REX American Resources Corp (REX) 2007 Q2 法說會逐字稿

Welcome to the Rex Stores fiscal second quarter earnings conference call.

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

Afterwards we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded, Wednesday, September 5, 2007.

I would now like to turn the conference over to Stuart Rose, Chairman and Chief Executive Officer with Rex Stores.

Thank you, operator, I'm here with Doug Bruggerman, our Chief Financial Officer and we're happy to have you on our conference call.

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 by use of forward-looking terminology such as may, expect, believe, estimate, anticipate, or continue, or the negative thereof.

Or other variations here on 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 on such forward-looking statements.

These risks and uncertainties include the risk factors set forth from time to time in the Company's filings with the Securities and Exchange Commission, include among other things risks and uncertainties related to the acquisition of Rex Stores interest in Millennium LLC by U.S.

Bio, including the financial performance of U.S.

Bio following the completion of this transaction, fluctuations in the market prices, trading volumes of U.S.

Bio Energy Corp.

common stock, the highly competitive nature of the consumer electronic retail industry, changes in national and regional economies, weather, the effects of terrorism, or acts of war on consumer spending patterns, the availability of certain products, technological changes, changes in real estate conditions, new regulatory restrictions or tax law changes related to the Company's synthetic fuel investment, fluctuating the amount of quarterly payment receipt of that company with respect to the sales partnership interests in a synthetic fuel investment, the potential of Section 29 45 to phase out based on the price of crude oil adjusted for inflation, and the uncertain amount of synthetic fuel production result in income received from time to time from the synthetic fuel investments.

As it relates to ethanol investments and risks and uncertainties include among other things government regulation, the uncertainty constructing plants on time, on budget, and on the volatility of corn, dry goods, distilled grain, ethanol, gasoline, and natural gas.

In terms of our quarter last quarter, our earnings were $5.8 million versus $1.5 million.

Earnings per share this quarter were $0.48 a share verses, excuse me, $0.13 a share.

The retail side sales were $56.2 million versus $63.5 million last year, operating income, however, was up, it was 639,000 this year versus $116,000 last year.

Comp stores were down approximately 12%.

We had increases in appliances and a large, approximately 50% increase in LCD sales, but these were offset by large losses in most other video categories.

In terms of alternative energy, this quarter we made $3.4 million versus $723,000 in synthetic fuel last year.

And $412,000 in an unconsolidated affiliate related to the ethanol business.

Also during the quarter, we had a gain of about -- of approximately $2.6 million related to closing stores and the real estate that was involved in those stores.

And we have roughly $$$1.97 million in interest income.

Cash on hand is approximately $90 million.

We've used some of our excess cash to repurchase shares, we've repurchased approximately $454,000 shares since we made our announcement.

Going forward in retail, we're going to continue to emphasize trying to grow that business with LCD and appliances.

We've done very well in those categories, we think that we can continue to do well, although we're going to still be hurt by the loss of some very, very strong products for us to television and big screens in particular.

We continue to evaluate these stores on a return on investment basis.

And related to their current market values and if we can't make money in these stores based relative to maybe what other uses are for those stores then we have to look at this very seriously and store by store basis decide what to do.

We, during the quarter that we're in now are considering a few other real estate transactions.

In terms of the energy side, synthetic fuel will phase out this year.

It's been a large income-producer for our company.

We hope to replace a good portion of this earnings over the next few years with ethanol.

So far we've had tremendous early success in ethanol.

We just announced the closing of our millennium, selling of our millennium position.

We had a $14 million convertible note in that plant.

Since all that the transaction has closed.

We've received 3.7 million shares of U.S.

Bioenergy stock, $4.8 million.

In terms of our other plants, we have a plant in Anwan, Illinois called Patriot on 23.3% of that it's 100 million gallon plant that is scheduled to open the middle of next year.

It's a Fagen built plant.

Second plant we have is Levelland we own 56% of that, $16.5 million investment right now.

It's a 40 million-gallon plant.

It's scheduled to open the first quarter of next year.

It's an ICM plant.

Next plant that we have is One Earth Energy.

It's just breaking down right now.

It's due to complete, day of financing complete in the next 30 days or so.

