REX American Resources Corp (REX) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the REX Stores fourth quarter conference call.

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

(Operator Instructions).

As a reminder, this conference is being recorded Wednesday, April 15, 2009.

I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer.

Good morning.

Thank you joining the REX Stores fiscal 2008 fourth quarter conference call.

We'll get our presentation and comments momentarily as well as your questions and answers.

But first, I will review the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meanings of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements reflect the Company's current expectations and beliefs, but are not guarantees of future performance.

As such, actual results may vary materially from expectations.

The risks and uncertainties associated with the forward-looking statements are described in today's announcement and the Company's filings with the Securities and Exchange Commission, including the Company's reports on Form 10-K and 10-Q.

REX Stores assumes no obligation to publicly update or revise any forward-looking statements.

With that, I'd like to turn the call over to Stuart Rose, Chairman and Chief Executive Officer of REX Stores Corp.

Thank you, everyone, for listening.

For the last year, everyone knows by now, was a difficult year for (technical difficulty) of us and the economy in general.

Our earnings for the year were a loss of two point two -- $2.71 million, and for the quarter, five -- approximately $5 million.

Retail, we had a loss of $3.9 million, a little bit of a profit, $1.24 million for the year.

Alternative energy, for the quarter, we had a loss of about $5.3 million.

For the year, a loss of about $9 million.

In the retail area, we're currently winding down our retail operations.

We expect to be out of our retail store -- out of operating our retail stores by fiscal year-end.

In that direction, we've leased all of our company-owned -- 37 of our company-owned stores to Appliance Direct, a company out of Florida.

The bulk of our fourth quarter loss was related to the winding down of retail, approximately $4.2 million.

Which charged off related to store closing and retail transition.

Going forward, we expect that retail transition loss to be virtually offset again over the fiscal year by deferred income coming in from the service policies which will continue, and also deferred income coming in from prior real estate sales, where we were amortizing net gain over a longer period of time.

Now it will be amortized as we close the stores.

Again, this should offset most of the remaining losses related to store closings.

Second area that we're in, and again a difficult area last year, is the ethanol business.

We're in four ethanol businesses.

We were hit with start-up costs at our Levelland plant and a general industry that's in, at best, turmoil, fighting a declining crush spread, which has made this go from an extremely profitable business for the people in the business to now a very, very tough business.

Going forward, we expect -- we expect the business -- or hope anyway, for the business to improve.

But VeraSun and Aventine have gone bankrupt.

They were the two largest traded publicly-held ethanol-only companies.

We expect there to be a decline in the production of ethanol this year.

Government mandates that 14 refiners to buy more ethanol this year.

So if normal supply demand ratios ever come into effect in this business, we should be less supply more demand, which should mean an increase in crush spreads.

If that does happen, we will be uniquely ready to go.

We have not had -- we have made our debt payments and, in general, have what I consider one of the best-run ethanol operations around.

But again, we're not immune to what's going on in the industry.

Going forward, today we have approximately $90 million in cash that is not -- that's unencumbered cash.

Our ethanol plant projects are stand-alone partnerships.

The debt that's on our balance sheet -- the bulk of it is tied to the ethanol projects.

And we are not required to fund, should we choose not to, any further into the ethanol business.

It's our goal to concentrate our abilities to best serve the shareholders and shareholder interests.

First area that we have done that and feel that it's in everyone's interest to continue is stock buyback.

For the past 12 months, we have purchased approximately 1.6 million shares, including -- the past fiscal year, I should say, 1.6 million shares, including 300,000 in the fourth quarter.

It's our feeling that as we -- with our stock selling close to our -- close, or not very much further above our unencumbered cash value per share, about half of our book value per share, buying in shares is in everyone's interest.

It gives liquidity to people that wanted to sell.

Each year we buy increases the book value per share for the rest of our shareholders.

Our stock has recovered a little bit, although -- allowing us to maybe, going forward, look at a few other areas where we have had success.

First is real estate.

During the last -- during previous recessions, we have been able to take advantage of opportunities to buy real estate, and -- including shopping centers, in some of the smaller markets where we do business.

