P&F Industries Inc (PFIN) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the P&F Industries' fourth quarter 2004 financial results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, March 24, 2005. I would now like to turn the conference over to Ms. Jody Burfening. Please go ahead, ma'am.

Thank you, operator. This is Jody Burfening of Lippert/Heilshorn & Associates. Welcome everyone to P&F Industries' fourth quarter earnings conference call. With us today from management are Richard Horowitz, Chairman, President and Chief Executive Officer, and Joe Molino, Chief Financial Officer.

Before we get started, I would like to remind you that any forward-looking statements made during this call, including those to the Company's performance for the 2005 fiscal year, are based upon the Company's historical performance, and on current plans, estimates and expectations. They are subject to various risks and uncertainties including, but not limited to, the impact of competition, product demand and pricing. These risks could cause the Company's actual results for the 2005 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company.

Forward-looking statements speak only as of the date on which they are made and the Company undertakes no obligation to update publicly or revise any forward-looking statement whether as a result of new information, further developments or otherwise. With that I would now like to turn the call over to Richard.

Thank you all for joining us today. I am pleased to report that in the fourth quarter of 2004 overall revenues increased 62.4% to $31.6 million from $19.5 million in the fourth quarter of 2003, including $9.2 million from the acquisition of Woodmark International, which was acquired in June 2004.

You should note that consolidated financial statements of both periods -- for both periods presented here have been reclassified to reflect the discounted operations of Green Manufacturing's Hydraulic Cylinder Division, which resulted from the disposition of certain assets in December 2004 to a nonaffiliated third-party in the industry. We will be more than happy to explain that in further detail to anybody who needs it as the questions are asked.

Income from continuing operations, which exclude the results from Green's Hydraulic Cylinder Division, increased 42.4% in the fourth quarter to $1,323,000, or $0.35 per diluted share compared to $929,000 or $0.26 per diluted share in the fourth quarter of 2003.

Before I take you through a more detailed look at the operations for each of our four business units, I would like to review what each of our companies does. Florida Pneumatic Manufacturing Corporation is primarily engaged in importing or manufacturing of approximately 50 types of pneumatic hand tools. Our Countrywide subsidiary imports and manufactures hardware products for items such as doors, windows and fences, as well as other general hardware products. Countrywide is comprised of Woodmark International, Nationwide Industries and Franklin Manufacturing. And with the acquisition of Woodmark International in June, 2004, Countrywide now also imports and manufactures staircase components and kitchen and bath hardware and accessories.

Green Manufacturing was formerly engaged in the manufacture, development and sale of custom-designed welded hydraulic Cylinders used in heavy industrial and mobile equipment. With the disposition of the assets associated with this Cylinder business in December of 2004, and the Access product line in February of 2005, the remainder of Green's products include a line of post hole digging equipment for the agricultural industry. However, the results of operations of all of these product lines were included with continuing operations through December 31, 2004.

Embassy Industries manufactures and sells baseboard heating products as well as radiant heating products and gas-fired boilers primarily in the northern tier of the United States. Now I’ll review with you the quarterly performance at each of our business units.

Florida Pneumatic accounted for 43.5% of consolidated revenues for the fourth quarter. Revenues for the fourth quarter of 2004 increased 20.4% to $13.7 million from $11.4 million in the fourth quarter of 2003, due primarily to increases in retail promotions, new product introductions, and increased penetration into the automotive after market. This increase was even more impressive given the loss of a major customer in the fourth quarter of 2003 which negatively impacted revenues that -- this past year.

However, gross margin at Florida Pneumatic decreased from 31.5% in the same period last year to 29.4%, as a result of the weakness of the U.S. dollar in relation to the Japanese yen and the New Taiwanese dollar, the loss of the major customer in the last quarter of 2003 that had better than average gross margins that I discussed earlier, and by a less favorable product mix, offset by other cost reductions and productivity improvements.

We remain optimistic about prospects at Florida Pneumatic as we anticipate a continuing favorable impact from the revenue generated from these new products introduced during 2004, and other products under development that are slated for release in 2005. Additionally, we continue to focus resources on our automotive segment, which had strong growth in 2004. And lastly, two of our major customers in the air tool business are in the process of redesigning their respective tool displays and store layouts with the intention of improving sales in many product lines, including ours.