It's 100 million gallon plant and we'll own up to 91% of that plant and as little as 51% of our investment in that plant will be somewhere between 35 million and $62 million.

Final ethanol project that we're involved in is Big River, we have a $20 million investment in that.

We own approximately 9.75%.

They are currently operating a 52 million gallon plant that will be expanding to a $92 million gallon plant by the end of this year.

They also have two more plants on the drawing board, one 100 million gallon plant which they will 100% own in Galva, Iowa.

And a second plant in Grinnell also 100 million gallon plant that will be 50/50 owned by them in U.S.

Bio.

These plants we expect to open sometime in 2009, according to the latest things.

According to our latest updates.

The key to success in the energy field will be a couple of things.

One, be very helpful if the energy bill passes mandating refiners to take significantly more ethanol than previously required.

There's been passed by both houses.

And again, everything depends on a compromise -- the whole bill going through committees and the compromises being worked out and the whole bill passing.

This does take place and it should be great for both us and the industry.

We're also working, like I said in the retail side to to best maximize our assets.

On the energy side we're working very, very hard to replace the synthetic fuel income, which we will be losing into other income in the alternative energy field.

I'll now leave it open to questions.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Rick Weinhart with BMO Capital Markets.

Please proceed with your question.

Hi, good morning, Stuart, good morning, Doug.

Hi, Rick.

Good thanks.

If we could start with the retail business.

Could you give us a little more color on the comps, the same store sales decline of 12%?

Do you have any estimates as to how TVs did specifically as a category?

I can give you real good estimates.

DVDs were down about 30% camcorders, and down about 40%, plasma television down about 20%, light engine television down about 37%.

Some of the tube categories are disasters.

25 to 27-inch tube down 61%, 30 to 32 inch television down 46%, projection TV down approximately 56%.

All of this offset by a huge, huge gain in LCD.

It appears, Rick, the whole industry's trending big time towards LCD.

We were up 50% in LCD.

And that's off a pretty good size number last year.

Okay.

But I mean, is it the--?

That gives you a pretty good feel of what's going on now.

Yes.

And appliances we're doing fairly well.

Washers, for example, even with the housing and all the other things up 7% prior to 10%.

And the air conditioners for the quarter usually an important driver?

Was that strong or weak?

No, that was weaker.

It was down 24%.

Okay.

And--?

That was a part of the comp store number.

Down 24.

Okay.

And your gross margins--?

Again this is all on a comp store basis, what I'm telling you.

All those numbers, good.

Thank you.

Not on an actual basis.

Yes.

And your gross margins.

I'm surprised, especially hearing about the air conditioner sales being weak that they were as strong as they are.

What was driving that?

RIck, it had a lot to do with some of the buys we're making.

Sometimes in a weak market, we're not the only ones weak, virtually everyone in the television business, except for LCD is having a rough go of it right now.

And when business is weak and with our financial position, we sometimes get some opportunistic buys that allow us to stretch our margin a little bit.

Hey, Rick.

Let me also point out that that's impacted by the fact that we recognize our warranty sales on a straight line basis and as our sale merchandise declines, we recognize a higher percentage of warranty income, which as you know has a higher gross profit margin associated with it.

Good point.

Okay.

And do you have a rough, roughly, Doug, do you know what kind of impact that's having in the quarter?

I can tell you for the third quarter our warranty was about 5% of our revenue versus 3.7 last year.

For second quarter, correct?

Yes.

Okay.

Thanks.

And Stuart on that point, though, there was a competitor of yours was in the news recently talking about how there's been some great buys in the consumer electronics space the last couple weeks.

A lot of open orders, I think being canceled.

Are you seeing anything unusual over the last few weeks in TVs or any other categories?

Plasma is very, very, there are amazing buys out there.

The question is, if you buy a lot now, you may end up with the next five being even greater.

So still treacherous.

But absolutely.

Light engine not as much -- I mean, not light engine, LCD not as much, but in plasma absolutely, LCD there have been, made one real good buy that should help our margins.

But in plasma they were all just -- plasma is really having, at this point in time, is having to compete using price against LCD.

They're not winning that on the technology side in my opinion.

But Stuart, in particular, in the last few weeks, have you seen any unusual activity there?

In plasma, yes.

In plasma.

Great, thanks.