We haven't lost our contacts there, so we, again, feel it's an opportunity in this very deep recession to possibly make some real estate acquisitions to supplement the 44 stores that we currently have.

And the warehouse operations that -- or the warehouses that we're currently attempting to lease.

It's something -- it's a business we've done well in the past.

It's a business where we have great connections to do well in the future.

So we are looking at that area.

Second area that we have done well in the past is the energy business.

During another -- again, bad period of times, we used our retail connections, which we still have, to get into the synthetic fuel business, so it's a huge, huge -- I should say, a very, very profitable business for our shareholder.

Again, we're looking at -- we have -- we're looking for other -- not that we think we can match what we did in synthetic fuel, but we're looking for other opportunities in that area, in the energy business, that maybe fit our abilities, again.

Now we're looking for projects that can have very, very short period of return.

We're not looking for long-term projects, with long-term return -- or, with investment that takes years.

We're looking -- trying to find projects that are either currently operating or will, in a short period of time, lead to current income.

In conclusion, we're excited about the future.

We're looking forward, not looking back.

It's very, very difficult times, but with difficult times comes opportunity.

We have been smart enough to keep a large amount of cash for the size of our Company, to take advantage of opportunities that come our way, and we've shown in the past a great ability to take advantage of those opportunities.

And that's really what the future of our Company will be, to find opportunities that yield that immediate return and take advantage of them.

That will be our goal for the current next year or so.

Thank you for listening to the call.

I'll leave it open to questions.

(Operator Instructions).

Richard Dearnly, Longport Partners.

A couple of questions.

The 44 current stores you have, what's the end game for those?

Right now, they're transitioning -- 37 of them are transitioning over to Appliance Direct.

I imagine, in time, the end game for those will be like we have done with most of our real estate.

Sell it to -- in the past, we've sold real estate to REITs, we've sold real estate to individual investors.

I imagine, when real estate recovers, that will be the plan.

At the moment, the plan is just to collect the rent on those properties.

Appliance Direct does have an option to purchase those in the first two years of them operating those, also.

Right.

Okay.

And then, could you -- what was the dollar amount spent on the different share repurchases?

For the 304,000, 127,000 and (multiple speakers)

For the fourth quarter, our average share price was about $7.28.

For the fiscal year, it was about $10.80, and subsequent to year end, our average purchase price was about $6.90.

Thank you.

And then, the -- could you refresh my memory as to -- in the third quarter, you had a $1.3 million impairment charge for the Levelland plant.

What was that --

That was writing off the goodwill that was on the books related to that plan.

(multiple speakers) today, that was all the goodwill we have.

At the moment, your cost per gallon in Levelland is significantly above your -- both your average and almost twice the Patriot and One Earth investment per gallon [ment].

Is -- and as I remember the transaction, prices for VeraSun were around your investments per gallon in Patriot and One Earth.

Is there future --

Levelland is a smaller plant.

There were some economies of scale that went with the larger plant, but I don't think it's -- I'd have to check the number to see if it's twice.

I don't think it has (multiple speakers)

I got $1.36 a gallon, where the others are $0.70 and $0.69.

(multiple speakers) Big River, $1.04.

Our cost (multiple speakers)

What do you have, again, for Levelland?

I'm sorry.

$1.36.

What was our cost to build Levelland, Doug?

I think, all in, it was about $75 million.

And the cost on the other two plants is probably going to be, all in, about $170 million, something like that.

Correct.

So I don't -- and they're 100 million plants.

Levelland's a 40 million gallon plant, so I think you may be low on the other ones.

You may not be including the debt on the other plants.

If you have 23% in Patriot, 23% of 100 million is 23 million gallons, and your investment's $16 million for those 23 million gallons, that comes out to $0.70.

Doing the simple math (multiple speakers)

It's probably related.

What you're -- what that would mean, then -- is Patriot.

It's higher levered than Levelland.

I think you have to look at it as all-in cost of the plants.

Okay.

Why don't I go over that with you?

I just think (multiple speakers)

Okay.

