P&F Industries Inc (PFIN) 2006 Q4 法說會逐字稿

Welcome to the P&F Industries fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a Q&A session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, March 29, 2007.

I would now like to turn the conference over to Jody Burfening. Please go ahead, ma'am.

Good morning and welcome to P&F Industries' fourth quarter earnings conference call. With us today from management are Richard Horowitz, Chairman, President and Chief Executive Officer, and Joseph Molino, Chief Financial Officer.

Before we get started, I'd like to remind you that any forward-looking statements including those related to the Company's performance for the 2006 fiscal year are based upon the Company's historical performance and 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. This could cause the Company's actual results for the 2006-2007 fiscal year and beyond to differ materially from those expressed in these forward-looking statements 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. Good morning, Richard.

Good morning, Jody, and thank you so much and good morning to everybody else. Thank you all for joining us on our fourth quarter and year-end 2006 conference call.

I'll start with a brief review of our financial results for the quarter. In the fourth quarter of 2006, overall revenues decreased to $23.7 million from $28.5 million -- excuse me, $25.8 million in the fourth quarter of 2005. Earnings from continuing operations were $160,000 as compared to $1.1 million in the fourth quarter of 2005 and diluted earnings per share from continuing operations was $0.04 per share versus $0.28 per share in the prior year period. Earnings from continuing operations declined primarily as a result of weaker revenues and lower margins in the fourth quarter of 2006 as well as from an unexpected additional income tax accrual resulting from a pending state audit.

Earnings from discontinued operations net of tax benefit for the fourth quarter of 2006 were approximately $76,000 as compared to $1.5 million for the same period last year and that was, of course, principally resulting from the prior year net gain on the sale of certain assets of Embassy in October of 2005. Net earnings for the fourth quarter of 2006 were $236,000 or $0.06 per diluted share as compared to $2.6 million or $0.68 per diluted share for the same period in 2005.

We were extremely disappointed by our performance this quarter which of course tempered our overall results for the year. Florida Pneumatics business has been highly dependent on the lower margin retail business which has become more difficult to predict as our two significant customers in this sector continue to make adjustments to their inventory positions and have been inconsistent and noncommittal with their promotional business.

Fortunately, we have been successful at introducing some new products to this channel that have partially offset some of these revenue declines. In February 2007, we acquired Hy-Tech Machine which should also help to counteract this volatile retail sector due to its emphasis on the more stable industrial tool channel.

Further, although Countrywide Hardware's business included the results of Pacific Stair this year, we began to face significant challenges in the fourth quarter as a result of the softness in the national new home construction market as well as certain competitive pressures on a regional basis in the west. As a result, we are taking steps to maintain our customer base and reduce our operating costs to minimize ongoing margin erosion.

On another subject, with the anticipated sale of Embassy's building, we expect to receive additional cash of approximately $4.4 million net of related cost and the satisfaction of an existing mortgage will result in a gain of approximately $5 million in 2007.

Last year, P&F reported increased revenues of 3.5% to $111.7 million from $108 million in 2005. Earnings from continuing operations which exclude the results from the discontinued operations at Green Manufacturing and Embassy Industries, decreased 21.4% in fiscal 2006 to $3.8 million or $1.01 per diluted share compared to $4.8 million or $1.25 per diluted share for the year ended December 31, 2005.

Earnings from continued operations net of taxes for fiscal 2006 were approximately $70,000 compared to approximately $1.7 million for fiscal 2005. Net earnings for fiscal 2006 declined to $3.9 million or $1.03 per diluted share compared to net earnings of $6.6 million or $1.70 per diluted share for 2005.

Before I take you through a more detailed outlook of the operations of each of our businesses, I would like to review what each one of these businesses does. Florida Pneumatic is primarily engaged in importing and manufacturing of approximately 50 types of pneumatic hand tools. Florida also markets through its Berkley tool division, a line of pipe cutting and threading tools, wrenches and replacement electrical components for a widely used brand of pipe cutting and threading machines. In addition, through its Franklin Manufacturing division, Florida Pneumatic imports a line of door and window hardware.

