants producing approximately -- and actually with the capacity of a little bit over 200 million gallons a year, which would make us one of the largest public ethanol companies in the United States if these were to actually come to fruition.

We are working very hard to do everything in our power to make them come to fruition.

On the retail side, we're dealing with a couple of problems, really one main problem.

It's product shortages in plasma.

It's hurt our business; it hurt it during fourth quarter and it's hurting it now.

We expect those product shortages to end during the next couple of months, and we've brought in a new President, Dave Bearden, who was formerly President of Panasonic U.S.

He's done an excellent job in getting our comps going in the fourth quarter and bringing new life to our retail business.

We are excited about it.

As I said really, we're in the good part of the product cycle.

We are in smaller cities where there's less penetration in LCD and plasma, and we have great optimism that that part of the business will continue to grow.

Last year, for the year, operating earnings were up 7.7 versus 6.2.

Again, we had a 1.3 million impairment charge in the 7.7 million, so it was actually even better than that.

We had a very nice increase in operating earnings last year.

We hope to continue that trend and if things go the way we hope they will go, we will have our retail business continuing to grow both sales and earnings, and we will have our energy business becoming something that we can talk about for the future.

Thank you very much.

Now, I'd like to leave it open for questions.

(OPERATOR INSTRUCTIONS).

Rick Weinhart, Harris Nesbitt.

Good morning, Stuart.

A couple of questions -- if we could maybe just kind of walk down the P&L with the questions I have.

First --.

So you know, Rick, Doug Bruggeman is also on the line with me and he may answer some of your questions.

Okay, great.

First, if you could talk about, on the sales line, the percentage -- looking at the TVs in particular, can you talk about what percentage of your business in TVs now is flat-panel versus tubes, versus projection sets -- in other words, just a breakout of the percentage?

Doug, do you have those numbers at your fingertips?

Roughly?

Doug?

Stuart, let me look at that.

Rick, why don't you go with your next question and then I will come back to that one.

Okay.

The next one was just on the growth in the quarter.

The growth of the TV business and growth of the appliance business in particular I was interested in.

That's related to the same question -- (multiple speakers) -- (inaudible) while you're talking.

Then we will move on.

Do you have an update on how comps are running in the first quarter?

Relatively flat.

We are hurt by product shortages.

Yes, that alone, Stuart, that's -- a couple of retailers have mentioned that.

You said that that's -- you expect that to clear up in the next couple of months, though, right?

I expect in the next -- we have high hopes that we will have product.

Again, we think we are better connected to get product and to get it first now instead at the end of the product cycle, and I know Dave Bearden is working on getting the product first but there's no guarantees in this business.

We are not one of a larger ones, and people like Best Buy and Wal-Mart, they throw their muscle around pretty good.

We are better at getting at the end of -- I shouldn't say at the end of the cycle, but when there's oversupply, we actually are kings of that, trying to get product when there's shortage.

Thank goodness we have Dave.

He's working very well at it but that's not -- that's historically never been our expertise.

Okay, so it sounds like you're shifting the model a little bit here, given the way the environment is, focusing a little bit more on product as it's coming out earlier and less --

Absolutely, yes.

On the gross margins, they were down in the quarter.

It sounds like some of that was mix.

Is there any erosion though within the product categories as well right now, or is it all mix?

No, television definitely had some erosion.

I'm sorry, outside of the television category?

No, I think, other than that, it's mix. (multiple speakers) -- some in audio but appliances actually I think were up a little bit.

Okay.

The outlook on gross margins then, - is that -- should we expect a similar trend to what we saw in the fourth quarter?

It will moderate some in the first quarter, Rick.

We're not seeing the declines in the first quarter that we saw in the fourth quarter.

Okay.

Then moving onto the synfuel, and Doug this is probably for you as well.

Did you have what the breakout was, that 5.7 that came from which partnership?

I don't have that in front of me.

Most of that, Rick, though did come from the partnership, the Colona partnership, yes.

The Colona?

Okay.

Then Stuart, you talked a little bit about this, the outlook for the synfuel business.

Progress Energy, they are pretty public about their thoughts on the Colona facility.

But I'm wondering if you're hearing any feedback from the other folks that you sold the Summerset to and the Gillette facility, if you have any -- if you've gotten any feedback from them in terms of how production looks so far this year.

The Gillette facility, we have heard that they plan on keeping production going, so that they have every intention of keeping production going as of this time.

On the Sempra facility, we don't have any idea what's going on there.

Okay.

The Gillette facility, refresh my memory, but that is roughly 4 million in income-- was the forecast you'd given I think when you sold it originally?