Yes, that's what I was about to ask (multiple speakers) get those numbers, too.

I think that will give you a better idea because, with leverage, it can -- be a two-edged sword in these times.

Levelland, again, is about -- the plant itself has a capacity of about -- not about, main plant capacity of 40 million.

Investment was about $70 million.

The others -- all the rest of the plants have -- are 100 million gallon plants with an investment of about $170 million.

Levelland is a little bit more expensive because it's a smaller plant.

It didn't have all the economies of scale.

On the other hand, Levelland is probably one of the few plants in the United States that right now is able to cash flow its payments basically because it's in a sorghum market, where the price of the raw material is significantly under the price of the corn market plants.

It also had some advantages to being in Texas and closer to the refineries.

(multiple speakers) It's not significantly more -- it is a little more, but not twice, or anything like that, more.

But your premise is 100% right, that Levelland did cost, on a per-gallon basis, more to build.

That's absolutely right.

And was the $2 million investment in January in Levelland, and plus the letter of credit, was that for -- to meet operating losses, or was that to fund hedges?

No, it was -- both -- I wouldn't say to meet operating losses.

I would say more to fund -- we ended up switching our -- started doing our sorghum buying ourselves.

Prior to that, we had 30 days to pay for the corn.

When we first went into business, our contract with the corn supplier was 30 days.

We felt we could buy corn significantly -- or sorghum, significantly better.

We funded it ourselves.

So the bulk of that money was to switch over from a third party to doing our own corn -- or sorghum purchases.

And that's yielded, except for closed periods of maintenance and -- we found that that's -- doing it this way has significantly helped our plants.

What is the sorghum to corn relationship today?

I don't know about what it is nationally.

We're paying --

Or in your market.

We've been paying 50 under or better, on average.

Is that $0.50, 50 --

$0.50 under the Chicago Board.

All right.

Thank you very much.

I'll digest this and get back in line if I have more.

Thank you.

I appreciate your questions.

Thank you.

Mike Neary, Neary Asset Management.

I wanted to, first off, thank you for the -- you and David for the extraordinary job you're doing, turning the retail assets into cash.

That's very difficult to do and we're in an extremely difficult time to do it.

And you guys have done a very good job so far.

We appreciate it.

It's very hard work, and I truly, truly love the employees that work for me, so it's especially hard for me.

But, as you said, we weren't -- it's something that's run its course.

It's very, very difficult retail times.

I know.

Can you review our long-term retail assets -- what we have, what they're on our books for?

Is it $40 million?

Just review what we have remaining.

They're on the books for a little bit less than $40 million.

It's probably more like $36 million, as far as the fixed assets.

And what that then comprises of is the 44 retail stores, retail properties, and then two distribution centers.

The two distribution centers, in total, are about 650,000 square feet, and the 44 retail stores have about 580,000 to 590,000 square feet in them.

Of those 44, 37 are being leased to Appliance Direct and the other seven -- do we have other leases on those?

Currently, we have four then leased to other parties, and three of them either vacant or in the process of becoming vacant.

In how many stores do we currently have lease obligations -- what are our remaining operating lease obligations going forward, and what's the status on getting those subleased to Appliance Direct?

Our future obligation on those leases is probably between $3 million and $4 million.

Now, Stuart alluded earlier, that doesn't take into account -- we will have, from a P&L perspective, some deferred gains to put against that, so it won't necessarily be a charge to P&L.

At this point, I don't think Appliance Direct has reached -- I think they're only leasing about two additional properties that I am aware of right now.

So most of them, they have not reached an agreement with the landlords and we're just working with the landlords to vacate those as best we can.

But your remaining operating lease obligation is down a lot from what it used to be then.

And it will be, like Doug said, offset by gains related to the sale of properties that were deferred.

And as we close stores, we will be able to bring those gains in.

That along with the gains that come from the service policies.

I understand how the deferred lease income just comes straight through.

How does the deferred income -- how would -- just looking at that alone, going forward, what impact is that going to have on our cash as that part of the business winds down?

Is it a cash use or is it a cash --

It's a cash -- it's a book gain, a cash use.