As a footnote, I'm also pleased to mention that Florida Pneumatic was informed earlier this month that it is a recipient of the Sears 2004 Partners in Progress Award, a very prestigious award which recognizes a select group of its very best performing suppliers for their commitment to excellence. We're proud of this accomplishment and look forward to continuing our strong relationship with Sears into the future.

Countrywide accounted for 42.5% consolidated revenues for the quarter. Revenues for the fourth quarter of 2004 increased 237% to $13.4 million, from $4.0 million in the fourth quarter of 2003, due primarily to the inclusion of Woodmark's revenues. Gross margin for the quarter decreased from 32.8% to 32.9%. And this decrease was primarily driven by the inclusion of Woodmark, which has slightly lower gross margin -- gross profit margins then the rest of Countrywide.

Gross margins at Nationwide also decreased slightly due to higher freight and overhead costs as inventory levels began to build for the upcoming season, and the Company completes the integration of a new supplier. Nationwide sales increased by 15% for the quarterly period resulting from increases in the fencing, OEM and product lines -- excuse me, and patio product lines. Sales of fencing products are benefiting from increased market penetration, while the OEM line has secured some new accounts, and patio sales improved as a result of repairs required from the hurricane damage in 2004.

Finally, we expect incremental sales from Countrywide's planned expansion to the West Coast beginning in the second half of 2005. In fact, we intend to sign a facility lease in the next 30 days and begin hiring employees shortly thereafter.

Our Green Manufacturing subsidiary which for the fourth quarter reported -- reporting purposes does not -- did not include the discontinued Cylinder division -- accounted for approximately 4.4% of consolidated revenues for the quarter. Revenues from Green Manufacturing's continuing operations, which only include the Access and Agricultural products divisions, increased nearly 36% for the fourth quarter of 2004 to $1.4 million, compared to $1 million for the fourth quarter of 2003 due to the general improvement in economic conditions affecting both its Access and Agricultural product lines. Gross margin for the quarter decreased from 28.1% in the same period in 2003 to 26.7%, due primarily to the increased cost of raw materials.

Net proceeds from the sale of the Cylinder Access divisions were used to pay down debt as well as the proceeds from our Cylinder division. The disposition was part of our overall strategy to focus management's resources on our remaining operating units.

And lastly, Embassy Industries accounted for approximately 9.7% of revenues for the quarter. Embassy's revenues for the fourth quarter of 2004 remained constant with the prior year quarter at $3 million. Gross profit margins for the fourth quarter of 2004 decreased slightly from 34.1% to 33.9% due primarily to increases in material costs that were not fully absorbed by increases in selling prices. However, price increases were put in place late in the first quarter of 2005 with the intention of improving margins in the upcoming quarters.

We continue to be pleased with the growth in revenues from our boiler product line, which increased 33.2% quarter over quarter, and nearly 47% year over year, as well as our new commercial baseboard line. We intend to enhance both these product lines going forward.

Now I would like to turn the call over to Joe Molino who will review our financial performance for the full year 2004.

As Richard discussed specifics for the quarter, I'm going to focus a little more on the full year and some other details. Revenues for the 12 months ended December 31, 2004 increased 32.9% to $103.6 million compared to 77.9 million for the year earlier. Everyone should be reminded that these figures now exclude revenues from the Green Hydraulic Cylinder Division. This is a point -- those revenues were 8.5 million in 2003 and 10.3 million in 2004. To the time of the disposal, that is, which was December 10, 2004.

Net income from continuing operations for the 12 months ended December 31, 2004 increased 8.3% to 4.2 million, or $1.15 per share on a diluted basis from $3.9 million or $1.09 per share on a diluted basis. Again, these figures exclude results for the Cylinder division.

If we include the results of the discontinued Cylinder division, net income increased 20.1% to $4 million or $1.10 per share on a diluted basis from $3.4 million or $0.94 cents per share on a diluted basis. For the 12 months ended December 31, '04 revenues at Florida Pneumatic increased 5% to 47.4 million from 45.1 million for the prior period. This increase was due primarily to strong retail promotions, new product introductions and base sales increases.

We were especially pleased with the nearly 1.8 million in sales of newly developed products. Most of these new products were introduced into the Automotive after market segment, which grew by 1.4 million in 2004. I remind everyone that these results were in spite of the major account loss from late '03 which resulted in a revenue decrease of $3.9 million.

