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Medical Action Industries Inc. (NASDAQ:MDCI)

Q3 2013 Earnings Call

February 11, 2013 9:00 am ET

Executives

Paul Meringolo – President, Chief Executive Officer

John Sheffield – Chief Financial Officer

Brian Baker – Corporate Controller

Analysts

Matt Dolan – Roth Capital Partners

Steve Friedman – Wells Fargo Advisors

Jack Wallace – Sidoti & Company

Operator

Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the fiscal year 2013 third quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key.

Thank you. I would now like to turn the call over to Mr. John Sheffield, Chief Financial Officer. You may begin your conference.

John Sheffield

Thank you, Amy. Good morning and thank you everyone for holding. With me today are Paul Meringolo, Chief Executive Officer and President of Medical Action; and Brian Baker, our Corporate Controller. The primary purpose of this call is to discuss our results for the third quarter of fiscal 2013 which were released this morning.

In the course of our discussion, reference may be made to projections, anticipated events or other information which are not purely historical. Please be aware that statements made during this call which are not purely historical may be considered forward-looking statements. We caution you that all forward-looking statements involve risks, unanticipated events, uncertainties and other factors that could cause our actual results to differ materially from those anticipated in such statements. Many of these risks, events, uncertainties and other factors are disclosed in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and other reports and filings with the Securities and Exchange Commission which are made available on our website. To the extent any forward-looking statements are made during this call, such statements are made only as of today’s date and we do not assume any obligation to update any such statements.

It’s now my pleasure to turn it over to Paul Meringolo. Paul?

Paul Meringolo

Thanks John. Good morning and thank you for joining us today. On behalf of all the teammates and stockholders of Medical Action, I am proud to speak to you today about our record quarterly gross profit results, the implementation of various cost savings initiatives, and the overall success of the strategic actions the management and board of directors have implemented over the last nine months. Without a doubt, the company experienced some challenges around this time last year; however, the management team and the board set out about creating a deliberate strategic plan to refocus the company and return to profitability.

Over the last nine months, the management team has been actively implementing this strategy which involved a number of important structural, managerial and operational changes. As the CEO of this company and one of its longest tenured employees and largest individual stockholder, I am excited about our success to date and I am confident that this quarter is among the first steps in many that will return this company to the success and growth that we have seen in prior years.

I’m sure you read this morning’s press release in which we outlined our significant operational improvements in gross profit and earnings. We also reported a non-cash goodwill impairment charge in conjunction with our annual goodwill impairment test. While a required accounting adjustment, it also masks some significant improvements in the company’s profitability, such as our growth profit, which is the highest quarterly amount in the company’s 36-year history. We will be happy to provide more discussion and detail on this goodwill impairment charge, but I suspect you will be more interested in our significant operational improvements.

Within our press release and throughout this call, references are made to adjusted earnings which will exclude the reported impact of the goodwill impairment charge as well as other one-time events. Management believes that these adjusted earnings references are meaningful indicators of our performance and will provide useful information to investors and employees regarding our financial condition and results of operations.

Later during the call, we will provide an update on some of the projects and initiatives that have yielded the year-over-year and sequential operational improvements we reported today; but for now, I’d like to turn it back over to John to discuss our results for the third quarter of fiscal 2013.

John Sheffield

Thanks Paul. Yes, I too am very pleased to speak today about these record profits and the continued success with our strategic plan to improve our operations and profitability. As we noted on our press release earlier this morning, Medical Action reported net sales for the third quarter of fiscal 2013 of 109.4 million and gross profit of 19.1 million, which as Paul said is the highest in company history, and it also is 17.5% of net sales. The company generated non-GAAP net income before the goodwill impairment charge and certain professional fees of $1.6 million or $0.10 per diluted share, and EBITDA as adjusted of 6.1 million. These gross profit, non-GAAP net income and EBITDA results represent significant increases versus the comparable adjusted results for the same period of fiscal 2012.

Net sales were down 3.6 million or a little more than 3% when compared to the third quarter of fiscal 2012. This modest decrease in net sales results in part from management’s effort to focus on profitable business and to decrease or eliminate unprofitable or non-core sales. Our focus during the last three quarters has been on improving our gross profits and our results show the impacts of our efforts. We will continue to focus on improving our profitability and with further success will continue to rebalance these efforts towards returning to top line growth while maintaining profitability discipline. Ultimately, our strategic objective is to grow revenues and profits, with the growth in profits outpacing revenues.

