Douglas L. Bruggeman - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance and Treasurer Stuart A. Rose - Chairman, Chief Executive Officer and Member of Executive Committee

Paul Resnik William R. Jones - Singular Research A.J. Strasser Katja Jancic - Sidoti & Company, LLC

Ladies and gentlemen, thank you for standing by. Welcome to the REX American Resources Third Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead. Douglas L. Bruggeman: Good morning, and thank you for joining REX American Resources Fiscal 2013 Third Quarter Conference Call. We'll get to our presentation and comments momentarily, as well as your Q&A, but first, I'll 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 risk and uncertainties within the meaning 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 risk and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q. REX American Resources assumes no obligation to publicly update or revise any forward-looking statements. I would like to now turn the call over to Stuart Rose, Chairman of the Board. Stuart A. Rose: Thank you, Doug. And I'd like to welcome everyone to our third quarter conference call. Earnings for the quarter rose to $9.9 million compared to $400,000 in the comparable quarter last year. Earnings per share rose to $1.21 from $0.05. Earnings year-to-date, $19.2 million versus $2.15 million last year. Earnings per share year-to-date $2.34 versus $0.26 last year. Sales were off a little bit. As we received lower corn prices we passed some of that back on to -- back down to our customers. The biggest reason why we did so well this quarter and why things are going so well is our gross margins went up so much. They increased 386%, from $3.7 million last year to $18.2 million in the quarter. And year-to-date, our gross margins have gone up almost over 100%, $37.9 million versus $16.2 million. The reasons again why we're doing well and things are going as they are currently and there are a few reasons. The first is the increase in crush spread. Corn prices, our harvest came in and we benefited -- some of that benefit came in this quarter. With the harvest coming in, corn prices for us fell quicker than ethanol selling prices. We were paying significantly over basis for corn for most of this year. And with a good crop in, our prices have gone down dramatically relative to basis, and a lot of that's been put in -- a lot of that has come into our margin. Second thing is historically, higher than RIN prices have allowed us to -- our customers have helped me -- have caused them or have incentivized them to buy ethanol versus RINs, which we don't sell the RINs directly. We sell the ethanol and they do get RINs when they buy our ethanol. Third and probably the biggest reason is we have terrific plants. We have Fagen/ICM, large plants in the Corn Belt. And again, our plants are among the finest in the industry. We don't have any plants that are dragging, any plants that aren't Fagen/ICM. We have very, very good plants. And the fourth reason is the selling price. A strong selling price of our byproducts, DDG and corn oil. They did very well in the quarter, and they continue to do very well. Demand for both of those products is very, very good. And finally, the most important thing that we have that separates us from the industry and that we feel very strongly makes us better from the top down, from Zafar Rizvi who runs our ethanol division to the plant managers to the plants to the people. We feel we have the best employees in the industry, the most experienced, seasoned. We've been in this business for a long time. They've been doing their jobs for a long time. And again, our employees are really what separates us and makes us better than -- makes us feel we're better than the rest of the industry. Going forward, fourth quarter is continuing very strong. We definitely will outperform last year. Last year, we had a large loss in the fourth quarter. And based on current results, if things stay as they have been and we're already over a quarter -- over a month into the quarter, we currently expect to outperform our results of the third quarter. We currently benefit from strong ethanol demand. Inventories are low, crush spreads are at very profitable levels. Our corn prices now the harvest is in, so corn prices are in our favor. We're paying significantly less for corn relative to basis that we had previous during the year. So things are currently looking very, very good. And our plants are, and I'll say this again, we consider our plants to be among, if not the very best in the industry, they're certainly among the very best in the industry. On clouds on the horizon for next year, the only big one is the EPA's decision to reduce the Renewable Fuel standard a little bit, and that certainly is not a benefit. It's they -- this year I believe was 13.8 million gallons, next year -- 13.8 billion gallons, next year 13 billion gallons. And again, that's something that the industry does not like to see. It's not helpful, we think it's silly. If the goal is to wean the U.S. off foreign oil, this is a step in the wrong direction, hurts our balance to trade. Farmers been taken off price -- price supports. Now there's talk of that starting to happen again. Farm belt hasn't been in recession. Again, we don't -- we think this is a silly decision. Don't understand it, and hopefully in the next 60 days in the discussion period will be changed. That being said, if it's not changed, a lot of plants have opened in the last quarter. We've been through times where there's been more demand -- more supply than there's demand. We expect the marginal plants to close, corn prices are down significantly. We expect import of ethanol to be knocked down considerably. And again, with the very best plants in the industry, we've been through this a number of times. The marginal ones fall off and there are -- poorly financed ones fall off and the better ones tend to get stronger. That's what's happened to us, and our results proved that out. In terms of our -- the other thing I should say related to next year is corn prices. If this mandates that the -- if the lower RIN number stays in effect, it should dramatically lower corn prices as demand for corn will be less. And with lower demand being in the Corn Belt, hopefully we can buy our corn relative to basis even better than we're currently doing. In terms of our cash position, we now have $93.4 million in cash, $46 million of that is unrestricted at the parent level. Our debt is down to $88.4 million compared to $107 million on approximately $106.9 million at the beginning of the fiscal year. We're in a very, very strong cash position. And actually, our cash is greater than our debt, should we chose to pay off our debt. Our repurchase program is continuing. It's active, we bought back 76,457 shares during the quarter at an average price of $29.07. In terms of legacy stores related to our previous retail business, we sold 4 stores and 1 distribution center for $8.2 million. Now, we hold on our books only $4.7 million of real estate related to the old retail stores. And we've done a really terrific job of liquidating those stores. And also being good corporate citizens and not taking care of those stores and making sure -- doing our best to make sure that they're go into good hands and don't become empty warehouses sitting in the cities. We're actively pursuing our patented oil steaming technology. We bought 60% of an oil steaming technology at the beginning of the year. We're very excited about that business as it has a potential to free up billions of barrels of deep heavy oil if successful. We hope to open -- we expect to open our first demo plant next year. At that time, we'll be able to better evaluate the technology and let you know what we expect the future of that to be. In conclusion, we're an extremely well-financed company, with a very -- with what we feel is the very, very best plants, Fagen/ICM plants in the Corn Belt. Our people are experienced, and know what they're doing and have been through all sorts of different times and certainly, they can do well in good times. They've also, and this is what we're probably most proud of, adept at handling tough times from drought to high corn prices. We've been through it all. And through it all, we've come out and continued to do better than the rest of the industry. Corn prices are coming down. And when I say that I mean relative to basis. We paid significantly over basis in quarters leading up to this quarter. Right now, it looks like we can buy our corn at historical prices, which will be a big benefit to our shareholders. The regulatory front is a cloud, but again with the best plants in the industry, we expect the marginal if this rule stays in effect, the marginal plants to close down and us to do better than the rest of the industry. In conclusion, we're prepared for anything. And there's probably no one more excited or no company more excited about the ethanol industry and better prepared to do well in this industry than REX. At this point, I'll leave it open for questions.