And moving on to the synthetic fuel area.

Doug, can you tell me what kind of a phaseout rate you're using?

We used 25%, Rick, that was our best estimate as of July 31.

You would expect to use that as of this point.

That looks to be the rate you'll be using going forward as well?

We did the calculation July 31.

We'll have to continue to monitor that.

But that was the best estimate we had at that time.

And that was also taken on first quarter's income.

So that was about close to $0.5 million drag?

Yes, that's probably about right.

But also had the January production also, which we recognized last year.

Okay.

Okay.

Great.

Okay, and then last question, on the ethanol business.

First of all, can you give us an update, Stuart on Levelland?

There had been I think some construction delays due to the rain in Texas.

Are we back on track?

You mentioned first quarter, but is that a solid date at this point?

To the best of our knowledge, that's -- we're expecting it to be first quarter.

Our fiscal first quarter of next year.

Okay.

And then sorry--?

On that one, as I mentioned, we put in about $16.5 million we'll probably end up with total investment closer -- there'll be a little more money and a little higher equity percentage would be my best guess.

Okay.

And then just on the Big River, you talked about the two other plants coming online, have those -- has financing been arranged for those as of yet in terms of the debt side of that?

And can you give us any indication?

Not on Big River, no.

Okay.

Great.

So this still needs an arrangement.

Thanks very much for answering questions.

Thank you very much.

Our next question comes from the line of Mike Neary with Neary Asset Management.

Please proceed with your question.

Hi, guys.

A couple questions.

In the retail business, how many stores do we still own?

What are they on our books for?

And then total, what's the total value of our distribution facilities on our books?

Doug, do you want to go over that?

Yes.

We still had about 60 owned retail properties at July 31, and then the 3 distribution centers.

But total, net book value of all of our assets obviously it's on the balance sheet.

And I don't have in front of me what the break down is, how much of that's the distribution centers versus how much of that's for the retail stores.

Okay.

We still own 60 stores you said?

Yes, that was as of July 31.

Okay.

And then we have another 8 million of the deferred gain on the sale leaseback that we'll bring into income I guess over the next couple of years as we go through those stores?

Yes.

That's correct.

More between 7 million, and $8 million I think is what's left of the deferred gain at July 31, which we'll recognize as you said as we wind down those stores either vacate them or over the life of the lease payment.

Okay.

And Stuart, I missed what you said about One Earth.

I think you said we're breaking ground.

We're moving dirt now.

And it's scheduled -- that's all I mentioned was for sometime in 2009 would be when to expect that to come online.

Okay.

And do we have the financing for that yet?

We have commitments.

We do not have a signed loan agreement yet.

I don't expect problems, but when it's signed, we'll put something out.

Okay.

And then what type of leverage are we looking at on the Patriot and Levelland facilities?

On Patriot and Levelland almost it's roughly 40.

All of these are roughly 60% debt, 40% equity give or take a little bit.

Okay.

Just as a rough number.

And then, for example, Patriot, we only own 23%.

Okay.

And Levelland, we're getting a lot closer to completion.

We're going to put it in a little more money here.

Our total cost on that facility, what is it now versus what we thought it was going to be when we first started it?

We upped our position to go over a majority in that.

Originally we did not have a majority position in that plant.

Doug, can you answer that question?

I'm sorry, Doug.

I meant more total cost of the whole facility in terms of what the construction cost.

The construction cost hasn't gone up.

Doug, do you have those numbers in front of you?

Actually, I don't, Stuart.

There's been a couple of add-ons I know from the contractor.

Right now I think that number's about $2 million in addition to the -- from the construction contract, approximately.

Okay.

And roughly what was--?

My feeling is we might put in things, now that we're majority owners, there's things that we think might be helpful and cost a little bit of money.

Like extra corn storage in Texas so we can take advantage.

There's a chance during season to make some opportunistic purchases, that type of thing.

And do you remember--?

It's pretty well coming on, all of these plants are pretty well coming on on budget so far.

And roughly how much was budget for that plant?

The construction contract with the contractor is about $58 million.

50 million to $60 million as I recall.

Okay.

Okay.

Great.

Thank you very much.

Sure.

Our next question comes from the line of Richard Dearnly with Longport Partners.