On a non-GAAP basis excluding the goodwill impairment charge and certain professional fees required by our renegotiated credit agreement, the company generated net income of 1.6 million or $0.10 per basic and diluted share for the third quarter of fiscal 2013 compared to the non-GAAP net income before bonus accrual reversal of less than 0.1 million, or $0.00 per basic and diluted share for the third quarter of fiscal 2012. So operationally on a comparable basis, excluding the non-recurring items and prior year bonus reversal, our net income grew significantly, $1.5 million over the third quarter of fiscal 2012.

We’ve heard from several stockholders, equity research analysts, and other prospective investors that the inclusion of EBITDA would be helpful to those readers of our financial results, even though EBITDA is a non-GAAP measure. We are happy to provide this calculation and have included EBITDA and EBITDA as adjusted in our press release and filings. EBITDA as adjusted for the third quarter was $6.1 million compared to 3.8 million for the same period of fiscal 2012. There are several non-recurring adjustments that go into this calculation, which we’ve laid out in detail in the press release.

We are proud of our efforts at improving our profitability and our current period EBITDA increase of approximately 60% over the comparable period last year is confirmation of our hard work and success in executing on our strategic plan. On a GAAP basis, the company reported a net loss of $55.5 million or $3.39 per diluted share principally related to the non-cash goodwill impairment charge of $56.8 million, which was net of the income tax benefit. This was determined in connection with the company’s annual goodwill impairment test.

While competitive pricing pressures and persistent volatility in raw material costs, particularly resin, continued to influence our profitability, the results for the third quarter of fiscal 2012 were favorably impacted by $1.4 million in lower resin costs and 0.4 million in lower cost of products procured from our China-based vendors when compared to the prior period. While we are pleased to be benefiting from modest relief in what had been record high material costs, we have not yet returned to the cost levels the company experienced as recently as fiscal 2010.

As stated during previous calls, we believe that our current gross profits, even at this improved level, are not representative of what our business could generate over the long term. We will maintain our strategic focus on expense reduction, raw material management and productivity improvements, as well as managing our sales prices and mix of products sold to provide a positive effect on our gross profit and earnings for the foreseeable future.

As noted earlier, resin costs have declined slightly year-over-year. While declining costs are encouraging, we remain exposed to fluctuations in resin costs. As noted also in prior quarters, there has been a dramatic reduction in the cost of cotton within international markets. While we anticipated this decline in overall cotton prices from their previous highs, we’ve only recently begun to see a modest decline in the finished costs of our cotton-based products, which are primarily sourced from our China-based vendors. These declines, while nominal, should result in improvements to gross profits in the near term. We are working diligently internally and with our vendors to further reduce costs and the volatility associated with these raw materials and imported finished goods.

Over the next few months, we intend to begin implementing more formal operational and financial strategies to partially mitigate the impact that fluctuations in resin costs have on our profitability. Additionally, we are focused on improving our working capital position. Certain strategies and projects that will reduce our procurement costs have already been implemented and others are in the latter stages of completion. These cost reduction projects will be integral in improving our profitability and achieving our operational goals over the next three months and beyond.

Now let me speak briefly about our nine months year-to-date results. Net sales for the nine months ended December 31, 2012 amounted to $334 million, an increase of 4.6 million or 1.4% compared to 329 million in net sales reported for the comparable prior year period. While this is modest growth over last year, I will reiterate that our strategic focus has been on improving profitability and on reducing or eliminating lower profit sales and products. Over time, we will slowly shift to disciplined and profitable growth metrics which are more in line with our historic growth rates and revenues.

On a non-GAAP basis, excluding the goodwill impairment charge and certain professional fees required by our renegotiated credit agreement, the company generated net income of $1.9 million or $0.12 per basic and diluted share for the nine months ended December 31, 2012 compared to adjusted net income before the bonus accrual reversal and extraordinary item of 0.4 million or $0.03 per basic and diluted share for the first nine months of fiscal 2012. So operationally on a comparable basis excluding the non-recurring items and prior year bonus reversal, our net income grew significantly, $1.5 million increase or 375% over the first nine months of fiscal 2012.