Our Countrywide Hardware division imports and manufactures hardware products for items such as doors, windows and fences, staircase components, kitchen and bath hardware and accessories as well as other general hardware products. Countrywide is comprised of Nationwide Industries, Woodmark International and the assets of Pacific Stair that we acquired on January 3, 2006. Pacific Stair is a manufacturer of premium stair rail products and a distributor of staircase components for Woodmark to the building industry, primarily in southern California and the southwestern United States. And of course, our new Hy-Tech acquisition through our Continental Tool Group, which is not alluded to here since this is a 2006 call, but we will in the future be discussing this as well.

Now I'll review with you quarterly performance at each of our business units. At Countrywide Hardware, revenues for the fourth quarter of 2006 decreased by $282,000 or 2.1% to $13.1 million from $13.4 million in the fourth quarter of 2005 which of course included Pacific Stair's revenues of approximately $1.3 million. Woodmark's revenues decreased by $971,000, primarily due to a decrease in revenues from stair products of approximately $916,000 related to softness in the new home construction market. In addition, revenues from our kitchen and bath products sold into the mobile home and remodeling markets decreased approximately $55,000 during the period.

Nationwide's revenues decreased $605,000, primarily to a decrease in fencing revenues of approximately $217,000 attributed to overall weakness in the market, a decrease in OEM revenues of $281,000 due to the timing of certain customer orders and weakness in the market and a decrease in patio revenues of approximately $107,000 due primarily to an uneventful hurricane season.

Gross profit margin at Countrywide decreased from 33.3% from the fourth quarter of 2005 to 28.5% in the fourth quarter of 2006. The decrease was primarily driven by the fact that Pacific Stair operated at 50.1 gross profit percentage margin during the period which is much lower than the rest of the group. Further, gross profit margins at Woodmark declined as a result of lower revenues and margin erosion from a greater mix of lower margin direct shipments and intense competition.

Nationwide's gross margin percentage declined as a result of material cost increases that could not be fully absorbed by increases in selling prices in a timely manner as well as the lowering of selling prices on certain products for competitive reasons. These declines were only partially offset by a shift of certain products to lower cost suppliers in 2006.

Revenues of Florida Pneumatic for the fourth quarter 2006 decreased $1.8 million or $10.6 million from $12.4 million in the fourth quarter of last year, due primarily to the decrease in base sales to our retail customers I alluded to earlier of approximately $3 million partially offset by the sale of new products of approximately $1.1 million during that period.

Gross profit margin at Florida Pneumatic decreased from 30.5% in the prior year period to 27.3% in the fourth quarter of 2006 as a result of an unfavorable product mix due to the decline in higher margin base sales, partially offset by continuing cost reductions and productivity improvements.

We remain cautiously optimistic about the prospects of Florida Pneumatic as we continue to focus our efforts on improving gross margins by sourcing our products to other lower cost, high-quality suppliers to offset pricing pressures in our retail business. In addition, we expect the favorable impact on revenues from the new products introduced during 2006 and other products being introduced in the 2007 and it is further our expectation to reap benefits from some synergies in the industrial marketplace as a result of our recent acquisition of the Hy-Tech Machine business. Hy-Tech is a manufacturer and distributor of industrial pneumatic tools and parts. Users of Hy-Tech's tools include refineries, chemical plants, power generation facilities, the heavy construction industry, oil and mining companies, and heavy industry. This horizontal integration allows Florida Pneumatics' large sales force to offer the Hy-Tech product line to its industrial sales channels. In addition, we believe that access to P&F's capital should allow Hy-Tech to generate good growth going forward. Finally, the combined product lines offer a unique solution to certain parts of the industrial tool channel that were previously unavailable to either Hy-Tech or Florida Pneumatic.

Before I give you my 2007 guidance, I'd like to turn the call over to Joe Molino, who will review our financial performance. Joe?

Thank you, Richard. As Richard discussed specifics for the quarter, I'll focus on year end trends at the subsidiary levels and some other details. For the 12 months ended December 31, 2006, revenues at Countrywide Hardware increased 12.5% to $67.1 million from $59.6 million in the prior period. Revenues from hardware increased at Woodmark, decreased at Nationwide and of course include the revenues from the recently acquired Pacific Stair products. Woodmark's revenues increased $2.5 million or 6.1%. Revenues from the sale of staircase components increased by approximately $800,000 or 2.4%, benefiting from better customer penetration. Further, revenues in our kitchen and bath products sold under the mobile home and remodeling markets have increased approximately $1.7 million or 21.5% as sales to a large customer rebounded to 2004 levels after experiencing a decline in 2005. In addition, we strengthened relationships with other customers.