Please proceed with your question.

Good morning.

Hi, Rich.

On the Big River, did you say the two plants that are coming on will be, the first one will be 100% owned by Big River the partnership of which Rex owns 9.7%?

That's right.

Okay.

And the second will be 50/50 with U.S.

Bio?

That's right.

And--?

and we're now a very large shareholder of U.S.

Bio.

Right.

So it's.

And what's the investment in Patriot?

$20 million.

All right.

And then what did you -- what was the dollar expenditure for the shares bought in the quarter and for the $259,000 in the third quarter so far?

For the shares that we purchased during the second quarter, the average purchase price was about $19.34.

And the amount that we funded on Patriot was actually about $16 million.

16.

Okay.

And was the subsequent shares in the third quarter about at the same price?

On average, I would say it's similar pricing upon average.

Okay.

Thank you very much.

Sure.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of Arnold Brief with Goldsmith & Harris.

Please proceed with your question.

I hate to be redundant on this, but I want to make sure I understand it.

Let me try to run through it with a series of very small questions.

On Patriot you own 23% of 100 million gallons?

Correct.

And that's not expanding at this point?

No.

Levelland you own 56% of 40 million gallons?

Correct.

And that is not expanding?

Might expand, but right now it's not expanding.

No not in the plans right now.

Right.

It's under construction.

All right.

Is 40 million gallons a really efficient size for this?

For that area, we think it's a great size because Texas has some incentives that top out at a much smaller number then really assuming they pay the incentives make this a fantastic plant.

The bigger you are, actually the less money.

You make money, but not as much as a small plant in Texas because of the incentive.

If they pay and we expect they will, it's $3 million a year.

And that's capped.

We can't get anymore than that.

The other advantage.

The disadvantage of Texas is you use not sorghum, not corn, and there's not, in terms of our study and the work we've done to get 100 million would require a lot more importing of corn from the Midwest whereas we think the bulk -- we can use locally sorghum and save some on the raw material.

The bottom line is between the incentives and the location, it's a competitive plant?

More than competitive because we can also sell wet TTGs.

Okay.

The Earth facility.

You have -- it wasn't clear, you have 91% of 100 million gallons?

We could have up to 91%.

How much cash do you have to put in to get 91%?

$52 million.

2 million more?

No we haven't put anything in yet.

We put in some.

I shouldn't say we haven't put in any.

We'd have to put a grand total of $62 million.

We have put some money into that, I apologize.

Very little?

We have funded about $3 million so far.

So if I'm looking at your cash position when you're done with it, the 90 million would go to 30 million when you're done with Earth?

In round numbers?

Even less than that because Levelland is consolidated.

So although Levelland has probably used up most of their cash.

There's still some cash from Levelland in our consolidated numbers.

There's not much left in the cash.

They've pretty much gone through that at this point.

So your answer's pretty much right, Arnold.

That's at them, we went to the maximum at One Earth.

Now it could be as little as $35 million.

The amount that we would fund on One Earth you're saying?

Correct.

If you go to 35 million, you won't have 91%?

No we'd only have 51%.

51 to 91, 35, 62 million.

Okay.

And Big River, if it goes from 52 to 92, what does that cost you in terms of your investment?

We've already spent it.

We already funded it.

Okay.

So when you're done with this round of spending, you'll have--?

One thing about Big River, Doug, did we fund that after the -- is our last funding already in there?

We funded the last 10 million on July 31, but it didn't become effective until August 1.

So it was classified as an other asset.

But the money was out the door at July 31.

So when we're done with this as things stand not counting that further expansion, but you'd have about 25 million, $30 million of cash?

Yes, and a lot of shares.

And the shares, yes.

Okay.

And you'll have 23 million gallons in Patriot, you'd have about 22 million gallons in Levelland, you would have, if you go the whole route, you'd have about 91 million gallons in Earth, and you'd have about 9 million gallons in Big River?

Much bigger than that in Big River because they have, they also in our investment, that funds 100 million gallon plant in the 50 million and the 50% at the other 100 million gallon plant.

No, no, I'm not talking about the final.

I'm not talking about the two that you're talking about.

They are already funded with our investment.

Even if they go from 52 million gallons to 92, that's already funded?

Right.