On a GAAP basis, the company reported a net loss of 55.6 million or $3.39 per diluted share principally related to the goodwill impairment charge of $56.8 million net of income tax benefit determined in connection with the company’s annual goodwill impairment charge. When compared to the comparable prior year period, the net results of the nine months ended December 31, 2012 were favorably impacted by $1.2 million in lower resin costs and $0.4 million in lower costs of products procured from our China-based vendors.

And now a bit about the medical device excise tax. As required by the Affordable Care Act effective January 1, 2013, we are subject to a medical device excise tax on 2.3% on the sales price of a small portion of our products. Until recently, certain provisions of the excise tax were unclear and our management team has worked diligently to quantify the expected impact and compliance requirements of the excise tax. Based on our current revenue levels and mix of products sold, management believes that the excise tax impact will amount to less than $1 million annually according to the current regulations and guidelines issued by the IRS related to this tax. We will continue to investigate opportunities both internally and externally to mitigate the earnings impact of the company as a result of this complicated tax, which is negatively impacting our entire industry.

Going forward, our strategy continues to focus on long-term sustainable organic growth in revenues and operating profit, and I will note that we are primarily concentrating on increasing profitability at a greater rate than revenues. Throughout the company, we remain focused on increasing productivity and effectively utilizing our people and their capabilities to their fullest extent possible. Through the effective execution of these strategies, management intends to improve gross profits, grow market share, and effectively reduce operating expenses.

I will now turn the call over to Brian Baker, our Corporate Controller, to discuss the company’s liquidity and capital structure.

Brian Baker

Thanks John. The company’s credit agreement consists of a term loan with an outstanding balance of 49 million and a revolving credit facility which is governed by a borrowing-based calculation. As of December 31, 2012, the balance outstanding on the revolving credit facility was 5.3 million and the balance available to the company amounted to an additional 10.7 million. The credit agreement also contains certain financial covenants and ratios to which the company must adhere. As of December 31, 2012, the company is in compliance with all financial covenants and ratios required under the credit agreement. For further information on the company’s borrowing base, financial covenants and ratio requirements, please refer to the company’s filing on Form 8-K dated June 13, 2012.

At December 31, 2012, the company’s cash-on-hand was 0.2 million and working capital was 46.8 million. The company manages cash-on-hand to minimize the amounts outstanding under its revolving credit facility in an effort to reduce borrowing costs. During the nine months ended December 31, 2012, the company generated 17.5 million in cash from operations which in combination with cash-on-hand at March 31, 2012 was utilized to pay 7 million on our term loan and 14.4 million on our revolving credit facility, for a total reduction in our debt balances of 21.4 million.

A significant portion of the cash generated from operations in the past nine months was the result of an extension of more favorable payment terms to us by vendors on certain inventory purchases. In addition, in preparation for the annual inventory import disruption caused by Chinese New Year, we have increased our inventory balances by 0.6 million or 1% when compared to March 31, 2012. In the near term, our inventory balances are likely to decline as our import receipts normalize. This reduction of inventory balances will have a positive impact on our cash flow.

Over the next 12 months, 7.3 million will mature on the term loan portion of our credit agreement. We believe that the anticipated future operating cash flow coupled with cash-on-hand and available funds under the credit agreement should enable us to allocate funds for purposes such as required debt payments, capital expenditures, marketing, product development, and other general corporate purposes. The debt facilities within our credit agreement will mature in June 2014.

We are actively discussing our options to refinance these debt facilities in the next several months and will provide an update, if appropriate, at our next conference call, likely scheduled for late May, regarding our fiscal year-end results. Our strategic objective in this potential refinancing is to build the most appropriate capital structure for the company with terms and maturity dates most advantageous to the company as we continue to improve our profitability and cash flow.

I will now turn the call back to Paul to provide an update on some of the projects and initiatives that have yielded the year-over-year and sequential operational improvements we reported today.

Paul Meringolo

Thanks Brian. The realignment of the company into strategic business units earlier this year has improved management’s focus on targeted markets. In addition, the teams led by SBU Presidents Rick Setian, Chuck Kelly and Cindy Bell have done an excellent job of implementing action plans specific to each SBU, centered on improving profit and containing costs. Additionally, as previously mentioned publicly, we have brought on Paul Chapman, one of our directors, as our interim Chief Operating Officer. Paul has been immediately helpful in further defining our corporate and SBU strategic goals and implementing many managerial best practices that he has gained during his distinguished career as a senior executive in the healthcare industry.