For the year, gross profit margins at Florida Pneumatic decreased from 33.9% to 30.0%, due primarily to the weakness in the U.S. dollar in relation to the Japanese yen and the New Taiwan dollar, the loss of the major customer that had better than average gross margins, and a less favorable product mix. These negative events were somewhat offset by cost reductions and productivity improvements.

For the 12 months ended December 31, 2004 revenues at Countrywide Hardware increased 111.8% to 40.7 million from 19.2 million, due primarily to the Woodmark acquisition, which recorded 19.7 million in revenue during the second half of '04. Additionally, Nationwide's revenue increased 13.7% or $1,989,000, primarily from fencing products. Franklin Manufacturing suffered a slight 3.6% decline in revenue due to a significant customer reducing orders. Gross margin at Countrywide decreased from 34.5% to 33.0% due primarily to the inclusion of Woodmark whose gross margin percentage of 31.1% was less than the segment's 2003 average.

Gross margin for the remaining companies in the hardware segment were 34.8%. For the 12 months ended December 31, '04 revenues at Embassy increased 11.7% to 10.8 million from 9.7 million, due primarily to increased boiler and radiant sales of approximately 554,000, reflecting continued market penetration with these new product lines, as well as increased baseboard sales resulting from the continued strength in new housing starts in 2004.

Gross margin at Embassy decreased from 31.2% to 30.0%. The decrease in gross margin was due primarily to increases in steel and other raw material costs, lower radiant margins from a weak U.S. dollar in relation to the euro, and a less favorable product mix for commercial product. These were partially offset by improved overhead absorption and labor efficiency for baseboard products.

For the 12 months ended December 31, 2004 revenues at Green increased 20.7% to 4.7 million from 3.9 million, due primarily to a relationship begun in the second quarter of 2004 with a new reseller. Gross margin at Green decreased from 23.7% to 22.4%, due primarily to increases in raw material costs which were not fully absorbed by price -- by increasing selling prices. Again, I will remind everyone that for disclosure purposes Green does not include the sewer (ph) division.

Consolidated selling, general and administrative expenses for the 12 months ended December 31, 2004 increased 25.1% from 18.9 million to 23.6 million, due primarily to the inclusion of 2.7 million of expenses related to Woodmark in the second half of 2004. Increased compensation resulting from a change in executive personnel at Nationwide and to a lesser extent to increased competition tied to higher profitability -- excuse me, increased compensation tied to higher profitability and increased professional fees mainly for corporate compliance and reporting requirements. These increases were partially offset by cost-cutting efforts. As a percentage of revenues, SG&A decreased from 24.2% to 22.8%.

Interest expense for the 12 months ended December 31, '04 increased from 720,000 to 1,184,000 due to the Woodmark acquisition. Other items affecting cash flow were depreciation and amortization which were 1,685,000, and 819,000 for the 12 months, respectively. For the quarter these amounts were 344,000 and $276,000, respectively. Finally, capital expenditures for the 12 months were 1,115,000; for the quarter they were 172,000.

With that I would like to turn the call back over to Richard.

Now I would like to just mention to you and present what we expect for each of our subsidiaries in the fourth quarter of 2005. We anticipate results for the first quarter to be stronger than last year's comparable period primarily due to the inclusion of Woodmark's strong financial results and the exclusion of Green's former Cylinder division that was not profitable. Revenues at Florida Pneumatic are expected to remain relatively flat resulting from the late timing of certain promotional sales that will be mostly offset by an increase in our base business and the continuing favorable impact of new products introduced during 2004.

We anticipate sales at Countrywide to increase significantly between 175 to 225% due primarily to the inclusion of Woodmark. Nationwide's revenues are also anticipated to contribute to that increase, growing between 15 and 18%, principally due to continued growth in the fencing and OEM product lines.

We anticipate sales at Embassy to increase by 5 to 10% as boilers, radiant - radiant heating and commercial products continued to gain momentum, and as increased baseboard selling prices are introduced to offset rising material costs. We also anticipate sales at Green to increase, reflecting only its remaining Agricultural division sales in continuing operations. The anticipated volume of this business of approximately $500,000 for the first quarter is not significant to overall consolidated revenues.

We expect gross margins for the first quarter to range from 31 to 32% as the increase in revenues, particularly from Countrywide, should help absorption and offset margin erosion from increased product costs and the anticipated continuing weakness in the U.S. dollar against the Japanese yen and the New Taiwanese dollar.