[Operator Instructions] And our first question comes from the line of Paul Resnik with Uncommon Equities.

When you were saying you obtained less relative to basis, and I know it depends on the plant. But on balance, are we back to maybe negative basis? Or is it [indiscernible]? Stuart A. Rose: Currently on balance, I would say we are, yes.

Very good. Stuart A. Rose: It's not always that way, but on balance I'd say, yes.

And exports have picked up. Are you participating in exports or you're one removed from that? Stuart A. Rose: We're very much -- we think we're participating very much in the DDG exports. We sell to marketers and it's up to them to deal with the product. We don't track the product from there, but my guess if exports are picked up -- we don't know where it -- it's interchangeable what our marketers buy, so we don't know exactly that our ethanol is being exported, but we can assume if exports have picked up, that it's -- we're in the mix.

And lastly, with regard to the EPA proposal, I'm still having trouble figuring out the legal basis for a cut in the mandate. Do you have any thoughts, beyond being counterproductive to the country, do you have any thoughts about relative to the law on what basis they feel they can reduce the mandate? Stuart A. Rose: I don't have any comments on the legal -- on the legal basis. But by the time it gets challenged, the year will probably -- by the time it goes through, if they stick to their guns it will probably be too late. I don't think they can mount a court challenge quick enough to change whatever is decided. But I'm sure our industry will mount a court challenge. And it's very disappointing. The EPA stood strong during a very, very tough year last year when there was drought, and there were a lot of problems this year we don't really understand. They put in E15, and we really don't understand why they caved into -- in my opinion big oil, but it's what happened, and again we're in the comment period hopefully it will change. It still has the ability to change. And in any event, like I said earlier, with the best plants in the industry, we may go through a quarter or 2 of tough times. But very quickly, this industry supply and demand balances out. A number of marginal plants have opened up this year, with lower corn prices. As you mentioned export is a possibility. With lower corn prices, imports become tougher to come in; that is one of the benefits of the new RIN policy, it limits the amount that we expect to be imported. So in balance, it's just something we have to deal with. It's not good, but it's something we have to deal with. That's all.