Nationwide's revenues decreased by approximately $1.2 million or 6.1%, primarily attributable to a decrease in revenues of approximately $280,000 in fencing products, primarily from new competition, $ 523,000 in the OEM business and $356,000 from patio products that resulted from the discontinuation of production and the sale of screen doors.

Finally, Pacific Stair's revenues were $6.2 million for the year ended December 31, 2006, which of course was 100% incremental to the total for the Company.

For the year, gross profit margins at Countrywide decreased from 33.9% in 2005 to 31.1% in 2006. The decrease in the gross profit percentage from hardware was due primarily to 1) some cost increases from Asian suppliers due to increases in the costs of metals that were not fully offset by general selling price increases in the third quarter of 2006; 2) the impact from significant revenue increases in the lower margin direct container business at Woodmark; 3) competitive pricing pressures in stair products in certain markets; and 4) the inclusion of Pacific Stair, which operates at a lower gross margin than the rest of the group. The gross margin percentage decrease was partially offset by a favorable product mix in fencing revenues and a shift by Nationwide to high quality, lower cost suppliers for some products.

For the 12 months ended December 31, 2006, revenues at Florida Pneumatic decreased by 7.7% to $44.7 million from $48.4 million in the prior period. The decrease was primarily due to $3.1 million less in retail promotions in the period as well as a decrease in base sales of approximately $3.7 million. Base sales decreased as a result of decreased purchasing activity of approximately $3.3 million dollars from a significant customer as part of a program to reduce its overall inventory level, which was further impacted by a $476,000 decrease in base sales from another significant customer. Decreases in revenues of approximately $265,000 at Franklin were due primarily to decreased shipments to a few customers related to weak in-store sales and supply-related issues. Decreases in OEM sales of approximately $461,000 resulted from decreased activity with a certain customer. Partially offsetting these decreases were incremental revenues from new products in the retail channel of approximately $3.7 million and increases in Berkley revenues of approximately $282,000 due to better penetration.

For the year, gross profits at Florida Pneumatic increased from 28.9% to 29.4% due primarily to a low proportionate amount of retail promotional sales in the current period, a shift to high quality, lower cost suppliers for some products and the strength of the U.S. dollar in relation to the Japanese yen and Taiwan dollar compared to the prior period.

Consolidated SG&A expense for the 12 months ended December 31, 2006 increased 5.1% from $24.3 million dollars to $25.5 million due to a stock-based compensation expense, certain corporate nonrecurring professional tax fees as well as the nonrecurring costs of the move of the Company's headquarters. In addition, this increase was also driven by rising freight costs due to the rising price of oil and planned increases in sales and marketing expenses that are intended to generate additional revenue in coming periods. As a percentage of revenue, SG&A increased slightly from 22.5% to 22.9%.

Interest expense increased slightly as well by $77,000 or 4.1% from approximately $1.896 million to $1.973 million. Interest expense on borrowings under the Company's revolving credit loan facility increased by approximately $43,000 as lower average borrowings were adversely impacted by higher average interest rates.

Other items affecting cash flow were depreciation and amortization which were $903,000 and $1.2 million, respectively. For the quarter, these amounts were $222,000 and $299,000 for depreciation and amortization, respectively.

Finally, capital expenditures for the full 12-month period were $1.5 million. For the quarter, this figure was $292,000.

With that, I'd like to turn the call back over to Richard. Richard?

Thank you, Joe, and I apologize to you all for Joe and I giving you so many numbers and so many things. It's a lot of information to absorb and we'll be more than happy to answer or clarify any questions you have during the Q & A.

But I'd like to remind you in the meantime that we modified our guidance policy last year to only provide full-year estimates going forward, and we anticipate earnings from continuing operations for the year ending 2007 to be flat as compared to 2006 as the inclusion of the results of the newly acquired Hy-Tech Machine are expected to be offset by the decline in results of our hardware business due to extremely poor housing starts nationally and regionally and certain other competitive pressures.