All of that's already funded.

And that's about 10 million gallons?

But also included is, funded with our investment are those two additional plants that Big River's going to open.

Okay.

And the gallonage that you would have in those two is how much translate that?

9.75% of 100 million and 9.75 of basically 50 million.

Right.

Okay.

So all together when this is done, we're talking about 45, 136, 145, close to 160 million gallons?

Something like that.

That doesn't take into account our position in U.S.

Bio.

U.S.

Bio, right.

And with the 160 million gallons, when this is done, you're going to have -- still have about 20 million in cash?

Not counting cash flow or other cash?

This is just in terms of the cash that you have now?

If you were to put it on our July 31, balance sheet, that's how it would look, yes.

It would be about that, yes.

That's based on July.

But there's been a lot of moving parts since July 31.

And you have, you still have the syn fuel credit cash generation for the next six months.

Correct.

What is your warranty situation now?

Your deferred income from the warranties?

Doug?

I'll get that.

Just continue on.

Why don't you ask the next question and Doug can find--.

I'm done after that.

Somebody else can ask.

Any other questions?

We still got about 32 million in deferred warranties gross than we did net against that whatever our commissions would be, the gross deferred warranties is about 32 million.

Keep in mind that's not a cash, that's an earnings, and you could add it to the minus expenses, you could add to the network.

You make about a 50% gross on that don't you?

What's that?

You make about a 50% gross on that?

Something like that.

Keep in mind we've already received the cash on that.

Okay.

It's not going to help -- you're looking for a cash flow, it's not going to help.

You're right.

Okay.

Thank you.

Sure.

Our next question comes from the line of Bud Zaino with Royce and Associates.

Please proceed with your question.

Sure.

Do you currently have any stores that are unoccupied and available for sale?

Yes.

How many exactly, Doug?

We've got a handful, probably up to 5 stores that are closed and were attempted to either lease out or sale.

Given current conditions is it becoming more difficult to sell those properties?

No.

In fact, as I mentioned earlier, it's not at all, at least not -- in commercial real estate we've noticed no problem -- we've had no different problems.

Any gut feel as to how you see the Christmas season in retail?

I would think that the Christmas season will be -- it'll be similar, we're anniversarying a lot easier numbers because this fall off into some projections, it's not a new thing.

And so at some point our hope is on a comp store basis that there's a crossover and these big increases in LCD television will offset the comps that we're losing in the other categories, but it's going to be a highly competitive Christmas season.

One of the problems with LCDs is everyone can sell them.

They're light, someone like Wal-Mart can stack them on the shelves where they couldn't do that with big screens.

It's an issue.

It also could be some shortages in the smaller screen LCDs.

Thank you very much.

Sure.

We now have a follow-up question from the line of Rick Weinhart with BMO Capital Markets.

Hi, guys.

I had a couple follow-ups.

Your revenue number, Doug, maybe you can walk me on the accounting on this or store closures was impacting that.

Your revenue number was similar to what you had in the first quarter, but your same store sales were a little bit lighter and the number of stores you had were lower.

What's driving that?

Were a lot of these, I think like 22 stores that you closed in the quarter, were a lot of those at the end of the quarter?

Can you help me understand that dynamic?

I'm not sure exactly when, I can't remember exactly what the timing was on those store closings.

As I said, it's held up a little bit by the fact that we continue to recognize the warranty revenue and then beyond that, yes, it must be the fact that we closed this toward the end of the quarter.

Okay.

Thanks.

And then Stuart, a couple questions on the ethanol, again.

The construction costs, have you seen any or heard about any changes in what it costs to build a plant these days?

It's a lot more expensive to build a plant.

And that's why we're, to this day we'll tell people that U.S.

Bio made a great buy on the Millennium plant.

It costs about today $220 million in two years if you were to sign a contract today to build a plant.

Our plants are significantly less than that.

Okay.

And you had mentioned you were looking at a bunch of different--?

Go ahead.

I'm sorry, you mentioned you were looking at a bunch of different opportunities still to become a majority investor in some other deals that haven't been finished yet.

Wondering, especially given the problems in the debt markets these days, or the opportunities.

Any of those coming to fruition?

And do they look better or easier to get into now in these days?