[Operator Instructions] And our next question comes from the line of Bill Jones with Singular Research. William R. Jones - Singular Research: I wanted to touch on the cash that you mentioned, that's currently on the consolidated balance sheet of about $93 million, which exceeds the debt. About half of that is at the -- is consolidated at the plants. Can you just give us a little understanding of what you expect of that cash? I mean, ultimately it's going to be used to pay -- I know you don't control it, but that would likely be used to pay debt or paid off to the parent at some point? Stuart A. Rose: At some point, we're going to be, as you probably have figured out, we're -- in fact right now we have more cash than we do debt. So we've been using our cash previously while other people are out buying what we consider less or more -- what we consider less valuable or more marginal plans than us, we've been pretty active just buying into our own plants and buying back shares. Not pretty active, real active in spending our cash doing that and paying down debt. With the pay down of debt, once it's done then that cash will be used -- assuming we can do as well as we did last quarter, for an ongoing period of time. Cash flow will be huge and at that point it will be up to the board to decide whether to start paying a dividend or whether if this heavy oil operation that's so big, it could be amazing if it works. But again, that's one thing that we could look at and we could look but more probably, knowing our board and knowing they will look at ways to -- besides the buy back, of ways to distribute some of that cash to the shareholders. William R. Jones - Singular Research: Okay. And during the quarter, you repurchased about 2.2 million of stock. Stuart A. Rose: I'm sorry, not 2.2 million. Dollars. William R. Jones - Singular Research: Shares. Stuart A. Rose: Yes, dollars, that's correct. I'm sorry. William R. Jones - Singular Research: Okay, and then related to the stores, so there's 5 stores left and you sold 4 during the quarter? Stuart A. Rose: 4. And the biggest one we sold was the warehouse, that was the one that was the hardest -- that I felt would be the hardest to sell. The stores that are left were good -- many of them were good stores in good areas, in markets where the real estate is coming back. So we're not -- at this point we feel like we -- any worries on that front are completely gone. William R. Jones - Singular Research: So the distribution center actually was sold after the quarter end, correct? Stuart A. Rose: Yes, it was sold after quarter end, that's right. William R. Jones - Singular Research: Just to understand because the balance sheet is as of quarter end, do you know what the amount that was and the gain on that? Stuart A. Rose: Doug, do you want to go over that? Douglas L. Bruggeman: Bill, there will be no gain on it. Pretty much will be a wash from a P&L perspective. The cash proceeds from that was a little over $5 million, between $5 million and $5.5 million. William R. Jones - Singular Research: And that was pretty much my specific questions. Maybe just generally speaking, if you could remind us of just your vision for the going forward store with obviously the ethanol market, you believe in but the growth may be limited obviously with this new EPA revised mandate. So maybe you can give us just your strategic vision longer term, where you see the company going, and where you may make investments in the future? Stuart A. Rose: Well, okay. There's a few things. One, we continue to look at it. We haven't had the opportunity, things are really pretty good right now at all our plants to buy shares in our existing plants. That hasn't happened, but that could happen at any time. And our plants are really good. Another great plant could come up, we could look at that. We are excited about the heavy oil and probably the best option for us at this point, if things keep going and the cash keeps coming in is to distribute some of that to our shareholders. And that's something that we've gone through buybacks. If we don't have to pay down debt, there's going to be a lot more cash coming in. Again, this is looking a couple of years down the road, but a lot of cash coming in and that gives you a lot of flexibility to do good things for shareholders. And that's -- we try to always do that, and that's what we'll continue to try to do to the best of our ability.