Is that correct?

Doug?

On the Gillette facility?

Yes.

Yes, that's probably about right -- yes.

Doug, the tax rate the next year, 37% -- is that the normalized rate that we're talking about now?

I would probably use more like 38%.

That's something we'll just have to keep an eye on from quarter to quarter in general.

Then the balance sheet, moving down to that, you --

On that line, Rick, (indiscernible) we are really not paying that number.

It's strictly a book number.

Right, I understand.

You'll actually be generating cash as a result of this, right?

We still have large amounts of tax credits that we are carrying forward.

Yes, and you'll start working those down now?

Correct.

On the balance sheet, you had a sharp decline in inventories, about 16% on a per-store basis.

It looks like your inventory per store is now under 450,000, which I believe is like a four or five-year low for you.

Some of that I imagine is related to flat-panel shortage but I mean, was there anything else in there?

Then do you have kind of what you think maybe a normalized nonseasonal inventory level would be on a store basis?

(multiple speakers) -- we had a good air-conditioning season, which was in our numbers last year, a lot of carryforward; we didn't have that this year.

Secondly -- and we will build that up in the next couple of months.

Secondly was just not having enough plasma televisions, not even enough (indiscernible) LCD televisions also.

Okay, so probably a normalized level is somewhere -- (multiple speakers)?

(multiple speakers) -- very expensive TVs, and it doesn't take long to go through inventory.

So a normalized level is probably somewhere between where you were last year and this year.

Is that fair?

That's fair. (multiple speakers) -- high last year because we had a horrible air-conditioning season and carried too much on it.

But again, not good -- it was good and it ended working out very well for us.

Rick, going back to your earlier question, for the fourth quarter, about 60 to 65% of our television sales were plasma or LCD, or the light engine-type televisions.

So that includes the projection as well?

Okay.

Then looking at the stores, now, Stuart, you mentioned that you closed -- it looks like you're going to be leasing out eight stores.

I'm wondering what the forecast is this year in terms of your store closures.

Should we look at about -- you've had about 15 closures per year the last couple of years.

Is that a similar number for this year, or is there anything in the works that would be larger?

Doug, do you want to answer that?

There's nothing larger.

We continue to evaluate it, Rick.

Of course, we'll have to see how the year plays out, but so far in the first quarter, we have closed down I think it's like five or six stores in the first quarter.

Okay, five or six.

Then on the charge --

I know it's our hope and our plan to try -- and we (indiscernible) if it can get the stores continuing to comp up in the operating earnings on a per-store basis, then (inaudible) stop the 15 closures, and there's always a few but kind of cut that number way down.

Then, like Doug said, the first quarter that we did have some -- (multiple speakers).

The actual number is seven stores closed the first quarter to date, Rick.

You took this sort of 1.3 million charge.

I'm assuming that's kind of an offset to if we are looking on a year-over-year basis, though, that's kind of an offset to what you had last year with the inventory write-down.

You had about I think a $0.9 million write-down on some inventory?

Doug, do you recall that?

Related to APAX I believe?

I don't recall that, Rick.

We can chat off-line.

I guess that was really -- (multiple speakers) -- one other question -- (multiple speakers) -- I'm sorry, one other thing though, just on the ethanol.

You started giving some details there which I found very helpful.

I'm wondering if there's further details that we can expect to see, either in the K or anything else, regarding the investment you're making.

Or what timeframe -- (multiple speakers)?

(multiple speakers) -- filing yesterday regarding the investment in South Dakota.

I mean, Rick, there will be someone -- (multiple speakers).

(multiple speakers) -- we've had three filings on three different investments in that.

That's what we will put in the can I'm not sure yet, but those three filings pretty well tell the story.

Yes, and the 200 million gallons per capacity, that was for all the three points?

(multiple speakers) -- combined, correct.

We would -- if they all go, we would be the largest shareholder in each of them.

We would be a major, major public company in ethanol.

That's a lot of ethanol.

All right, well, that's it for me.

Thanks very much.

Michael Christodolou, Inwood Capital.

Good morning, gentlemen.

A few questions -- could you give us any color on what kind of benefit you may have seen from Katrina in the last few quarters?

I guess some of the analysts out there have made reference to that fact that any favorable effect would be rolling off.

Could you help us to mention that at all?

We did have some benefit, but we are pretty large -- spread out across the country, but we definitely had some effect on the Gulf Coast.

There's no question.

Doug, can you --?

I don't have those specific numbers in front of me, but yes, there's no doubt that we have benefited from that in about four or five stores in the Gulf Coast area.