I think we can probably get into some great opportunities, but they're not going to be inexpensive like the plants that we're in now.

So that's what's holding us up.

I think if Congress passes the Energy Bill, these opportunities are going to be even at the higher price will be great opportunities.

If they don't pass the Energy Bill, then it gets to be whether the return on investment is something we want to do.

Okay.

I just thought perhaps the turmoil in the debt markets might have impacted the pricing on these right now.

That doesn't seem to be the case though?

I believe they're still financeable.

Okay.

And then last--?

Like I said, you need a lot more equity because at 46, take 40%.

And most banks are only willing to finance on basically a dollar per gallon so you can only get $100 million worth of debt, at least we only can.

So that means at 220 million we'd have to put 120 million in equity.

That knocks us way back on our return.

All right.

Okay.

And the last question is more of an accounting question on the Millennium deal.

Doug, can you tell me, what are we going to see hitting the P&L next quarter from Millennium?

Well, we had it on our books for about $15.5 million.

We had to write part of that up into other comprehensible income.

But as far as what's going to go through the P&L, the value of that was about $43 million that we got for it.

So the gain would be about $28 million then subject to fluctuations in the U.S.

Bio stock and how we reflect that by October 31.

Okay.

So the -- well now that you have the stock, so it's really going to depend on where the stock of U.S.

Bio is at tend of the end of the quarter, right?

In reality, just from the sale itself, the gain is about $28 million.

Okay.

And then we'll have to mark the U.S.

Bio shares to market based upon fluctuation.

Okay.

Got it.

And this is a fully taxable, but you'll use your tax credits against, is that correct?

Correct.

We still have to pay alternative minimum.

Got it.

Thanks very much.

Thanks, Rick.

Our next question comes from the line of [Crishan Lion] with [Henry Haw] Capital.

Please proceed with your question.

Morning, Doug, morning, Stuart.

Morning.

The real estate transactions that you mentioned, are those just additional one, two stores, or are we talking about something comprehensive, potentially?

No, maybe bigger than one, two, but not everything or anything like that.

Okay.

Can you guys walk me through the syn fuel income and what the expectations for the second half are?

I'm just not familiar with the quarterly fluctuations.

I know you did 5.7 million not accounting the accrual in the first quarter and 3.4 in Q2.

Right.

At the end of the first quarter based upon the price of oil to date, et cetera, we had not projected any phase out of the tax credits.

But with the increase in the price of oil, subsequent to the end of the first quarter, for the second quarter we used a 25% phaseout.

So production remained relatively consistent first, for the second quarter it was more impacted by the phase out.

If they would continue with production the rest of the year, you would probably take that $10 million that we recognized on a year-to-date basis, that reflects 6 months and there's 5 months of production left because it -- the program ends at December 31.

And we would expect a similar level in the second half?

On a five month scale?

It's subject to whatever their production levels are.

We do not control production, so assuming that they continue to produce at the same levels, that's what it would be.

But with the phase outs, we can't predict what they may or may not produce in the last five months of the year.

Right.

Doug a question for you, the 10 million investment in Big River, I wanted to be clear that that had not been taken out of the balance sheet at the end of the quarter since it happened at the end of July.

It was out of cash, classified other asset, and not as an investment, but it was not a cash on July 31.

Got it.

The Gibson City plant.

This is the first I've heard that we could go as high as 91%, which sounds great.

And given how much of your cash that would use and potentially you've mentioned increasing your stake in Levelland, do you expect to need another deal to use the majority of your cash?

I know we've been talking?

Well, that depends on what we do with our U.S.

Bio investment.

I don't expect it -- the way with our cash, if we did another deal, if we do another ethanol plant other than what we currently have that might be possible, but I don't see any problems finding what we currently have with outside financing.

Right.

So additional plant partnerships would be essentially dependent on your decisions about U.S.

Bio?

Yes.

Well, we think it's a great -- whether we sell it or keep it, it's a great stock.

They're in their plants way, way under current costs to build a plant.

It's a fine stock, period.

Great.

Thanks very much, guys.

Sure.

We now have a follow-up question from the line of Richard Dearnly with Longport Partners.

Two questions.

Some of the other public ethanol producers have talked about less becoming available, financing not getting done, projects sort of going on hold, and consequently the cost of a plant, cost per gallon coming in some.