[Operator Instructions] And our next question comes from the line of A.J. Strasser with Cooper Creek Partners. A.J. Strasser: It sort of emphasizes the kind of $6 earnings power story here. So I think this actually could go a lot higher. I just -- I know maybe there could be minimal updates. I just want to kind of touch basis with you on it. In terms of -- any updates or kind of results [ph] on potential to translate into an MLP or just have you guys looked into that further? Stuart A. Rose: Yes, we have looked at it. We have a lobbyist. In fact, the lobbyist has been attested, he's the speaker of the house, and he works on -- he's looking, we're looking into it, but with a frozen Congress right now, I wouldn't want to give anyone -- I think if there's ever a tax bill, there's a chance there's a lot of support for it on the hill. I've been to Washington to talk a little bit about it. And I think there definitely is a lot of support. But whether any tax bill, it's going to have to happen, we believe in a tax bill and who knows what's going on with Congress. We don't know any more than anyone else or expect anything more than anyone else with this Congress. So there's no -- there's nothing new I can tell you. A.J. Strasser: Okay. It just seems that its getting bipartisan support, and I guess Congress their time on the side, is it something that if it did get passed, or got close to it, you guys would take very seriously I guess with orders. . . Stuart A. Rose: At that point we will look at it. We certainly would want it to pass because it's another option that we have for the company, but at this point in time, it's not even an option because it's -- we're sort of legislatively not able to do it. A.J. Strasser: Okay. And then can you guys just talk about x the sale of the real estate assets, how much cash did you generate in the quarter? And assuming things stay this good or as good as you kind of hinted at, what kind of cash flow generation could you do on an annualized basis at these levels and would you consider a special dividend and would that be the first of its kind, I guess, to understand it? It seems like you're considering that? Stuart A. Rose: Doug, do you want to talk about the cash flow? In relation to the special dividend, everything's -- if we keep generating a lot of cash, everything's up in the air, but that would be a board decision that I could not make or tell you what would happen or how they would decide, what would go along with that. Doug, do you want to talk about the cash regeneration in the quarter? Douglas L. Bruggeman: Sure, yes. Our cash flow from operating activities was about $43 million for the first 9 months of the year. Obviously, the third quarter contributed a significant amount of that just with how strong that quarter was. It's obviously, all that fluctuates just depends upon how much inventory you build and things like that. My personal belief is if things continued the way the third quarter was, the company on an adjusted basis could earn as -- generate as much as $60 million to $70 million of EBITDA. When I talk about that, I'm talking about, including the plants that we don't consolidate on an ownership percentage and things like that. Who knows where the industry goes the future, but the way the third and fourth quarter have been running, that's the potential. A.J. Strasser: $60 million to $70 million of EBITDA with a $240 million market cap, that's a lot of cash generation. Could you specifically tell us how much cash did you generate in Q3 just because it was so skewed to it? Douglas L. Bruggeman: I just have the 9-month numbers in front of me, A.J. I don't have them just specific for the quarter. Stuart A. Rose: It was pretty much -- we don't -- we didn't have any big capital expenditures so if you add back depreciation, it'll give you a rough number but not an exact number. Board [ph] depreciation by the way is different from our tax depreciation, so it's not exact.

[Operator Instructions] And our next question comes from the line of Katja Jancic with Sidoti & Company. Katja Jancic - Sidoti & Company, LLC: I think you mentioned that you expect the fourth quarter to be stronger than the third quarter, is that correct? Stuart A. Rose: Yes, my words. The exact words were, if things continue like they're going now, it's the company's expectations to do better in the fourth quarter than the third quarter. And we already have a month to the quarter end, so we're feeling really good about the fourth quarter. Katja Jancic - Sidoti & Company, LLC: You're being below basis for corn. Is there any percentage wise you could share how much below basis you're paying or a range? Stuart A. Rose: No, I think that's all we want to say right now. Yes. Katja Jancic - Sidoti & Company, LLC: Okay. Now for the heavy oil project, you mentioned you're going to start testing it, if I'm correct next year. Are there any expenditures you expect that will be associated with that? Stuart A. Rose: Less than $5 million, probably less than $3 million for the demo plant. And that will be it for the demo plant. The beauty of this technique is it doesn't require a lot of heavy expenditures and it can produce -- if it does what it's supposed to do, it has a possibility to open up reserves all over the world without large, large expenditures, just by the nature of the technology. Katja Jancic - Sidoti & Company, LLC: Regarding the byproducts. With the falling corn prices, do you expect the price of the byproducts to decline as well? Stuart A. Rose: I'm sure they will. Yes. So far, they've held up amazingly well -- to be amazingly well. China has been a big, big buyer of DDGs. And our corn oil prices have held up. But certainly, if corn falls, it's only natural that the byproducts will fall at some point in time.

And there are no further questions on the phone line at this time. I will now turn the call back over to you, Stuart Rose. Stuart A. Rose: Well, we'd like to thank everyone for being our shareholders and we'll do our best to keep things going in the direction they're going in. Thank you very much for your support. 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.