These strategic and cost savings initiatives are ongoing and will take some time to fully implement and positively impact our operational results; however, I am confident that the focus and management effectiveness of these strategic business units will continue to yield near-term as well as permanent improvements in profitability. The management of Medical Action as well as our board of directors remain acutely aware of the importance of achieving these initiatives and delivering improved results to our stockholders.

Finally as always, I would like to recognize the contributions of all of our teammates whose continued focus, energy, enthusiasm and dedication to Medical Action are greatly appreciated. Once management and the board set out our defined strategy and objectives, it has been these teammates who have achieved these results to date and those we expect to gain in the future.

I’d like to thank you for participating on our call this morning. We look forward to discussing our progress with you on future calls.

At this time, Amy, I would invite the security analysts to ask any clarifying questions.

Question and Answer Session

Operator

[Operator instructions]

Your first question comes from the line of Matt Dolan with Roth Capital Partners.

Matt Dolan – Roth Capital Partners

Hey guys, good morning. Congratulations on the turnaround.

Paul Meringolo

Hey Matt – thanks.

Matt Dolan – Roth Capital Partners

Hey Paul. So I wanted to start on gross margin. It sounds like you feel this is the early stage of turning that metric around specifically, and you have a number of variables that you touched on that are in play and helping at this point. But getting back to this fiscal 2010 level, it’s stay a ways away – I think it was 23 or 24% gross margin. Could you help us, looking at your December quarter and some of those variables, tell us how far along you are in terms of some of the cost savings initiatives you put into play, what the impact of removing some of these unprofitable product lines were, the raw material impact, and how quickly you think you can get back into the 20’s.

Paul Meringolo

That’s a good question, Matt. There’s a lot of components to that question. I think we are very pleased with the progress to date but I can tell you that a significant portion of what we have identified and what we have yet to identify is not reflected in these numbers. We have a huge base of costs of good sold; we have a huge base of expenses that we are focused on, as well as our pricing strategies going forward, Matt. So again, I think that a lot of the things that we have identified, there are some that are included in these numbers. We’ve had some tailwind from resin and some China-based purchases that helped move us along. I think some of the cost savings initiatives that we have identified are in these numbers, and I can’t give you an exact number of what those are that are in these numbers but we continue to push. I think we had mentioned in one of our conferences that we had identified about 10 million of cost savings initiatives, and there is a portion of those included in these numbers today.

As for getting back to the 20% range, Matt, I think it’s going to take a little time to get there. It’s not going to be in the next two quarters.

Matt Dolan – Roth Capital Partners

Yeah, but I guess maybe just to make it a broader question, you saw almost a 200 basis point sequential increase in gross margin. Obviously you won’t see it with that kind of slope, but should we anticipate consistent meaningful sequential increases in growth margin over the next several quarters?

Paul Meringolo

Matt, barring any significant headwind that could knock us off track, which I don’t anticipate, and us really strengthening our approach to pricing in the marketplace as well as discipline on the cost side of the business, I don’t see anything that could stop us from continuing to have incremental positive impact on gross margin going forward.

John Sheffield

Matt, it’s John. I’d just add that as Paul mentioned, it’s a combination of pricing discipline but also productivity and efficiency in our factory and manufacturing facilities. Most of the cost savings that we have done to date have only begun to touch on that, and so we will continue to be focused on increasing our manufacturing efficiencies.

Matt Dolan – Roth Capital Partners

All right, that’s helpful. And then on the revenue side, this elimination of unprofitable products, how much of your revenue base did that hit, and I guess conceptually why didn’t you do that earlier, or what’s the downside of eliminating those? Are there any bundle-type products that you may lose a customer for? Just walk us through that process, please.

Paul Meringolo

Yeah, the biggest item that we walked away from was petri dish business, which is fairly outside our core basis. So I think on an annualized basis, it’s north of $3 million-plus in revenue, so that’s one piece of it. Other pieces of it did not surround our branded products. Some of it had to do with certain private label items that we were unwilling to change our pricing structure, and some of our customers made a choice to go out and source it themselves. So I think that combination between private label and our choice on petri dishes is what makes up the majority of that number.

From a hospital basis and a customer basis, we have not abandoned any customers or walked away from any customers. We continue to be very focused on the product lines that we’ve talked about for many, many years and gaining a bigger footprint and a larger share of wallet within our existing customers.