We anticipate consolidated revenues to increase between 5% and 10% primarily due to the inclusion of the results of the newly acquired Hy-Tech Machine business and we anticipate sales at Countrywide to decline. Although we still see some market opportunities in certain geographic regions for our stair parts business at Woodmark and Pacific Stair, we do not expect those increases to offset revenue declines elsewhere due to the slowdown in new housing starts. Nationwide's revenues are also expected to be flat due primarily to adverse market conditions and new competition in the fencing business. We anticipate sales of Florida Pneumatic to grow slightly as increases in our industrial and catalog business are expected to be offset by decreases in our retail business. We anticipate revenue at Continental Tool Group, the parent company of Hy-Tech, to be between $14 and $16 million. We now anticipate gross profit margins to range between 29% and 31%. We do not anticipate that such overall revenue increases, plan product cost reductions and operating efficiencies will offset margin erosion from increased product and related selling costs that have further compounded by the current economic market and competitive pressures.

Selling, general and administrative expenses are anticipated to range from 22% to 24% as a percentage of sales. Interest expense is expected to approximate $2.8 million, increasing approximately $875,000 or 31% as a result of servicing the debt related to the acquisition of Hy-Tech.

As a result of the above, we anticipate net earnings from continuing operations to be flat or possibly decrease up to 5% in 2007 in comparison to 2006.

That's the end of our report today and now I'd be happy to answer any questions any of you may have.

[OPERATOR INSTRUCTIONS] Your first question comes from Andrew Shapiro with Lawndale Capital.

Hi. I have several questions. I'll ask a few and then back out into the question queue but please come back to us, please.

Sure.

Regarding the sale of the Embassy property, a few questions, if you could help us here. You're still in the 45-day due diligence period. How many more days are left on that and -- ?

It's to the middle of April.

Mid April?

Mid-April, yes.

Okay, and have things progressed favorably? There's not been any particular bumps that you encountered on the prior sale?

Nothing. Nothing yet out of the ordinary, but that's not to say that at the end there wouldn't be issues, but as of now, there is nothing for us to see.

Okay, but ave they already investigated the issues that crimped the last sale and do you get the impression that they may have at least gotten by those issues?

We've given them all that information and I don't know what they've done. They haven't really contacted us. They've been in the building several times but they've got all the information. We've been very forthcoming with it and really, it's a non-event because it was all resolved but they have all that information.

Okay. Now with the net sale proceeds of 44, I'm presuming you're going to be paying down the debt. What I'm trying to get a handle on is what is the interest rate on the debt that you plan to pay down with those proceeds and does your 2007 interest expense guidance of $2.8 million include your reduced interest from the use of the proceeds of the real estate sale?

Just one minute.

We're just check -- Andy, the interest rate on -- let me back up. What we're going to pay down most likely is going to be long-term debt, specifically, the debt related to the Hy-Tech acquisition. We -- that makes the most sense for us because we've got one year after the acquisition before we lock in our principal payments, and I'm double checking that, but I believe that's LIBOR plus 175 basis points. I've been corrected. It's actually 1.5 basis points.

Five over LIBOR. Five would be the interest savings. And then is that already built into your guidance or because you don't -- ?

Yes, that's in our guidance.

That's in the $2.8 guidance?

Yes.

Are you still in litigation -- ?

Hold on a second, Andrew. Let me back up a second, excuse me. It is not in the guidance. I have not assumed the sale. We have not assumed the sale of the building in the guidance. It is not in our projections. Once it's in there, it's in there.

So 4.4 times the interest rate as of whenever you close and collect the dough.

That would improve the guidance. Sorry about that.

Okay. Are you still in litigation with the original buyer for the $640,000 deposit and can you confirm that the deposit is still nowhere on the balance sheet and has not yet passed through your income statement?

Yes. First of all, on the guidance, Andrew, just to back up. The interest expense would change obviously, and then also the earnings per share for the year would change if we make the sale obviously.

Yes, yes.

Okay.

So on the litigation with the original buyer for the $640,000 -- ?

We are --

It's not on the balance sheet and it's not yet through your income statement?

That's correct.

What's the status?

And it's still ongoing. And it's $650,000.

Pardon me?

It's $650,000 and it's still ongoing.