But you know, in the previous year, we also had some benefit from down in the Florida market from the hurricane in the previous year also.

For the next two quarters, I guess you're coming up against a negative 2 comp in the first quarter and a negative 1 comp in the second quarter, or I guess that would be negative 5 if you backed out air-conditioning.

Is your thought that increasing volumes in some flat panels ought to be able to help you on the comp side over the next two quarters on a comparison basis?

During the first quarter, we are hurt by short supply.

It sure would be our hope here in the second quarter to, excluding the air-conditioning, to get some good benefit from increases in plasma and LCD product.

On the other side, the old-fashioned big screens are phasing out, so we do have that going against us, but that's nothing though.

We are actually going against positive comps in the first quarter.

Okay.

Then are you seeing any competitive encroachment in the areas of, say, Texas, Louisiana, Oklahoma?

I guess there's players like [Kahn's] that are out there with boxes about twice your size, 25,000 feet instead versus your 11,000.

They seem to be using credit to generate substantially higher comps.

Is that something you all -- how do you respond to that competitor?

[Kahn's] hasn't, that I know of, been a major factor.

They might have opened one or two stores out of 200, but they go into mostly big markets and they have not really -- they haven't been any -- they have not been a big factor in our markets.

They've been probably much more benefited by the hurricane business than probably anyone I know.

That's something that certainly they, with their credit and with their operation, they were actually terrific at taking advantage of.

Lastly, gentlemen could you comment at all on you capture or tirade for extended service contracts across all of your products and then specifically on flat-panels?

Excuse me, can you say the question again?

I'm sorry.

Yes.

To the degree that you sell extended-service contracts on your products, I was curious what percentage of your products also -- where the customer also purchases an extended service contract, and is that percentage higher or lower for the big-ticket items like the flat-panels?

As a percent, I'm not sure, but one thing you should know about our service policies, we are the only one in the industry that I know of that still brings income in over the life of the contract.

Most people use an insurance company to upfront that income where they are actually bringing in the income at the sale.

We bring it in at a much slower rate, and so it's a much, much more conservative way of accounting for service policy.

Thank you very much, gentlemen.

Boniface Zaino, Royce & Associates.

Yes, it seems we have a cross-purpose on the price of oil and fuel, and that is to make the ethanol investments profitable, do you need a higher level of gasoline prices, implied higher level of oil prices to make the synfuel business the cash generator, you need lower prices.

Is there an offset here?

Is there a -- (multiple speakers)?

In truth, we really need -- we have about 1.5 years or 2 years left of synthetic fuel before that gets phased out, before the law basically terminates or that's the end of the income that will come in.

So what we really want is low prices the next year and a half, we want very high prices after that.

It will take that long to get our ethanol plants in operation, between a year and a half is probably on some of them conservative.

In the ethanol area, there has been the substantial expansion in capacity.

There was, before the Bush announcement, some worry that they were over-expanding and that the local farmers were putting a lot of money into these plants.

What is the outlook know?

What kind of a price level do you need to make the capital investment worthwhile -- price level of gasoline?

Well, it's not totally tied to gasoline.

The ethanol market is its own market, and what's happened is, as the NVTs have been phased out, ethanol has become -- actually sells at a historically high price right now.

It could drop to roughly the price of ethanol to as low as $1.20a gallon and according to our projections, we would be fine.

Good.

Thank you very much.

[Mike Miery], [Miery] Asset Management.

So, did you say, on the ethanol facilities, that once started up, they would take about a year and a half to build?

No -- yes.

One of them is actually without financing.

It has broken ground but yes, they take about a year and a half to build, that's correct.

We are in a couple of the facilities we have subordinated -- we put in -- our investment is convertible, convertible debt.

So we will actually -- possibly when we make the investment, (indiscernible) earning, start earning some type of interest income at that time.

Again, that's an accounting function and I'm not sure how they will book them, but we will start accruing something.

Okay, and so you broke ground on one facility.

Did the other facilities have sites and everything like that?

Everything has sites; everything has beautiful sites and they all have their different advantages, and they are all good.

Okay.

This is not something that we just walked into; we've been working on this for all long, long time.

It just happens that we were able to announce all three plants during the last -- between last quarter and now.

Okay.

Then on the synthetic fuel credits, has the price deck for 2006 been set yet?

Has that legislation gone through?

There is legislation out there that I haven't brought up that will allow us or will allow the producers to produce -- or not have to worry about the price of oil this year, if that's what you're talking about.

In terms of -- we don't need legislation every year for the synthetic fuel.

