P&F Industries Inc (PFIN) 2008 Q4 法說會逐字稿

Greetings and welcome to the P&F Industries fourth quarter 2008 earnings conference call.

(Operator Instructions)

It is now my pleasure to introduce your host, Mr. Richard Goodman, General Counsel for P&F Industries. Thank you. You may begin.

Thank you, operator: Good morning and welcome to P&F Industries fourth quarter 2008 earnings conference call. With us today from management are Richard Horowitz, Chairman, President and Chief Executive Officer and Joseph Molino, Chief Operating Officer and Chief Financial Officer. Before we get started I would like to remind you that any forward-looking statements contained herein, including those related to the Company's future performance and those contained in the comments of management are based upon the Company's historical performance and current plans, estimates and expectations, which are subject to various risks and uncertainties, including but not limited to economic conditions, the impact of competition, product demand and pricing and those described in the reports and statements filed by the Company with the Securities and Exchange Commission, including among others those described in the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q.

These risks could cause the Company's actual results for the fiscal year 2008 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 which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statements whether as a result of new information, future developments or otherwise. With that, I would now like the turn the call over to Richard Horowitz. Good morning, Richard.

Good morning Rich and thank you. And good morning to everybody on the call. Thank you all for joining us this morning on our fourth quarter 2008 conference call. I would like to start off with a brief review of our financial results for this quarter. Revenue for the fourth quarter of 2008 was $15,674,000 compared to revenue for the fourth quarter of 2007 of $24,905,000. We reported an aftertax loss of $5,465,000 for the three month period ended December 31, 2008, compared to an after tax loss of $17,943,000 reported for the same period in the prior year. A key component which adversely affected our fourth quarter results for both 2008 and 2007, was impairment charges taken in the fourth quarter against goodwill and other intangible assets of $7,477,000 in 2008 and $23,462,000 in 2007.

For the fourth quarter ended December 31, 2008 we reported a basic and diluted loss per common share from continued operations of $1.51, compared to a basic and diluted loss from continuing operations per common share of $4.93 for the same period last year. Earnings from discontinued operations net of tax benefit for the fourth quarter of 2008, was approximately $36,000 compared to $300 reported for the fourth quarter of last year. Basic and diluted earnings per share from discontinued operations for the three month period ended December 31, 2008 and 2007 were $0.01 and nil respectively. As a result for the fourth quarter of 2008 we reported a basic and diluted loss per share of $1.50, per share compared to basic and diluted loss per share of $4.93 for the same period in the prior year.

As I generally do on the calls, for those newcomers I am going give you a brief overview of our business units. I apologize if it is redundant to some of you. Our Continental Tool Group consists of Hy-Tech and Florida Pneumatic , two wholly owned subsidiaries of ours. Hy-Tech manufacturers and distributes pneumatic tools and parts for industrial applications. Hy-Tech manufactures approximately 60 types of industrial pneumatic tools, most of which are sold at prices ranging from $300 to $7,000 under the names ATP, Thaxton, Thor and Eureka, as well as the trade names and trademarks of other private label customers. This line of product includes grinders, drills, saws, impact wrenches and pavement breakers. Hy-Tech's products are sold to distributors and private label customers through in-house sales personnel and manufacturers representatives.

Uses of Hy-Tech tools include refineries, chemical plants, power generation facilities, heavy construction industry, oil and mining companies and heavy industry. Hy-Tech products are sold off the shelf and are also produced to customer orders. Florida Pneumatic, is primarily engaged in the importing and manufacturing of approximately 75 types of pneumatic hand tools. It markets through its Berkley tool division as well, which is a line of pipe cutting and threading tools, wrenches, replacement electrical components for widely-used brand of pipe cutting and (inaudible) machines. In addition, through its Franklin manufacturing division, Florida Pneumatic imports a line of door and window hardware Countrywide is comprised of nationwide industries, Woodmark International and Pacific Stair Products. Countrywide 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. Pacific Stair is a manufacturer of premium stairwell products, and a distributer of staircase components for Woodmark to the building industry primarily in southern California and the southwestern United States.

Now I will review the quarterly performance for each of our business units. Revenue for the Continental Tool Group in the fourth quarter of 2008, decreased to $9,552,000 from $14,803,000 in the fourth quarter of 2007. This decrease consisted of a reduction in Florida Pneumatic of approximately $6,070,000, primarily due to reduced purchases from its major retail customer, as well as reduced volume of our Franklin product lines of $2,656,000 and $940,000 respectively. In addition, its revenue decreased to $1,959,000 as a result of the loss during the year of Home Depot. The above factors were partially offset by increased revenues at Hy-Tech which saw its revenue grow to $4,845,000 for the fourth quarter compared to $4,027,000 for the fourth quarter of 2007.