We already have the cash on our balance sheet from the sale of the service policies, but we did not bring the income in, so technically, our net worth is higher than it shows.

We then have the liability that goes with those service policies.

So, as the TV breaks, if there is a policy, we have to pay out the cash, but we have not brought in the income from that sale of -- the income has been brought in over the life of the policy.

So, net net, there will be a cash loss and there will be a book gain related to the service policies.

And what, just looking at that, would be the cash loss and the book gain, do you think?

(multiple speakers)

Right now, our policies, I think, run -- our cost is about $300,000 a month cash loss.

What is the book gain per month right now, Doug?

Net of the commission, because we also have the commissions out there, it's probably about $600,000 per month.

Book income.

Book income about six -- I shouldn't say book income.

Revenue recognition, about $600,000 net of commission, and then you'd have the $300,000 going against that.

So it would be a net net of about $300,000, book income.

Is that correct?

Yes.

And the commissions are already in your long-term other assets, right?

You already have accrued for those?

That's correct.

We've already paid that out.

So when we deferred the revenue, we also deferred the commission related to it.

So, in total, these are going to use about, what, four years, 310 million in cash?(multiple speakers)

They'll start winding down.

Because our retail business is decreased each year, the sale and service policies have decreased, so it's going to wind down each year.

So we said $5 million, is that about what it's going to (multiple speakers) cash use for the (multiple speakers)

We expect maybe even closer to $7 million, counting what it costs.

But it could be more, it could be less.

Again, it depends on how well these sets work.

But that's what our estimate is.

(multiple speakers) Are deferred taxes, are there any change in control restrictions on those?

If there's a 50% ownership change in three years, do they get restricted, or are there any unusual terms in terms of how they can be used?

Can they be used for any business, as long as it's under the Rex corporate shell?

I can't -- I'm not -- I would have to ask a tax expert.

I'm not sure of that, to answer your question.

(multiple speakers) restrictions, but I can't be sure of that.

But those were from your synthetic fuel, they weren't from (multiple speakers)

Yes.

And we don't think there's restrictions.

Those credits have been sold all over the place, to all sorts of different industries.

So I don't think there are, but I wouldn't want to -- I am not a tax expert.

Yes, we have not totally looked into that.

There very well maybe some restrictions just like there are when you have net operating losses or whatever.

Could you sell those deferred (multiple speakers)

One restriction, for sure, you still have to pay alternative minimum tax.

Yes.

You can't just flat-out sell the tax credits themselves, no.

They have to stay with the corporation.

Yes, that's what I thought.

Okay.

And then, going forward, I don't know if this is something you want to talk about at this point, but after we wind down retail, what does our going-forward corporate expense look like?

We have interest in ethanol plants and cash, and what does that -- what would that run or what does it look like?

A little corporate expense related to servicing the service policies, and then -- we will run with the -- I don't know how many people it'll be.

We will run with, excluding the people servicing the service policies, we'll run with a lean corporate staff and that will be it.

I don't know what the dollar cost will be.

But none of us take huge salaries, and most of us are paid related to how the Company performs.

So we better get this Company doing better.

Can you -- in terms of the ethanol business, you talked about the bankruptcies and the fact that you thought ethanol production would be down this year.

There are still plants coming -- new plants coming online.

The VeraSun plants, as I recall, were bought by Valero, as well as (multiple speakers)

Some of them, not all of them.

(multiple speakers) And yes, there will be some transition of plants, but it's my expectation still that production -- just because the plants are built doesn't mean they're running at full production.

A lot of these plants that are in bankruptcy are still operating, but at very, very minimal -- and I'm not talking about Aventine or VeraSun, but other plants are just keeping the doors open in hopes of a turnaround.

So again, there are plants coming on.

This will be the last year I think you'll see any plants coming on for a long time.

But there are -- but my expectation is that there will be more plants either cutting back in production or just closing down than there will be increase in new plants coming on.

And my last question, you had talked about the cash position you have, and how you've invested in the past, and what's worked.

You have done an excellent job at allocating capital.

The synthetic fuel business was a great one for the shareholders.