What you're saying is absolutely true about projects not getting done, but I think the reason the projects aren't getting done isn't because the cost of the plants are coming down.

It's because of the costs of the plants have gone upward.

It takes so much equity to do a plant today.

So maybe it will come down in the next few months.

I don't know.

It's up to the builder.

There's really, in my mind only one real quality builder, or you could say Fagen, ICM, they work together.

But they pretty much set the market.

And he definitely from what I understand has sites available, but I've not seen costs come in in the different projects we've looked at.

If that happens, then it wouldn't take -- obviously if you can spend 60 million versus 120 million in equity on a plant.

Those numbers--.

Changes the math quickly, yes.

And then you said there were -- there have been lots of moving parts since July 31, quarter end.

Could you--.

Millennium's the one I was referring to.

Oh, okay.

Okay, thank you.

Sure.

We now have a follow-up question from the line of Mike Neary with Neary Asset Management.

Please proceed.

Hi, just another question on construction costs.

So what would it cost today to sign up $100 million facility?

About $220 million.

Okay.

Okay.

And One Earth from what I remember from the filing it looked like that total cost was somewhere on the order of $170 million?

That's right.

Okay.

Thank you.

Sure.

(OPERATOR INSTRUCTIONS) We now have a follow-up question from the line of Arnold Brief with Goldsmith & Harris.

Two questions.

One, when I do the math and you can comment on the math or just comment on the question, you got an investment in U.S.

Bio, very round numbers, 35 million.

You're going to have cash at year-end without considering additional investments, but just the ones you're committed to maybe 25 million.

I think your real estate would be valued at at least [50] million, maybe more.

You get net working capital, even marking down inventories, 100 million, ethanol at $2 a gallon is over $300 million.

Subtract some debt out, you're 35, $40 a share in real book.

The question I have, one, if you want to comment on the math, but two, in terms of making the decision on additional ethanol plants, it seems to me that in terms of return on investment shareholder value, you're better off buying your stock at half a book than you are at making additional investments in ethanol, which might be profitable and provide a good return and may not depending on legislation and what have you.

I can't argue with anything you're saying.

Unfortunately, buying it the way we're buying it, we're limited to how much we can buy.

And we have been buying as much as we can buy.

There just haven't been any big blocks up for sale.

Okay.

Second question.

Whether the math was right, it was too fast for me, Arnold.

I'd have to look at it.

Probably ballpark.

But second question then is in terms of the retail business, it has been in basically a state of contraction for sometime.

And I wonder at what point do you fall short of critical mass in terms of buying power and in terms of being able to efficiently supervise the stores in terms of being able to keep middle management who obviously sees a limited future at this point.

Could you comment on--?

Sure.

The light at the end of the tunnel is cash, but it's also a train coming in your direction if you can't realize that cash.

No, I hear you.

I've known how to run stores.

I was with Rex when I first purchased it, it had four stores.

So in terms of scale, I don't think that's an issue.

Sometimes when you're smaller, you can leverage, buying ability is even better.

In terms of middle management, we're doing everything we can to keep the best people we have.

Our goal still remains to try and turn it around and get a base of stores that are profitable.

But we're also realists.

We work for our shareholders.

And we have to say that if we can't do it that we have to look elsewhere.

And we valuate on a store for store basis our stores all the time.

And as you can see, we've done a lot to try and maximize our profit and do better with our investment.

And we will continue to try to do better and -- but again, we're not ready to throw in the towel on retail.

Can you just tell us in the last transactions that you said you sold a few stores, I believe.

What was the sale price relative to the book of those stores?

I think I mentioned that we're working on the sale.

And assuming it takes place very shortly, the numbers are up.

But we haven't made that announcement yet.

Would you expect to realize a gain?

Yes.

Thank you.

And should we do it, it'll be at a selling price significantly higher than what people have seen before.

But, again, it's not a lot of stores.

Thank you.

Mr.

Rose, we have no further questions at this time.

I'll now turn the call back to you.

Very good.

I'd just like to thank everyone for listening and appreciate your support and hopefully we'll continue to keep showing good quarters.

Thank you very much.

Bye.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation, and ask that you please disconnect your lines.