Gross margin at Florida Pneumatic for both the fourth quarter of 2008 and 2007 were 25.9%. However, as a result of the fall off in revenue, its gross profits decreased to $1,218,000 for the three month period ended December 31, 2008, compared to $2,787,000 for the three month period ended December 31, 2007. However, Hy-Tech was able to increase its gross margin to 37.2% from 35.8%, and its gross profit improved to $1,801,000 from $1,450,000 last year. Countrywide Hardware's revenue for for the fourth quarter of 2008 decreased to $6,122,000, from $10,102,000 reported in the fourth quarter of 2007. Revenue generated from the sale of our stair products, which includes sales at Woodmark and Pacific Stair Products, decreased to $3,586,000 from $6,004,000 primarily due to the significant reduction of newly constructed homes.

In addition, revenue from Woodmark kitchen and bath products which are primarily sold into the mobile home and remodeling market, and to a lesser extent the new home sector decreased to $844,000 from $1,276,000. Nationwide's revenue decreased to $1,682,000 from $2,794,000 when compared to the prior year. And this was primarily due to decreases in patio product line sales of $85,000, a decrease in fencing sales of $700,000, and a decrease in OEM product sales of $327,000. Gross margin for the hardware segment for the three month period ended December 31, 2008 was 20.7% compared to 28.8% for the same period in the prior year. The most significant factor creating this decrease was that Pacific Stair Products had a deficit margin of 19.7%, in that period versus 5.5% for the same period in 2007.

To help improve results with the hardware group going forward, in the fall off last year the Company closed the Pacific Stair Products mill in southern California. During the three month period ended December 31, 2008, selling, and general and administrative expenses decreased to $4,900,000 from -- $6,487,000, excuse me, reported for the three month period ended December 31, 2007. The most significant components of the reduction were lower compensation, commissions, advertising and promotional fees, shipping costs, warranty expenses and freight out. While we were able to reduce total operating expenses by more than 24%, when comparing the fourth quarter of 2008 to the same period last year, as a percentage of revenue, our selling and general and administrative expenses increased approximately 5%, as much of our operating overhead is fixed.

In an effort to address this, we have made it a prime directive to revisit all operating expenses in 2009, and obtain more cost concessions where possible, and we are in the midst of that program for several months now. Our hardware group continues to suffer through the ongoing downward trend in the number of new housing starts. Unfortunately, for us, the ill effects appear to have now migrated into the overall general economy, and as such, we are encountering a slowdown in orders in the retail portion of our tool group. We believe 2009 will be another challenging and difficult yea,r as the current forecast number of new housing starts remains quite pessimistic. We will however, continue our efforts to vigorously market our products, and pursue new accounts in this depressed market.

Further, as I mentioned before, we have put in place a number of key cost cutting initiatives which should further reduce our cost of operations, and improve our cash position going forward. Some of the significant actions we have undertaken include elimination of overseas third party purchasing agreements, as well as reduced staffing, pay and benefits. Additionally, we have initiated a major inventory reduction program which will improve our cash flows and enhance business performance. In summation, all of P&F remain committed to our goal of providing extraordinary service, along with quality products to our customers. At this time I would like to turn the call over to Joe. Joe?

Thank, Richard. As Richard has discussed the quarter, I will focus my comments on the entire 2008 results. We reported for the year ended December 31, 2008 revenue of $87.7 million, compared to $110.8 million for 2007. As Richard noted earlier, we in accordance with statement of Financial Accounts Standard 142, recorded an impairment charge of $7.5 million in the fourth quarter. As such, we reported a net after tax loss from a continuing operations of $4.4 million, compared to $17.2 million loss for 2007. I should point out that during 2007, we recognized an intangible asset impairment charge of $23.5 million.

Our loss from continuing operations on per share basis was $1.21 for both basic and diluted shares, compared to basic and diluted loss from continuing operations per share of $4.77 for the year ended December 31, 2007. Earnings from discontinued operations net of taxes for the year ended December 31, 2008 was $117,000, a decrease of $3,012,000, 3,129,000 reported for the prior year. In 2007, the Company reported an after tax gain on the sale of real property of approximately $3,037,000. For the year ended December 31, 2008, the Company's basic and diluted earnings per common share from discontinued operations was $0.03, compared to basic and diluted earnings per common share from discontinued operations of $0.87 for the year ended December 31, '07. Accordingly, with respect to the overall results for 2008, we reported a basic and diluted loss per share -- per common share of $1.18, compared to basic and diluted loss per share of $3.90 for 2007.