Selling, general and administrative expenses are anticipated to improve as a percentage of sales as a result of the overall revenue increase that will absorb fixed costs. Interest expense is expected to approximate $400,000, nearly triple the comparable prior year quarter as a result of the acquisition debt and higher interest rates.

Putting this all together, we are pleased to note that we anticipate net income to increase between 250 to 300% in the first quarter of 2005 compared to the first quarter of 2004.

Our overall outlook for the year is very positive as we believe we will see improved results from the efforts of our marketing and development activities, gains from the success of the integration of acquisitions such as Woodmark, and our efforts -- continuing efforts to focus resources and energies on our most promising businesses.

Thank you all for your participation today. Now I would like to answer any questions that you may have for either -- for any of us at P&F.

(OPERATOR INSTRUCTIONS). Andrew Shapiro with Lawndale Capital.

I will ask a few and then I will back out into the question queue and let others. If you wouldn't mind, please come back to us. We have a bunch.

If you could help us understand from your release and your script here, with the sale of Green and the addition of Woodmark, you made some comments about business or the Company's cash flows would be a little less seasonal than they might have been in the past. Could you expand a little bit more about that from a revenue standpoint, and also from your working capital needs standpoint as you see the year playing out for you?

Sure. Generally Green -- the Cylinder division at Green had typically a fairly weak fourth quarter in revenue, followed probably by the first quarter with the second and third being fairly strong. Woodmark -- and we have seen that for six years, so that is a pretty consistent pattern. Woodmark, however, whether it is because it just sells all over the country, sells into different style homes and markets, and has in some cases several levels of distribution seems to be buffered somewhat from ups and downs of the revenue cycle.

And let's just keep in mind Woodmark is selling its stair parts into new home construction, and the kitchen and bath parts are going into generally remodeling, so where one might argue that on the stair parts it would go with the construction cycle, that is true. That is somewhat muted by kitchen and bath, which doesn't really work in any sort of seasonal pattern. And second, there is quite a bit of sales to people who ultimately are building homes in the South who build year around.

So in the aggregate with Florida Pneumatic for P&F in general then how does this kind of play out in the coming --?

It reduces our borrowing requirements in Q1, which has typically sort of been a peak time of borrowing. And then the fourth quarter has always been a quarter where we had a lot of positive cash flow, primarily from Florida Pneumatic catching up on its receivables. So that will be a little less volatile than it was. So Q4 on average, if you're looking at our whole year, won't be quite us good. Q1 will be a lot better in terms of cash flow, if you're just comparing the quarters that is.

So for the coming year if you were writing your 10-K for next year, and you were talking about the seasonality of this business as it is now configured -- Green is gone. You've got Woodmark in here. You guys are doing some internal forecasts. We're trying to do some forecasting for the coming year and figuring out kind of what are the higher end quarters and what are the lower end quarters in terms of cash flow, and would you want to call it working capital needs -- inventory and receivables, as well as the revenue side because you kind of know when Home Depot and Sears do their promotions on the Florida Pneumatic side. And we haven't seen enough of Woodmark here to know. And you know kind of how Green works. So in your aggregate consolidated kind of forecast can you give us a little -- just a little help of what it now will kind of look like, which are the high quarters, which are the lower quarters?

I think it will be -- if you were to graph this, the graph's highs and lows will be in the same periods, but it will be a much tighter graph than it used to be -- a somewhat tighter graph than it used to be. And obviously since Woodmark is now a fairly substantial piece of the business, that is going to be a fairly consistent cash flow performer each quarter.

On a percent of sales the improvement in SG&A that you gave guidance for and talked about, can you clarify if that is just year-over-year which provides a pretty wide berth, or if you expect on a percentage of sales basis in the first quarter to see some sequential improvement from this quarter's 21.5% SG&A?

I would say obviously again the main reason for the decrease is now we've got -- we're spreading our overhead across a slightly larger Company. So I think we will generally, as we get the Woodmark numbers into the full year, you'll see that percentage be less than last year by the time the year is over.

Oh, sure, that I understand. Last year, first quarter you did almost 26% SG&A. This last quarter you just completed December was 21.5%.

Right.