So far, the ethanol business has not been.

We paid new-build prices for these things, and they're definitely not returning at that level.

I guess my question is what do you think about, going forward, expenditures or acquisitions, and have you -- did you see anything in the ethanol business that was different than you expected, or -- just what are your thoughts (multiple speakers)

Ethanol for us hasn't been a total bust.

Keep in mind, we did sell one plant and made a very good profit, (multiple speakers) great return on investment.

But one thing I think I have learned, especially as a public company in a commodity business, you want to -- and I think I've learned, we do better finding businesses that can return -- we don't want to wait a year and a half, two years, putting in money into a business and hoping for the return to come after that.

That just didn't work out for us.

And I think what I've learned is our strategy, which -- it had always been in the past, of making -- not building things from scratch, but making purchases that were -- that could add immediately to the earnings per share of our Company.

Our building stores or building real estate, or buying real estate, that had an immediate return was something that we're pretty good at.

And that's what I'm going to look to go back to.

Not something that requires a long-term investment [to wheat].

Or a long time to bring a return to shareholders.

(multiple speakers) And the beauty of right now is there's a lot of opportunity there.

There's a lot of companies that are good companies that the debt's choking them, that have -- or good real estate that the debt is choking people.

Most people don't have liquid cash right now.

Most people don't search in small markets, and nooks and crannies for these things, and that's what we're good at.

I agree.

Thank you.

Ben [Rosenweig], Private Fund Management.

Thanks for taking my call this morning.

Can I just get a quick clarification?

I think the previous question was about the stores for Appliance Direct.

I want to just make sure I got it right.

So how many stores were there total at the time you entered into the agreement?

(multiple speakers)

37 is how many we entered into with Appliance Direct.

And then, how many additional stores were there at the time that Appliance Direct did not lease from you?

(multiple speakers) We ended January 31st with 90 stores, so the balance were stores that were leased out.

(multiple speakers)

(multiple speakers) had short-term leases.

By short-term leases, less than two-year leases on them.

At year end.

Two years or less at year end.

In fact, I think all of them (multiple speakers)

Okay.

Because I was just looking at the purchase agreement, and I think, when I was reading it, it said that Appliance Direct is leasing 37 stores that you own, and then there were 44 stores that you lease that you were trying -- I think the term was use -- that Appliance Direct would use good faith efforts to negotiate in assumption of those 44 leases.

Is that correct?

That's correct.

So far (multiple speakers) they have not.

They have used good faith, but they haven't reached agreement on -- I think Doug said two.

Okay.

Two of the 44.

So are those negotiations ongoing, or did they kind of (multiple speakers)

(multiple speakers) If it happens, it would be great for us.

It would be good, but I don't see it happening at this point in time.

So I guess on those stores, who do you lease them from?

Is it various, or is there one (multiple speakers)

Various people, depending -- various people.

Okay.

Is there any specific geographic concentration of those 44, or are they kind of spread out?

No, they're spread out.

At this point in time, we are expecting -- we're not expecting to get tenants, because our leases are so short.

We feel it will be a bonus.

Okay.

So I guess the plan is just to keep paying operating leases and let the leases terminate in due course?

(multiple speakers) That's right.

In a few cases, we've been able to buy the leases at a little discount, but it's -- most landlords aren't in the mood to do that right now.

Okay.

Difficult.

And then, on the 37 that Appliance Direct is leasing from you, I think you kind of touched on this before.

There is a -- they have the option to purchase them at set prices based on when they decide to kind of exercise those options, if you will.

So where do you kind of see that shaking out right now?

Do you have any indication that certain stores might be purchased early versus later?

We don't -- (multiple speakers) indication right now that they will buy any of the stores, to be honest.

For the most part, it's an all-or-nothing proposition also.

It's not that they get to pick five properties that they'd like to buy.

It's -- if they want to exercise, they would be exercising on the vast majority of those properties.

Okay.

So what happens if they decide not to purchase them?

(multiple speakers) It just continues with the lease, yes.

The lease terms.

What are the terms of those leases, as of right now, or when will those be renegotiated?

