Here are some questions I asked the CFO, Rahhal:
I can’t seem to find in the filings how large the cost of canceling the going private transaction was, and I was hoping to get a ballpark estimate of that figure in order to help pin down a run rate for SG&A. The cost of initiating the filings and subsequently canceling were approximately $100,000.
FY 2013 obviously had a large amount of capital expenditures, as you purchased the machinery and molds from Yorktown - is it safe to assume that capex should return to 2011, 2012 levels for the foreseeable future? The capex will be in the range of $0.75 million to $1 million.
Looking at the quarterly data, I calculated a pallet profit margin of 33% for Q1 and 25% for Q4, even though sales were much higher in Q4. Should we not have seen some operational leverage in Q4? Or did the nestable pallets drag that profit margin down? If non-Miller Coors revenue continues to grow, where do you see pallet profit margins converging to? Greystone uses average cost in its costing. By isolating the production costs incurred only in Q4, the profit margin would equate to Q1. However, Q4 bears the burden of averaging production costs for Q2 and Q3 when production is reduced and Q1 and, accordingly, production costs reflected in Q4 are higher than Q1. In addition, there were no resin sales in Q1 and approx. $495 thousand in Q4. The resin sales in Q4 also had the effect of reducing the gross profit.
Do you have any comments on the resin business’s performance in Q4? After multiple consecutive years of losses in that business, would it be possible to just shut it down and focus solely on selling the pallets (as in Q1), or does the excess resin need to be sold? About 50% of the pelletized resin is used in the material formulation for pallets as it is a cleaner recycled material and improves the blend with non-pelletized ground recycled material. The sale to third parties is based on acceptable margins. Because of Greystone’s inflexible production costs, the more pellets that are produced, the lower the cost. Greystone will continue to develop the process working toward improved margins.
What are your goals for Greystone for this year? Diversification of customer base by introducing new products to the public – keg mold, mini-keg mold, and a new 48X40 pallet which weighs less than 50# plus other new designs currently being evaluated with potential users. Research and development for new pallet designs and improvement to existing designs. Greystone has made great strides in reducing/controlling production costs for pallets and will continue to strive for improvements.