So I'm just trying to get a handle on here for the first quarter where you have given guidance where we are going to be better than last year. I mean that is a slam dunk to be better than 26%. What I'm trying to get a feel for, do you think with your first quarter revenue guidance and the SG&A levels that you're talking about, especially since we're right now on March 24 with 7 more days left in the quarter, is your SG&A guidance here one where you think your percentage of sales SG&A for the first quarter is coming in better than this fourth quarter that you just reported?

I don't have my model in front of me, but I'm going to try to get that and we will try to get you an answer before the end of the call. I certainly can speak to it somewhat, I just don't have it in front of me.

Okay. Because you kind of threw it out there, and if the number is handy and we're on this public call it would be great if we could get the guidance narrowed.

Yes, we're going to try to get that.

Because it is a wide berth. On the earnouts, from what I read from both of the Green Manufacturing sales, the Company is entitled to some earnout -- extra earnout payments on the sale of Green, depending on Green's success in the hands of the new buyers. Can you talk about the timing of the measurements and how long those earnouts last? And then of course, if those extra monies are received how and where will they flow through the income or balance sheet statements when they are received?

Sure. With respect to the Cylinder business, we've got a five-year earnout. And it functions as a straight percentage of revenues of customers that we handed over. If they get new accounts, we don't get anything of that. It works on dollar one as a percentage. It is somewhat of a blended rate. If memory serves, it is something like the low 6%, low 6% on domestic revenue and 1.5% I think on imported revenue. The bulk of the revenue of course is domestically manufactured. And we get paid quarterly on those.

From day one?

Yes, from day one. And you can do the math there and make some guesses as to what is going to happen. So that lasts five years. On the Access business it is not quite the same, it is a bit of a hurdle. We get -- the hurdle rate is measured once a year. There is a two-year earnout. To the extent they have sales over $2.5 million, we get 20% of the increment, up to sales of $3.5 million.

So when and if those payments were received then where and how do you use the accounting principles do you believe will be calling for them to come through? Are they going to come through your revenue line? Will it be a supplemental payment from discontinued operations way down below the line? Does it just go straight to the balance sheet?

No, it doesn't go to the balance sheet. With respect to both of them they would be ultimately considered -- they would be applied to the gain or loss on the business. Frankly, we're still in research on exactly where those numbers are going to end up. It is not completely clear if they will end up in revenue or additional gain, or reducing the loss on the sale. Frankly, I just don't have a good answer for you yet. Certainly by the time of our next call, we will have an answer for you.

And the last one, and I will back into the question queue. Also on the same issue here, Green and all that, your remaining Green line is, as you mentioned, very de minimis. Right now you kind of accounted for it as a separate kind of division that is Green. I think there was some mention in the prior press release of your intent to combine it into another entity. Can you clarify where it is going to get combined? And are the assets staying in Ohio or are you moving them into the excess space in one of your factories?

With respect to where it is going to go, right now it seems to have the best fit from a marketing and distribution standpoint with our Nationwide group. A lot of these post hole digging equipment -- a lot of these post hole diggers are used to dig fence posts, and we're well into the fencing channel as you know.

Where it ultimately gets manufactured is still being reviewed. There are a number of options for us. And we're still working on the best place to have that done. There are a number of possibilities. We could bring it into one of our other units and have two subsidiaries somehow be involved in the project. But from a marketing standpoint it will be managed from the Nationwide group.

As far as the assets themselves, frankly there aren't a lot of hard assets. A couple of pieces of welding equipment, a saw, something called a pine bender which bends some of the tubing. So there really aren't a lot of hard assets at all there. And of course we have got accounts receivable and inventory and that's really it.

I will back out in the queue. And please come back to us, we have more questions.

(OPERATOR INSTRUCTIONS). John Goldberg with Goldberg Advisers.

Could you give us what the revenues were for Green in last year's first quarter on an adjusted basis?

Revenues for Green for last year's first quarter, just one second. That's Q4. I don't have that right in front of me, but we're going to try to pull it up. Just one second. Last year Green -- just Cylinders -- are you talking about just Cylinders?

Right. What it would be if you backed out the unit that you sold -- what it would have been?

Right, Cylinders last year Q1 was $2.2 million.

2.2 million. Okay.

That's just Cylinders not Green, just Cylinders.

Right. Okay. But you reported 3.1 last year, so it is --.

That includes Cylinders, Access and Ag. Ag would have been about 500,000, call it 490, -- excuse me, Access is about 490,000, and the Ag business is about 450,000. So that is how we get to the 3.1.