Okay. And that never went through the income statement? It's not on the balance sheet. What is the status of that litigation? Where is that milestone?

We're still in the discovery stage.

Okay. And is there a hearing date set at all or anything like that?

We've had one or two hearings already. I believe there's another one in another 45 days or something to that line. It's an ongoing process. I don't know if it'll be resolved this year or when, but it's an ongoing thing, and we feel good about it.

And what state or county court is this in and the name of the case?

Suffolk County and it's --

I think it's [Dedario] versus Embassy Industries, I believe.

Okay, great. And can you remind us whether -- okay, this facility was pretty much vacant then all year and did it have impact on the earnings in terms of depreciation or other expenses?

Absolutely.

It would all be in discontinued operations, however.

Okay. Just in discontinued. Okay, a few questions on pneumatic and I'll back out and ask questions on hardware and other things. Do you feel that the inventory vacillations that you're experiencing in your primary retail customers fears is a symptom of actions that benefit them and thus might be a more permanent change that you're experiencing or is this a part of the equation where these vacillations are ongoing problems that we're kind of aware that Home Depot and Sears have been going -- will eventually get addressed and we'll be back to the old status quo.

I don't understand the question.

Yes. I'm not quite sure we understand the question.

Let me clarify. We've experienced -- P&F has experienced some pretty wide inventory adjustments which as a very long-term investor in the Company I've seen occur every so many years, okay? It just seems that in your script today and over the last year that we've had some inventory vacillations here by both Home Depot and Sears that are -- that seem to be more recurring, and I was wondering if you've noticed that there's new actions that both Home Depot and Sears have been doing that are more of a permanent change that P&F is going to encounter all the time or if they're just undergoing a restructuring and they have some problems that are eventually going to get addressed by them and we will be back to the status quo of every few years you get hit with these inventory adjustments?

I don't know if I'm going to answer this question correctly but I'm going to give you my best shot and then Joe can add anything if he'd like. Sears, the vacillations that we had experienced last year, we're pretty much through that. It appears, I mean, from all of the information and from what their performance has been the last six months, the last quarter of last year and the beginning of this year, we seem to have steadied the boat in effect with their orders and we seem to be back in the more traditional ordering pattern with them, and we have some very good positive promotions going with them going forward as well, introducing new products and things seem to be good there.

With Florida Pneumatic, excuse me, with Home Depot, it is a different story. They are going through their turmoil. Therefore we're going through our turmoil with them, and their business and their predictability of orders with us is extremely uncertain even at this time.

Okay.

Joe, do you have anything?

Yes. Let me just throw a couple of other angles in there that hopefully will help round out your understanding. In '05, as you recall, Sears had a major reduction in inventory level to get a tighter relationship between demand and supply. We saw something similar to that in '06 for Home Depot. In addition in '06, we turned over just about the entire product line at Home Depot to a new look, and began that same process, although it won't be done until '07, at Sears. As a result of that turning over the line, as you can imagine, there wasn't a perfect transition, if you will, on the inventory so we had a few months there where we had an unusual move in inventory as we got the old inventory out and the new inventory in. So having said all that, we're basically done with the transition related to the new look. We're definitely done with Sears in terms of being at the right inventory levels. We think we're close to done at Home Depot, but we're not 100% certain.

Okay. And can you update us on the status of your new product rollout and the reception in the market in both of those outlets?

I don't know if we would really have a handle on that, but so far, I mean, at Sears, I would say the reception has been good. And at Home Depot, I don't know if we can do that with all of the other moving targets we have going on with Home Depot right now, I'm not sure we can attest to it yet.

I will say that we're pretty certain that at Sears on an SKU basis, we're doing better with the new look than the old look but we haven't completely turned over that line yet.

Okay.

And there also, Andrew, at Home Depot, we have some store setting with display issues and things. There are several issues that are still very up in the air with Home Depot.

The merchandising issues you had referred to in the past.

Yes, they continue, and it's very frustrating to us who can react kind of quickly and we know where we're going but we cannot seem to get our message across to them in a timely -- in a way that gets them to move.

Yes Well, their managerial changes are pretty well known.

Yes.

