Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Colin Sebastian with Lazard Capital Markets.
Colin Sebastian – Lazard Capital Markets
I guess first of all, wondered if you could provide a little background on the renegotiation of the surplus contract. At what point did you realize that the original terms needed to be changed? Then secondly, I think Bill you mentioned in April ramp in the surplus. Does that mean that you’re still operating under the interim contract terms in the meantime?
William P. Angrick
Yes, with regard to the resolution of open business issues on the surplus contract, it became apparent over the course of December that the government would require a change in the scope of work under that contract and had other additional enhancements that they felt would serve the interest of the agency and therefore there was a discussion and a resolution of those issues that ultimately was manifested in the contract modification that was disclosed today in an 8-K and which we’ve discussed during the call, so there are a few other issues that were noted in that 8-K that we didn’t discuss. I think the principal economic terms resulting from that were outlined principally a change in the inventory price. That’s prospective as we will expect to begin receiving property under the new surplus contract in the next week or so and operationally we’ll begin to ramp up under that new contract over the course of March and then as we’ve mentioned fully ramped up in April.
In the interim, we will continue to operate under sort of a hybrid situation. I mean technically the new contract was [inaudible], we just hadn’t had any property flow and we had the issuance of a large volume of property under the old contract in mid-December and are still working through the sale of that inventory, so business continues to pace although we sort of have one foot in the new contract and one foot in the old. That will switch the bulk of which to the new contract as we get into April, May, June.
Colin Sebastian – Lazard Capital Markets
On the commercial side, first on the lower ASPs, are you seeing a change in the mix of products or are we talking about roughly the same base of products, just lower average auction values?
William P. Angrick
I think this is a broad-based change in retail pricing and behavior in the primary retail channel. I think no one could deny the fact that whether you went to a better department store, a mainstream community shopping center, or online, that you saw a dramatic reduction in pricing during the holiday, so when first quality merchandise is discounted heavily, that resets the price in the secondary market as well which is no surprise so we have observed an average decline in the range of 10% to 15% for average sale prices and a range of categories. We’re okay working through that environment I think. No one would have expected the precipitous to climb like we saw in November but most of our discussions with suppliers are based on what street retail prices are and so we continually monitor what street retail prices are which do reflect the sort of discounting activity.
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