They're basically six-year leases.

That makes sense.

So you're just thinking that you're going to keep ownership of those stores and have Appliance Direct as your tenant (multiple speakers) for the next six years?

That's correct.

Great.

And then, kind of moving towards the ethanol end of the business, I'm looking at One Earth and, correct me if I'm wrong, but that still has a roughly $33 million construction loan outstanding right now?

Is that correct?

(multiple speakers)

It's already pulled down $33 million of -- the construction loan is going to be much larger by the time it's done.

Okay.

So have there been any talks about what might be the outcome by the time it's actually fully built, about trying to get that termed out?

When you say termed out, you mean --

It's more permanent financing.

The more permanent financing options.

This is termed -- it is a permanent financing option.

We had to convert to a term loan at the end of the construction period.

Okay.

So you already have all of the terms worked out there.

Yes.

Great.

And then -- do you have any specific kind of projections on One Earth and Levelland/Hockley in terms of future profitability, or it's just going to (multiple speakers)

We really go by crush spreads.

And it takes probably between $0.25 and $0.30 crush spread to have a healthy business, which the industry is not at right now.

(multiple speakers) We're only doing well in Levelland because we're able to buy -- we're using sorghum.

And I wouldn't say we're doing well in Levelland.

We're only able to make ends meet in Levelland because of our sorghum prices.

But I don't think it's any secret the ethanol industry is in deep trouble right now.

Right.

Got you.

From a worse comes to worst standpoint, which -- that's how I look at everything, if our ethanol plants were to fail, we would actually get a large tax -- we could -- right now, we can carryback -- we could carryback against two years of earnings.

And there's expectations it'll be five years by the end of the year, and we would actually get a nice tax refund.

So actually (multiple speakers)

That would be the actual worst that could happen (multiple speakers) a decent amount of cash come in from that.

And just kind of continuing in that scenario, what exactly would that entail, that worst-case scenario?

Would that entail the bank foreclosures on those facilities, when you mean they fail?

(multiple speakers) talking about?

Yes, it would be bank foreclosure.

It would be bankruptcy of those facilities, which would then add to our $90 million in cash to -- then all of a sudden, we would have -- we would have some, actually significantly more cash.

Or if not cash, tax carryforwards.

And then, so there would be no real ramifications there to the holding company, kind of --

Absolutely none.

That's how we've set up.

That's how you structured it?

That's why everything is in partnerships.

That makes perfect sense.

So I guess kind of what's -- I guess the million dollar question is -- or $90 million question is what's the plan for the cash?

Is it going to be an opportunistic, kind of (multiple speakers)

Again, three areas we've done very well in, so those are the first three we're going to look at.

In the energy field, we did terrific -- excluding the ethanol, and we actually did very well in ethanol for -- until this year.

But energy is a place we're going to look.

Our synthetic fuel business came.

We still have all the connections that got us into that business.

Real estate -- during a previous recession, there were great opportunities.

There's some great real estate that can cash-flow positive right now, and have a decent return, and if the economy recovers and have a better return, we're trying to find those.

Again, in smaller markets and markets where we know and where we have our connection.

Where we've spent 30 years of my life, Doug, a large part of his life, also.

Getting to know these markets, and getting to know the real estate in these markets, so we're going to look at that.

And the last thing is we think -- feel very strongly that our stock that's selling at half the book value is a great value.

And we believe in our stock so we're going to continue to use some of the dollars to buy back shares, and it also gives liquidity, should someone need money right now and have to sell the shares.

Those are the three things that come to mind right off the bat.

Those -- do you have kind of any situations that you're targeting as being ideal?

Obviously, real estate is an attractive sector from a value play right now, but is there anything that you're saying, well, (multiple speakers)

We have nothing imminent that I'm going to announce shortly, if that's the question.

Right.

Okay.

(multiple speakers)

For so long of this year, nothing has been better than buying our own -- even now, it's hard to find stuff better than buying your own shares.

When the shares sell at approximately -- or slightly over just the plain cash, not counting the rest of the assets, which we think are very good.