You mentioned in the press release regarding I think Sears. Last quarter, you had a promotion with some new products, went really well. There was, I think, more than $2 million or so. And now in the fourth quarter, there's a line item you talk about of this $1.1 million you mentioned in the release that benefited this quarter. I'm assuming it's the same kind of product line that was the $2 million in the prior quarter. Is that a good quarterly run rate or is that the tail end of a promotion that just crossed quarterly lines?

It's a little of both, I would say. We have promotions with these products and they're going forward. I don't know if they'll be quite the same magnitude or volume but then we also have other products that we're introducing. So it's, again, a moving target but it's all positive.

Okay. The rest of the questions regarding Pneumatic I have are regarding Hy-Tech. I'll pull out of the queue but I have questions on Pneumatic and Hy-Tech and I have some hardware and other questions so please come back to us.

Okay.

[OPERATOR INSTRUCTIONS] You do have a follow-up from Andrew Shapiro with Lawndale Capital.

Okay. We'll try to bring this thing home. We're the questioner of the day.

Right.

Okay, in the Hy-Tech, can you discuss the integration process, if at all, of the Hy-Tech acquisition, its distribution channels and the opportunities for growth and synergies that P&F brings because your retail distribution is certainly different than all of the industrial distribution. This is a horizontal kind of merger. Where are the synergies and can you identify if it's cost savings or just revenue growth?

I'll take this. I want to remind everybody that Florida Pneumatic's revenue, although highly dependent on Sears and Home Depot, does have an industrial flavor. We rarely talk about it because those other two accounts are just so large, but close to a third of Florida Pneumatic's revenue is in what I call industrial or industrial-type channels. So we are in there, and despite the fact that it's only a third of the business, it probably represents a -- well it definitely represents a larger portion of gross margin, and we do have some significant penetration, if not in dollar amounts, just in contacts. So Hy-Tech, which is almost 100% industrial related, ironically although it has certainly its distribution, there are channels where its products are extremely sellable that it just hasn't chosen to exploit whether that just be because they're too busy doing what they're doing or they don't have quite the right representation or whatnot. In any event, one of the big benefits to the acquisition was taking some of the Hy-Tech product, in fact a great deal of the Hy-Tech product, and placing it with the reps and internal sales people that Florida Pneumatic has and exploiting the channels Florida Pneumatic's already in to a much greater extent. That's one synergy, if you will.

Another synergy, and again we alluded to it, is there are about three product lines from Hy-Tech and about three product lines from Florida Pneumatic that are very suitable for a number of channels. The biggest one to talk about is what we call the tool rental channel. This would be where professional contractors would rent tools for specific jobs and then of course return them and the companies that do that sort of thing are Nation's Rent and firms like that. Florida Pneumatic, although it's aware of those channels, has some contacts, doesn't sell anything into those channels because you -- it really requires a pretty broad line of products. And although the two companies together don't have every single thing, they have enough of it that we can now go to that channel and some other channels with a suite of products and both companies win in that situation. So I would say that's the second big synergy.

And then lastly, and to a lesser degree but I still think it's worth talking about, is the two engineering groups will be collaborating on opportunities that either sales force can present to them and we haven't really even spent a whole lot of time exploring that, but we know it's out there as a possibility and we're excited about that. I don't think there are any cost savings available to the combined group. We're not doing anything at either facility. There's a chance that there are one or two product lines that overlap and perhaps we'll make them in one facility and not the other and there's maybe a small savings related to that but that's not really the bulk of the benefit.

Okay. And your MIS systems are compatible? You don't have to do that thing again?

Yes. They're two different MIS systems and frankly, the consolidation is no different than consolidating any of the other separate entities. We will examine the appropriateness of maintaining two separate systems. They are two separate companies at this point and will remain that way. That's not to say that maybe we could go to one MIS system. It gives us a little bit of an easier task here at corporate putting things together but there really isn't any benefit to either entity.

What's the earnings power of this Company? You mentioned in the press release it was expected to be accretive, and I'm trying to get a feel for the type of enterprise value, the EBITDA multiple you paid, excluding the real estate. It looks like you paid one-time sales.

Yes. I mean, we certainly didn't price the deal that way. I will say this, that the --

How did you guys price the deal?

Well, we did a multiple of EBIT, okay? Actually a combination of multiple of EBIT, multiple of EBITDA.

Which comes out at right on what?