It's tied to the cost of oil -- to the price of oil and how much tax credits we or the producers receive.

Okay, so I guess the two questions then -- what's the progress on the first legislation?

Then the second one is I know they have an adjustment for inflation on the phaseout level and the cap level.

Have they set those numbers yet for this year?

To the best of my knowledge, they have not set those numbers for this year.

In terms of the legislation, it has passed one of I think -- I believe it has passed the Senate, and it's in conference right now tied to another bill, tied to some sort of I believe appropriations bill.

We don't know what the status is right now.

We have no -- at least I -- bigger people than me might know their status but I certainly don't know whether it will come out of -- whether it will come out in a bill or not come out in a bill.

Everyone is being very close-mouthed about it.

To answer your first question, absent there being this legislation passed, the 2005 index price would be published I believe like in April of '06.

The 2006 number wouldn't be published until approximately April '07, and so -- (multiple speakers).

The problem with the way it is written now is no one knows what their tax credits are until a year later, and that's what the legislation is supposed to fix.

You are supposed to know your tax credits before you start production, not after you've completed production.

If the new legislation gets passed, then it does make sense that it should get passed but -- at least from my standpoint.

But who knows?

Does it make any adjustment to the actual price deck levels?

No, it doesn't.

It does in that it goes back to the prior year instead of the current year, so -- (multiple speakers) -- this year would be -- last year, we don't think there was any phaseout.

If we are tied again to last year's number, there would be no phaseout this year.

It would mean great production and great income for us.

Okay.

Your partners have talked about -- at least progress has talked about the fact that they would produce more I guess synthetic fuel credits this year than last year if that legislation goes through.

But currently they are producing at a lower rate.

Can you give us -- given that we are a month and a half into the first quarter, can you give us some sense of how -- at what rate the synthetic fuel credits look like they will be in the first quarter so far, compared to last year?

Yes, Doug, do you want to go over that and maybe talk about what we did for January, which --?

Yes.

What we've currently done is, based upon the information we have to date, we've assumed there would be a phaseout of about 35% on the tax credits.

So, for the January production, we reduced or deferred (indiscernible) about 35% of the revenue.

As things are running right now, I would expect the income would be about 4 million of quarter, but that's an approximation and as Stuart mentioned earlier, who knows? (multiple speakers).

The price of oil has come down, so potentially the deferral could be less, and we will adjust that as the year goes on.

Is that phaseout percentage based on last year's production levels, or on what you think this year's production levels currently are?

The phaseout is based upon not production levels but based upon the phaseout of the tax credit.

I think he's asking whether your estimate is based on -- (multiple speakers).

It's based upon the current-year price of oil, you know.

And what we've received so far in production numbers.

All right, thanks very much.

Richard [Gearnley], [Longhorn] Partners.

Good morning.

Since we are on synfuel, could you give a number for the total investment of all the partners in the three plants that will be -- the 200,000 -- 200 million gallons of capacity?

What kind of investment will that require?

Well, at the moment, we've committed to approximately --

about 26 million (inaudible).

That number, if we have the chance to invest more -- and we might -- it could go higher.

We also could invest in other ethanol facilities.

That's not a bad number; it's not -- I don't expect that number to be the end of our ethanol investments.

I hope it's just the start of a brand new phase for our company.

The 26 million is REX's investment?

REX's investment, that's right.

We have not actually laid that money out.

It's our commitment (indiscernible) funding, etc.

What percentage, loosely speaking, is your investment of the total investment (inaudible)?

Base plants -- and again, rough number -- but it's (inaudible) over $300 million. $300 million would be a rough number for these plants.

Right, so --

It might be a little more, it might be -- in the final cost, in the final financing, it's not cast in Stone.

Is the eight or nine or whatever percent of 300 --?

That includes bank financing.

I see.

So your equity interest is a lot higher?

A lot, lot higher.

We are the largest shareholder in these plants.

A lot, a lot higher -- and the debt-to-equity is still being, in some cases, negotiated, so we might end up putting more equity in, which will make our equity even higher.

We think they are good investments.

Did the Gillette plant end up producing about 1 million tons in '05?

I don't have that number.

Is it close?

I'd prefer not to answer that.

I just don't have that number right in front of me right now.

It was a successful last year for the Gillette plant, if that is what you are asking.

It did very well from our standpoint.

The closings in the fourth quarter -- in the past when you've closed stores, you've booked a little profit or sometimes a bigger profit.

What changed with the stores in the fourth quarter?

Most of our profits have come when we sold the stores outright.