Matt Dolan – Roth Capital Partners

Okay, so we saw the full effect of this process, though, on revenue in the December period?

Paul Meringolo

Say that again, Matt?

Matt Dolan – Roth Capital Partners

We saw the full effect on revenue of this process in the December quarter?

Paul Meringolo

Oh yeah, I would think so. One other point I’d like to make – you’re also comparing a quarter and third quarter of last year, which probably had significant sales to a number of distributors, specifically one that had ordered very heavily based on a SAP implementation that they had and anticipated. So you’re comparing it to an abnormally high quarter of revenues from the third quarter perspective. I’d just like to make that note as well.

Matt Dolan – Roth Capital Partners

Understood. All right. If I could just sneak one more on the device tax, it sounds like that was kind of a moving target. How confident are you that your current estimate is reality, or just maybe walk us through some of the rationale behind the figure you put out.

John Sheffield

Certainly. It’s John here. So we obviously did—we’ve done months and months worth of work and analysis on this with our partners at KPMG and their tax team, which have been very helpful. As you know, the results of the IRS guidelines did not come out until mid-December, so we were not able to quantify or provide any guidance on that number prior to that, so this is the first chance we’ve had the opportunity to speak to the way that that medical device excise tax will impact us. Based on those IRS guidelines and regulations that are in effect, we are confident that that number is accurate and reflects what our exposure will be.

Matt Dolan – Roth Capital Partners

Thank you.

Operator

Your next question comes from the line of Steve Friedman with Wells Fargo Advisors.

Steve Friedman – Wells Fargo Advisors

Good morning Paul and everyone. Congratulations on a terrific quarter. I think the prior caller answered most of my questions, but possibly could expand just a bit. The gross margin is obviously a tremendous good improvement. Would you attribute a lot of that, or a good portion of that, to your strategic moves in the three divisions, or mostly to lower resin costs? Or could you break out the approximate amount that each contributed?

Paul Meringolo

Steve, I think it would be unfair to the SBU presidents if we said it was just resin. As we said in this call, there was some, again, tailwind from resin and China-procured cotton products, but I could tell you the disciplines and the focus that the SBU presidents are showing and driving in their respective organizations is really what’s going to be the juice that’s going to carry the day on the margin side.

John Sheffield

It’s John. I would just say that, as you know, you know the business, resin impacts a portion of our business more so than the rest, so the tailwinds—the reduced costs on resin certainly helped one particular segment of our business. But really, it’s the SBU focus and being able to have a leadership team that can focus on a specific subset of product categories and identify those areas that need attention and where we make the appropriate decisions on product profitability. That has resulted from our leadership that we’ve put in place at the SBU level to increase focus, so that will help us not just this quarter but going into the future to help us with our strategic direction.

Paul Meringolo

Hey Steve, one other point to even get just a little bit more specific, I think in our SBU run by Rich Setian, he has made significant progress on the margin line over the last six months; and the SBU run by Cindy Bell has been relatively consistent and healthy from a financial perspective. She’s taken great strides to make sure that she has that organization well directed.

I think some of the larger challenges have been in our plastics business, not only with the volatility of resin but also with our manufacturing facility and efficiencies in that facility as well as pricing strategies to help mitigate any cost increases due to resin spikes or benefits that we could pass back to the customers based on declines. It’s a two-way street there that we’ve got to come up with more effective mechanisms to manage price in the market. So I know those things are front and foremost in Chuck’s mind when he’s driving the strategy in that business unit as well.

Steve Friedman – Wells Fargo Advisors

All right. Thank you, that’s good to hear because I like to hear the—I didn’t mean any slight to the three divisions. I just was—I am glad to hear that that is the impact of the gross profit margin increases.

On the reduction of long-term debt, that’s significant, Paul, and it’s really good. I wonder if that—and I think John mentioned something about renegotiating some of the terms on your debt going forward, maybe in the near term. Is that something you intend to actively pursue also?

John Sheffield

Yes. It’s John here. We are—as we’ve said, so it’s not a secret, with our debt maturing in June of 2014, we need to begin actively discussing our alternatives with respect to refinancing that debt to a more appropriate longer term structure for the company. Rates and structures right now are good. Our profitability and earnings have increased, and so it puts us in a good position, I think, to refinance this debt into a more appropriate structure.

Brian, anything else to add?