I'm a little confused. When you were giving the guidance for the first quarter of this year, did you say -- did you give us a hard number of 500,000 for revenue from the --?

Yes. I said approximately Q1 revenue for Ag would be in the $500,000 range, correct.

But there will be a little revenue in there from Access as well for the first month and week, or whatever it was?

Yes, although I think in the guidance, Richard, I was just giving the Ag piece.

Right, I understand.

But yes, Richard is right, we actually will have -- we do have one month of Access in our Q1.

So am I understanding correctly that your Hydraulic segment is going to go from 3 1 to 500,000?

Well, not -- the Green segment, correct. You'll only see revenue of about 500,000 in the Green segment. Any results of operations for the Access segment, which is again is just one month worth of business, that actually will be shown in a discontinued operation line. So you won't see that revenue number, you're just going to see an all-in net gain loss number, which will include the results plus the gain/loss on the sale of the business.

I think I have that. When you're 10-K comes out are you going to have the quarters restated for us, or are we going to have to wait until each 10-Q comes out this year to see the restated?

No, the quarters will be restated in the 10-K.

Okay, good. And then the last caller was --.

I'm sorry, you'll have to look in the footnotes. It will be in the footnotes.

Okay, I will find it. And then the last caller was talking about the seasonality of the business. And I guess you're talking about a lot of things, but if we could just talk about the seasonality of the revenue. Is the business going to change that much? Is it still strongest in the second and third quarters?

Yes, I would say generally that is still going to be the case. As I said earlier, it will be a little more muted. If you were graphing this the highs and the lows won't be quite as high and low, but it still will look pretty much the same.

Andrew Shapiro with Lawndale Capital.

If we could ask a few questions about a few of the divisions, if you wouldn't mind. On Florida Pneumatic, last quarter you had a customer that was doing heavy advertising and things. Did that continue during this fourth quarter? Is it just solely or certain seasonal promotions, or was it a newer level of sell-through promotional activity by your customers in Pneumatic?

I believe it was mostly a seasonal promotion, unless I'm mistaken.

No, I think Richard is right. I do not think the intention there was for it to go past year end, as basically they look at these things on a yearly --.

They do it each year, but it is not -- there is nothing that --.

They do it at different times each year.

Whenever they want to --.

Yes.

And then you had new products inside of Pneumatic to the retail and industrial area. How is that pipeline progressing? Is there more in there that is incremental -- or incremental products or are these updates of old products?

It is both. It is both. But we’ve had new products that went to the retail, the industrial and the automotive, which is very significant in our overall business. And we have new products that are, as I mentioned earlier, that are going to be coming in this year. We have many new products that we're looking to develop and all that stuff during this year. Is that your question?

Yes. Actually a follow on question might clarify it further. Last quarter on the call we kind of asked you in the first 9 months of '04 what type of revenues did you attribute to products that hadn't been in existence in the prior year, basically new products? And you had said it was around 2 million. And that was in the first nine months. But you said much of that 2 million was revenues in that actual Q3.

Can you give a little bit more clarification maybe of what type of follow on in those new products we got in Q4? In other words, what kind of revenues in pneumatic you felt were from products that hadn't been around in the prior year? And so we can get kind of a feel for in a sense -- just like Woodmark is year-over-year incremental so are pretty much revenues from new products year-over-year incremental. Do you follow?

Go ahead, Joe. I don't really -- I don't know if I have that.

Actually, Andy, I don't have that number off the top of my head. I'm going to see if I can't get at it in the next few minutes. I understand what you're trying to do. But I'm going to see if we can't grab it here in (indiscernible) minutes.

Alright. You mentioned two major customers were -- in the past were like redesigning what they were looking for in the products on their air tools and all that. Do any of your new product efforts in these recent quarters make this easier for you to provide? And do they want to have -- we will call it exclusive designs? And I don't know if it is really deemed to be proprietary, but more this might provide for higher margin work for you?

Andy, I'm not completely sure I understand -- I'm following the question. Certainly the big two accounts there, we work closely with them on what the displays look like and what our packaging needs to look like. Does that mean it is exclusive or not, I don't really (multiple speakers).

It wasn't the displays, maybe it was Woodmark. There was some discussion we have had on prior calls about there were some new products you guys were designing and putting into the pipeline that were a little bit more proprietary. Do you recall what we --?