We're in the 5-ish range depending on which multiple you use. The margins for Hy-Tech are around 30% and they have an extremely low overhead structure so they -- their return on revenue is a fair amount better than Florida Pneumatics. As you can imagine, if Florida Pneumatic were just an industrial tool company, it would doing -- we would be doing a fair amount better on its bottom line in relation to revenue.

I have gone to their website and it's very [inaudible] business. When will you integrate their website with yours or have you?

We're in the process of doing that now.

Okay. When will the financials of Hy-Tech be available? Will that be in the 10-K that's coming out any day here?

No, we actually have a separate filing for that, an 8-K that will actually be out in the next couple of days so you'll have lots of data there to chew on.

Can you describe the nature of the real estate that was acquired from HTM?

Sure. I'll just talk about the deal in general so you understand that. The acquisition of Hy-Tech was actually three acquisitions. Hy-Tech's main facility and operation in Cranberry Township was owned by a certain group of investors. A very closely related but not exactly identical group owned a subsidiary of Hy-Tech that manufactures a critical component to the air tools for them and that was in Punxsutawney, Pennsylvania. And then lastly, a third group, again related but not completely the same, owned both facilities. We purchased the larger facility and land, the one in Cranberry. We're leasing the smaller facility in Punxsutawney. But all three came together to make up the one transaction. The facility in Cranberry, PA is about 55,000 square feet. The one in Punxsutawney is about 10,000 square feet and not a whole lot of land around that. In fact, I don't think there's any more land available to build on in either place.

Punxsutawney Phil will come out now and then?

We got the groundhog in the acquisition.

Great, great. Are you still active then in the market for more industrial exposure or is this it for a while with the acquisition?

I would say for this year, certainly an acquisition is not in our plan. Having said that, if something come along that is a very good fit and we can do it in some kind of manageable way, we will but I think right now we want to catch our breath. We want the housing starts to pick up, start doing a little bit better again and get back to where we should be and we know we will be.

Okay. I have some Countrywide and some general questions. I'll be glad to back out in the queue.

No, go ahead. Why don't you finish, Andrew, while you're on.

Okay. On the hardware side, I think you mentioned Pacific Stair acquisition was January 3rd of last year so it's anniversarying pretty much this last quarter that you just announced it's done. Year-over-year, it's all organic now.

Yes.

Okay. You mentioned the divestiture of the screen door business in the past. When does that anniversary? Because it seems like it was a meaningful amount of revenue and maybe cash flow that want to track that.

That would be in the summer sometime, probably third quarter, but --

Of '05, not '06.

No it was -- that divestiture really doesn't have a major impact on profits at Nationwide. Some impact on revenues but I can't imagine it's more than $100,000 or even $200,000. It may not even be that much.

In revenue?

In revenue.

Okay. And what internal initiatives can you or are you pursuing with respect to the U.S. new housing market kind of dynamics of where things are?

Well, our initiatives are trying to exploit the pockets where we see some opportunity. Specifically, we see some opportunity in the southeast and also even though starts are lousy out in the California market, we're excited about a very experienced salesperson that we've hired in that market who's very confident of delivering some additional revenue, but that remains to be seen. But those are two markets that we think we can or we're focusing our efforts, for two different reasons.

And of course we're also -- we started about a year ago, focusing a little bit more, trying to get more into the refurbishing business which we're in the midst of doing. We're not totally successful with it yet but it's been a mission of ours before the housing starts became a problem.

Right. Are there weaker competitors beginning to be stretched and now eliminated that either provide synergistic opportunity or they'll alleviate competitive pressures?

You mean by acquiring them?

Well, that would be the synergistic opportunity, and otherwise they are dropping by the wayside.

Certainly, some of the regional players, $5 and $10 million companies, had some real impact on the business towards the tail end of the boom. We don't, to my knowledge, none of them have gone out of business but certainly their ability to withstand a prolonged downturn in housing is not the same as ours. But at this point, we're not seeing them falling off.

Okay. You previously mentioned regional competition. Is this the same pressure that this quarter that you mentioned as previously mentioned or is there some new competition?

No. It's the same. We're referencing the same kinds of patterns.

Now, do you have other salespeople or things coming on to help sustain organic gains in the face of the slowdown or is this new salesperson the California Pacific region that -- ?