But -- I can't remember off the top of my head -- what's the limit on the amount of buybacks that you're going to be able to do?

You're kind of relatively pressed (multiple speakers)

We've been doing it for so long.

It's really up to the Board to decide and I think right now, how much do we have left that we can buy, Doug?

On the term authorization?

About 450,000 shares on the buyback.

Got you.

So is that kind of a situation where that's your limit until it's not your limit any more, or (multiple speakers)

The limit until the Board -- the Board has always given us, once we've gone through one limit, another -- a new limit to go after, and we've always thought we're not one of those companies that makes announcements idly.

We're very proud of the fact when we say we're going to do something, we've done it.

That's our history.

A lot of companies announce buybacks and never do them.

Right.

Okay.

And I guess you're also seeing that the advantage with the stock buybacks is that it's kind of an immediate use of the cash versus having to wait and taking the chance that the market doesn't improve and a lot of it kind of gets burned in these operations, right?

That's right.

Okay.

I think that's all I have.

I really appreciate your time, guys.

Thanks for answering my questions.

Arnold Brief, Goldman & Harris.

How long (multiple speakers) can the ethanol continue to operate at current crush margins before you would have to do a substantial write-off?

Levelland, right now, we're okay on that.

Like I said, we're not doing great, but we're okay.

Big River is doing fine.

The others -- the only other one operating is Patriot, and they've made payments, so again, we've been able to -- we're not at -- we're not at the end of the line, but we're sure not doing anything that any shareholder could get excited about.

Including (multiple speakers)

Let me try to rephrase the question.

(multiple speakers) If crush margins were the same at the end of '09 as they are today, would you have to write off some of the facilities?

Would you have to take a write-down?

(multiple speakers)

Like I said, I don't think so or we would've had to have done it at year end.

I don't think so.

And you have -- these short-term leases, but some of them run for two years.

Very hard to quantify.

But as you wind down retail, your critical mass is less and less.

Could you give us some idea of what you think your losses might be on the retail operations that are operating under leases for the next two years?

Our total -- if we don't get any tenants, what is our total obligation, Doug?

If we get zero tenants?

Cash outlay would probably be between $3 million and $4 million.

And there is no stores under leases that are still operating, then.

They're still operating now.

We haven't closed everything down yet.

(multiple speakers)

(multiple speakers) those places still incurring losses, I would assume.

Yes, they are incurring losses.

That's -- the losses, though -- at least from a book standpoint, they're being -- for the year, the losses, including the lease losses, should be offset by the service policy gains.

And also by the deferred income related to the real estate.

You indicated Appliance Direct is not likely to exercise their option to buy, I would think the first 70-day option is just about over.

And if they didn't buy at the lower price, there wouldn't be much reason to buy at a higher price (multiple speakers)

Or at least they might as well wait two years until that one (multiple speakers).

In two years, you never know what it's going to be like.

Could you give us some idea how -- I know it's not your company, but obviously you're a publicly-owned company that's related to some degree to their success.

Could you give us some idea how they're operating?

Are they making any money?

Are they able to play the leases?

How good are the leases (multiple speakers)

They are an appliance -- privately-held appliance store that does not and would not want their [numbers] being told to anyone, so I am not going to violate that trust.

But they have been very successful in probably the hardest market in the country, south Florida.

And I think, my own opinion is that they will be very successful in these smaller markets.

It's going to be a little bit different for them, but they, in my opinion, have the abilities.

I think it's an opportunity for our employees to get in on the ground -- the ones that stay with them -- to get in on the ground floor of a company that's going to be very big one day.

They have a lot of energy, a lot of enthusiasm, and I have great hopes for them.

So you would think -- it's only a guess at this point, but you would think that option to buy might be exercised at the end of the few years.

That, I don't know.

I couldn't speculate on that.

I think it didn't hurt for them to get that thrown into the transaction, but I don't know that they want to be a real estate company.

Thank you very much.

That concludes our question-and-answer session.

I'll return it to our speaker, Mr.

Rose.

I would like to thank everyone for being on the conference call and I appreciate your listening very much.

Thank you.

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.