Certainly at Florida Pneumatic there are a couple of very proprietary items that are now in the line. For example, the quarter inch ratchet which has gone extremely well in the automotive channel. That is a 100% proprietary item. There's nothing else like it on the market. I'm assuming that is what we're talking about or what you're talking about?

Yes, okay. And then lastly, and this one and I will back out and let others ask questions. Again, we have a few more, but the last question on Florida Pneumatic. Have you had any conversations yet with Sears as it pertains to the incremental Kmart related business? We have seen reports that they intend to be rolling out Craftsman into the Kmarts. And obviously many Kmarts are going to be converted to Sears. And we called Sears -- it implied that their suppliers, such as yourselves, may not get too much notice on this. And I'm wondering if they have started talking about that? And also what type of excess capacity you might have at Florida Pneumatic if they decided to drop such incremental sales into your lap here in the second half of the year?

If we -- we've had conversations, Andy, with Sears about the Kmart, but I don't think really even they know too much yet to be able to tell us what to expect. Certainly we have inventory in all of our -- in our factories as well as our own warehouse to accommodate a certain amount of that growth, if there is something like that to happen. And we're anticipating that a little bit, but there's really no way of telling. And they are not really telling us yet.

Okay. But you are confirming that there is discussion that Craftsman lines will --?

No, I'm not saying that either. I'm just saying that they're telling us that they don't know what -- how it is shaking down yet to us. But they have been indicating to us that they think it will be positive. That is the only thing I can really tell you.

Just to follow on to that, Andy, just to remind everybody when we picked up Home Depot from the time we heard we got the business to the time we filled every store in the country was eight months. And that is a multiple of any increase we would see from this Sears business. So I don't know what it would be, if it is anything, but we're not concerned about not being able to get the product in there. I haven't heard anything about not getting any notice. I haven't heard that comment from anybody. Sears historically has been pretty good about giving us some heads up on those sorts of things. I haven't heard anything about it.

We know that a lot of Kmarts are going to be converted to Sears. And so they for sure will carry Craftsman label. And then we have heard that even the Kmarts, one of the synergies of the deal was that Kmarts would likely bring in Craftsman label into the Kmart stores themselves too.

We hope so.

I will back out again. I have questions on other divisions, but let's let others in.

(OPERATOR INSTRUCTIONS). Mr. Goldberg with Goldberg Advisers.

The acquisition that you did last year that was done in the middle of the third quarter or --?

That was done July. (multiple speakers) July.

So pretty much all of those sales from that company were in for the whole quarter of last year?

Yes.

When we look out to the second quarter of this year, should we be looking for the kind of ramp you're predicting -- you are forecasting for the first quarter this year, and then obviously for the growth to taper off?

You mean compared to quarter to quarter for year over year?

Second quarter '05 over second quarter '04.

We are only predicting -- we are only going out the first quarter right now. But clearly we didn't have Woodmark in our second quarter '03 -- excuse me, '04 numbers, so -- and we have them in '05, so obviously there will be a little change there. But remembering also that we had Green in for the second quarter of last year, which we will not have really effectively at all, with the exception of the Ag business. So it is a little in and out. It is a yin and a yang there. But we expect it to certainly be better than our second quarter last year.

At least for the Hardware segment?

For the -- yes, for the overall business.

And is that -- is the Woodmark business dependent on any time of year? Is it more seasonal than -- and if so what season is the strongest there?

As I said earlier, John, it is not a particularly seasonal business. There are times of the year where it is typical to introduce new styles, but as far -- if you were to look at the revenue it is very consistent by each quarter.

Andrew Shapiro.

Nationwide? It did well even outside of the Woodmark acquisition. It had some growth. There was some talk in the past that sales might have lagged during obviously the hurricanes, and of course the rebuild from the hurricanes has helped. In Q1, which is almost over and all, and what you're looking at Q -- down the road, is there any more, we will call it drift of hurricane related sales here that we should see some continued -- is that what is kind of fueling the growth?

It is ongoing, but not quite as robust as it was earlier, but certainly it’s ongoing. And I think our management has told us that they expect it to be ongoing to some degree or another throughout the year.