No. We have other things we're working on, other people. I just point him out because he was actually a pretty big fish to catch in stairs.

Right. And what are your priorities in the hardware opportunities? Is it now going to be product based or will you be looking to expand regionally as we come out of the housing trough?

It's both. We certainly are going to identify regional opportunities and try to figure out ways of getting more penetration in specific regions but we also have lots of other product on the drawing board at Nationwide and Woodmark.

Okay. More on the corporate side now here. As you've said in the past, your expenses are pretty variable but you mentioned cutting costs in the press release. So how much cost cutting is there to be done given the variability that you have in your business model?

I don't think anybody had discussed cost cutting at corporate.

Yes.

Actually, I would say just the opposite. We just hired a corporate counsel for the Company, full-time corporate counsel which we believe will save us money because obviously a lot of the expenses that we have at our corporate counsel now will not be used because we'll be doing it in house.

Yes.

But there's no cuts at corporate. As a matter of fact, with Sarbanes-Oxley and all those things going on, it's becoming increasingly hard to do what we're doing with the staff we have.

The expenses only go one way at corporate. Having said that, on a anniversary basis, we won't have the expense of the move in '07. There were also some additional accounting fees in '06 that aren't going to repeat. So there are a couple of things that will help us but they're not really what I'd call cost cutting.

But they certainly will be dollars, Andrew.

Yes.

Now, the financial statements you released today, I guess are pre, they're pre-Hy-Tech tool business?

Of course.

And those numbers have brought your debt to equity levels and your interest coverage levels way down to, again, I've been here for a decade, to some of your lowest levels. And the query comes back to in light of that, you have an authorized buyback plan although I think authorization might need to be down the road here. What are your plans in terms of priorities and cash proceeds regarding the -- either taking the debt to equity levels down even further or buying back stock?

The clear priority is to pay down the debt. We've got some very tight bank covenants going out the next few years and I don't see any reason to focus on anything else with any excess cash. Especially in the next 12 months, where we have this opportunity to lower our nut, so to speak, our fixed nut, once we lock in the quarterly payments on the Hy-Tech borrowing.

But I guess some of those details -- are they already in releases or that's coming up in the 8-Ks?

I believe the 8-K and the 12 -- the 10-K will expand on that.

Okay. Then I'll better appreciate that issue. You kept over $100 million in revenues trailing now. That's before Hy-Tech. Getting to be a decent sized core business in two segments. What are the plans, if any, regarding we'll call it an expanded investor relations activity? Conference calls are great. Appreciate you going open ended here in the Q&A and putting the transcripts and making that available, but in terms of we'll call it outreach, going out and having Lippert set up luncheons with some microcap investors, et cetera, are there any game plans for that?

We've done it a few times where people have contacted Lippert and they've asked us to do that, but my judgment and my assessment of it at this point isn't -- when we have a better story to tell, when things pick up in the housing market and all that stuff, I think we will go out and do that. But I think right now, we're a little bit in flux, and until we start going on our good curb again, which we will, and we see how the Hy-Tech acquisition fits in and how it helps our business, I think that it would be -- it wouldn't be time well spent. That would be my judgment right now. But if you tack a snapshot six months from now, hopefully it will be a different answer.

Okay. Thank you.

And it's certainly something that we do discuss and think about and I thank you for bringing it up because it's something that we don't seem to do but it's not that we don't talk about it. I don't want to you think that we don't.

Andrew, one other thing I'd add to that is one thing we will be getting back into is just having some general conversations with interested large investors, people that are boutique investment banks and things like that. We won't necessarily have a face-to-face meeting with them or anything like that but we'll tell them a little bit more about our story. That can be done, but frankly, beginning with the fall, we were so busy with this extremely, what ended up being an extremely complicated transaction, I just, Richard and I did not have time to really do even that. But that we can do and will do. It's not a major investment of time or money.

Okay. Great.

[OPERATOR INSTRUCTIONS] There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Okay. We thank you all for joining us on the call today, and once again, we apologize for the stack of numbers we gave you, but hopefully we presented the picture well. We're looking forward to a better year, hopefully, and better news as time goes on. Thank you for your patience and your understanding. Have a nice day.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your line.