This year, we took a little different tack and we leased a lot of those closed stores, so instead of booking the -- we don't get to book a profit.

We will book a continual profit (inaudible).

I see, you book the rental income (indiscernible)?

As it comes in, that's right.

We were fortunate enough, like I said, to sign basically a master lease with a large national chain.

I wouldn't call it a master lease but leased a number of stores to a large national chain.

All right, and all -- I think you said eight stores were to the same chain?

Yes.

All right.

On the TV business, could you characterize the fourth quarter in terms of what the pricing did and -- (multiple speakers)?

One other thing I should mention, by the way, there was one store that we took it -- one store that's not leased yet that we did take an impairment charge.

That's in that number, too.

Thank you.

In the TV business, could you characterize the difference between units and price in the fourth quarter?

In the third quarter, your pricing was down loosely 30% and units -- I don't have the numbers but, you know, that kind of feel for what was going on.

Excuse me, say it again?

Ask your question again.

What -- in the fourth quarter, in the TV business, what was the price effect and then what were unit sales?

In the fourth quarter, I don't have -- Doug, do you have an answer to that question?

I don't.

I don't have the unit sales in front of me.

We certainly saw a shift towards the LCD light engine and the plasma part of the business and away from the analog or high-definition projection type TV.

Okay.

What did you spend on the share buyback in the fourth quarter -- dollars?

The average price that we paid for the fourth quarter was about 14.80.

How much did we spend in dollars?

I can figure that out.

In the past, you've talked about setting up a separate subsidiary to hold the ethanol and other older energy investments.

Is that still under consideration?

We're looking at everything right now.

Energy, as you can see, has become a big, big part of our earnings and we hope to keep it that way, make it a bigger part if we can.

We are looking at a lot of different things.

On the Gillette facility, by the way, they produced well over 9 tons last year.

Going back to the impairment charge, I just wanted to verify that we did not -- most of the gains have come from selling property.

As I mentioned, this year, we've leased a numbers of stores.

We did have small impairment charges on a few stores but there was one large charge in Shreveport that was the bulk of that number.

Are those charges primarily -- what do they run to?

Are they --?

What we did -- there's 1.3 million -- 1.2 million went through SG&A, and then the last about 100 to 150,000 went through discontinued operations.

But the charge from continuing ops just went through SG&A.

Okay, thank you very much.

A follow-up from Michael Christodolou, Inwood Capital.

Yes, a couple of questions, follow-on questions about ethanol -- does your operating partner have any other local growers that are going to be contributing capital and committing physical delivery of corn for the mills?

In virtually -- in one of them, we are -- in two out of three, absolutely.

Actually, three out of three are basically the farmers -- are at the smaller investors. (multiple speakers) -- two of them are -- the co-op is the actual partner.

Okay, and what's the -- (multiple speakers).

(multiple speakers) -- we think that's a great advantage to us, that we will have good supply of corn and they will have a vested interest in our plant being successful.

That's one of the things we really like about these plants.

Right and what is the (indiscernible) of the three facilities?

One of them is 100 million; the other is, I believe, 50 -- a little over -- the other two are a little over 50 million.

So if I can just ballpark this, $300 million of capital costs and let's just round it to 210 gallonage, that's $1.43 a gallon production cost -- capital cost.

That sounds about right.

When you give or take -- these are not finalized numbers yet.

Again, the numbers change, the bank financings (inaudible) but that -- you are being more exact than you should be but I think you are in the range.

Would you agree or disagree whether I guess the range that is out there is $1.25 to $2 and capital cost -- my sense is you are trying to be in the lower third, or lower quartile.

We are absolutely trying to be.

On the other hand, the production costs can vary a lot by -- or excuse me, the site costs can vary depending on whether your next -- depending on location, and you can save it sometimes in transportation costs I guess is what I'm trying to say.

Right, right.

Very good.

Thank You, gentlemen.

Good luck with it.

Mr. Rose, I will turn the conference back over to you to continue with your presentation or any closing remarks.

Well, I'd just like to thank everyone for listening and we are becoming a very exciting company right now.

We have retail headed in the right direction.

If we can get some product in, I think, with Dave running the retail, I think -- I'm highly optimistic about that.

On the other side, with the ethanol starting to -- with our hopes to invest in ethanol, we are extremely excited on the energy side.

Hopefully, we can keep everything going in the right direction.

Thank you for listening.

Bye.

Ladies and gentlemen -- (technical difficulty) -- conference call for today.

Once again, we thank you for your participation and ask that you please disconnect your lines.

Thank you and have a good day.