Brian Baker

No, I think you covered it. Steve, we have scheduled, as I mentioned, about $7.3 million of payments that are due in the next 12 months, so I think we’re okay on the cash side. And like John said, it’s something that we’re trying to renegotiate. We’d like to do it before we file our June 30, 2013 10-Q because at that point, everything would technically go into current liabilities. So we expect to have something done before then.

Paul Meringolo

We’ve got a number of parties that are extremely interested in talking with us to that extent.

Steve Friedman – Wells Fargo Advisors

Okay, that’s great. One more quick question – I’m sure you touched on it. What did you say, and I think it was almost an insignificant amount that you internally calculate is exposed to the device tax, the number—amount of sales?

John Sheffield

Sure. We conservatively estimate that to be less than $1 million.

Paul Meringolo

Of exposure of excise tax.

Steve Friedman – Wells Fargo Advisors

Right – no, the device excise tax. If you want to call it an excise tax, whichever.

John Sheffield

Right. It’s a—yeah, medical device excise tax. It should be less than $1 million on an annual basis.

Steve Friedman – Wells Fargo Advisors

All right, that’s great. That’s an insignificant figure. Thanks for your answers, Paul and John, and congratulations again on a great quarter.

Paul Meringolo

Thank you.

Operator

Again, if you’d like to ask a question, please press star, one. Your next question comes from the line of Jack Wallace from Sidoti & Company.

Jack Wallace – Sidoti & Company

Congratulations on the quarter, guys. I think most of my questions were more or less answered earlier, but I’m hoping you guys can maybe just give me a little bit more thought on some of the further initiatives that you have going on in terms of cost reduction, particularly in terms of if there’s going to be other lines of business that you may walk away from, like the petri dish, or if there’s just maybe going to be some slimming of offerings in maybe certain product categories.

Paul Meringolo

I think there’s probably going to be a little less of that and probably more of just focus on cost of goods. Like I had said, the biggest opportunity on the cost side remains in our plastics business, specifically with our facility in Tennessee. So we are very diligently—there’s a team of people today working on what the path is to increase efficiency, reduce overall cost, and increase service levels to our existing customers, and that includes the gamut from design and look and features and benefits to trimming waste and making the products stronger with different materials so that we can reduce our overall costs. So there’s a significant opportunity in that base of business there to reduce our overall costs.

John Sheffield

And Jack, it’s John. I would just say that we are actively and thoughtfully pursuing this, and as always as well as it should be, there is a discussion with customers, customers’ needs and wants, and our partnership with customers on the one hand as well as financial and profitability by product on the other. Those don’t have to be in conflict with each other; they need to be together, so we will be working with our product manufacturing operations team as well as finance on our analysis so that we can still provide the products that our customers need and want, but at a cost structure and profitability structure that satisfies our financial goals and objectives. I think it’s important to have a balanced approach in those aspects.

Jack Wallace – Sidoti & Company

Thank you. And with that $10 million number that you referred to late last year and then again now on this call, on an annualized basis, would you say that that number is still in line and intact, and that this cost reduction is moving kind of along that same rate?

John Sheffield

Right. Yeah, that was an annual number that we described. That should be a potential impact. Obviously as we go through and begin to implement some of those initiatives, some may work more easily than others, but there are a number of other initiatives that we have that we have identified that we’ll also be putting in play. We do expect that certainly on the cost and expense side, we have implemented a number of those and those should be hitting our P&L in this quarter. The other ones that are the gross profit or gross margin level do take longer term to impact those changes because of the long-term commitments and contracts that we have with our customers.

Jack Wallace – Sidoti & Company

Thank you. And just to kind of touch on that last comment there, are there any contracts that might be coming offline or are able to be renegotiated, say, in the next 12 months to further deal with some of the higher prices with resin, or maybe take advantage of the lower prices with cotton?

Paul Meringolo

Yeah. In the next 12 to 15 months, we’re going to be—and there’s a fairly sizeable amount of our plastics business that either contracts are up or due to be renewed, and we’re looking forward to that.

Jack Wallace – Sidoti & Company

Great, thank you. That will be all from me, and congratulations again.

John Sheffield

Thanks Jack.

Operator

And there are no further audio questions at this time.

Paul Meringolo

Great. Thank you for your time today. I hope everybody made it through safely this weekend, this significant storm for those of you who are on the east coast. We look forward to speaking to you again as the need arises over the next 60 to 90 days. Appreciate your time, and thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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