And then in Embassy and a few other divisions, maybe some of it was Green, which isn't as much of an issue now, but Embassy and maybe even a few of your other more harder manufacturing kind of divisions. You talked obviously about raw material price increases that you've had to encounter. How hard has it been to push these price -- these cost increases through to your customers, because your competitors ought to see the same thing?

Extremely hard. We're getting an awful lot of push back from customers across the board in all of our businesses with price increases -- with our price increases. Not to say that we're not having some success, which we are of course, but not as much as we would like to. And certain of our divisions are -- we're not able to get as much of a price increase as we got a cost increase due to competitive pressures.

And with respect to those competitive pressures, which in a sense have squeezed margins a little bit because you can't pass it through, are you maintaining share do you feel? Or these results are with the benefit of increasing share, or also with the cost of a little bit of declining share? What is your feel?

I would say, and Joe may have a better fix on it than I do, but I would say it is too early to tell, but I would think that we're basically maintaining our share of business.

Yes, I would agree with that. I don't think there's any indication to date of losing any accounts as a result of the price increases. And we are seeing the competitors raise prices as well, sometimes a little higher than us, sometimes a little lower than us, but we're certainly not out there on our own.

Can you talk a little bit more about the Western expansion? If you already know kind of where you might be locating it? And then kind of what has the reception been to your expansion efforts already? And I'm assuming you're laying the groundwork from a marketing point of view from this. I think you talked maybe it was just the Countrywide or if it allowed for other -- you are planning for other revenue enhancements in other divisions with this expansion?

We're certainly -- we do know where the lease is going to be, it is in San Diego.

California. I don't need the detail. I mean --.

Southern California will be the location. And that will service that very robust housing market out there. And we can also certainly get to Nevada and Arizona from that location. So we think there's a good – it’s a good home base for a Western location.

We felt for a number of reasons that it was a good spot to try to grow. We think on the stair side -- the stair side that some competitors are somewhat vulnerable out there. On the hardware -- on the door and window -- or the fencing side we don't have a lot of penetration in that market out there, primarily because it is a long way to go from Tampa to California and that costs money. So you're talking about -- if all you did was simply eliminate the travel cost you have some pricing flexibility.

So we're optimistic. We have never really done anything like this before, so we're not comfortable throwing out numbers on what we think we can do. But we are optimistic and we hope to build a nice organization out there and take advantage of a very robust part of the country.

It this a sizable incremental SG&A cost that is involved with this effort?

We're going to start slow. I don't think it is going to be sizable SG&A until it is really sizable revenue. Certainly there will be some monies out before they come in to build inventory, receivable and things like that. But we're not building a facility. We're just leasing a modest facility. Not a lot of equipment required. We've got a higher staff so certainly it will be awhile before it is completely positive revenue generating -- or cash flow generating. But it is not going to be a big number that you're going to see a big negative on the cash flow statement. We're going to start small and build it gradually, or as fast as we can really afford to.

And lastly, with Woodmark in the revenues of this Company now are comfortably over 100 million annual revenues, which is often a psychological barrier in the investment community and such. You talked about ramping up some of your Investor Relations efforts. These calls are great. But what are some of your other plans of, I guess, getting out there and telling the story and maybe analytical coverage or some incremental buy side, etc.?

We’ve actually been having several conversations with our financial PR people and our Board about what is our next step and how do we proceed in that way. Obviously our market cap has increased. And we have some of the same issues that we have had before, but with a different slant to it. And we're not really prepared to talk to you about it yet. But we're looking into all that stuff with the intention that we're probably going to be doing something. But I can't tell you what because I don't know what it is yet, Andy.

Great.

Andy, I just want to let you know we didn't forget about your two questions. On the SG&A, obviously we don't have all our numbers in. We don't even have some February numbers yet. But I would see SG&A as a percentage of revenue in the 22 to 23% range on -- for Q1. Obviously, for some quarters that is going to change, because revenue is a little cyclical as we have discussed a few times already on this call. As far as new products for Q4, at Florida Pneumatic, we just don't have that data broken out that way right now.

Great. Thanks.

Gentlemen, there no further questions at this time. Do you have any further comments or any closing remarks you would like to make?

I would just like to thank you all for joining us today. And we look forward to speaking with you next quarter as we discuss our first quarter results and our second quarter expectations. Thank you all for joining us today, and enjoy your day.

Ladies and gentlemen, that concludes your conference call for today. Again, we thank you for your participation. You may now disconnect.