I would like to briefly discuss 2008's full-year performance at each of our subsidiaries and how it compares to the prior year. Beginning early in 2008, Florida Pneumatic began to feel the effects of the overall sluggish general economy. The most significant impact was during the three month period ended December 31, 2008, during which time a number of its customers reduced or held off placing orders. During 2008, its net sales to its largest retail customer decreased approximately $6.7 million, when compared to net sales in 2007. Nearly half of the decrease was a result of the customer not repeating non-pneumatic tool promotional product business in 2008.

Further, sales of our Franklin products line, Franklin products line slid 53% or $2,496,000 to $2.2 million for the year ended '08, from $4.7 million in the same period in the prior year. The industrial and catalog revenue for 2008 decreased $159,000 and $165,000 respectively when compared revenue for the year ended '08, to the same period in the prior year. Lastly, an additional contributing factor the decrease in revenue of Florida Pneumatic, was the loss of the Home Depot during the year. The loss of this customer disclosed in previous filings accounted for approximately $4.5 million of the drop off in revenue at Florida Pneumatic for 2008.

Hy-Tech however continues to provide a positive impact to the tool segment. Hy-Tech focuses on the industrial segment of the pneumatic tools market, an area which thus far this has not been as materially affected by an overall sluggish economy. Revenue generated by Hy-Tech increased $4,363,000 when comparing 2008 to 2007. Hy-Tech's revenue for 2007, is from the date of acquisition, which was February 12th through December 31st of 2007. It has throughout 2008 continued to create organic growth.

With respect to our hardware segment, 2008 was a continuance of a downward trend of the number of new homes being constructed which began in earnest during 2007. As a result, Woodmark's total revenue decreased to $22,147,000 from $31,852,000 for the prior year. For the year ended December 31, 2008, revenue generated through the sale of its stair products was $17,423,000 down from $26,027,000 in 2007, a decrease of $8.6 million, or approximately 33.1%. A significant portion of the decrease in Woodmark's stair parts revenue was due to the lose of a key customer, who for the year ended December 31, 2007 accounted for approximately 11% of Woodmark's stair parts stair line revenue.

Several smaller accounts have also gone out of business, while others have reduced their volume significantly. Similarly with respect to Woodmark's kitchen & bath product line, the downturn in the number of new homes, as well as a diminishing recreational vehicle and mobile home market, which is a key customer group to this line, adversely impacted sales of that product line. Net revenue of kitchen and bath products decreased $4,725,000 in 2008, from $5,825,000 reported for the year ended December 31, 2007: a decrease of $1,100,000 or 18.9%. One key customer of this product line which accounted for approximately 10% of the product line revenue in 2007 went out of business, along with several smaller accounts while others again have reduced their volume significantly.

Until the downward trend in the number of new housing starts levels and begin to increase, we did not expect to see improvement in Woodmark's net revenue. Net revenue for the year ended December 31, 2008 at Pacific Stair decreased to $1,844,000, from $3,681,000 reported for 2007. The decrease in revenue here is attributable to the continuing decline in the new home construction market in the southwest region of the United States, specifically California, Nevada, and Arizona. Nationwide which had not until the second calendar quarter of 2008 been materially affected by the sluggish home building sector, or the general slowdown in the overall economy reported net revenue for 2008 of $14,048,000 compared to $15,978,000 in the prior year.

Nationwide's net revenue is categorized in three components, all of which suffered declines, fencing hardware products decreased $376,000 to $10,029,000. OEM decreased $1,059,000 to $2,982,000, and the patio business line decreased $495,000 to $1,037,000. We believe the decrease at Nationwide is related to the sluggish real estate market in the southeast portion of the United States. as well as increased competitive pressures. Further, cost increases from our foreign suppliers reduced the beneficial impact of the new products which were introduced during 2008. This situation has eased somewhat recently however.

Gross margins in the tool segment increased 4.4 percentage points to 33.2% for the full year ended December 31, 2008 from 28.8% for the same period in 2007. However, gross profit for this segment decreased $642,000, as a result of the decrease in revenue. Despite a struggling economy, Florida Pneumatic was able to increase the overall gross margin percentage by 4.2 points to 30.2% for the year ended 2008, from 26% for the year ended 2007. This increase was primarily the result of product pricing and customer mix, price reductions from and/or utilization of newer, lower cost overseas suppliers, and out sourcing certain manufacturing processes. However, the above factors were offset by a 3.8% percentage point erosion of its Franklin -- Franklin products line margin, resulting primarily from reduced selling prices, caused by competitive pressures.

Hy-Tech's gross margin improved slightly to 34, excuse me, 37.4%, compared to its results for the prior year of 37.3% which is measured from the date of acquisition. We believe that gross margins within our tools group should remain at or slightly below those of 2008. The overall gross margin percentage for the hardware segment continues to be severely affected by the downturn in home construction. For the year 2008, the hardware segment gross margin was 27.5%, reflecting a decrease of 3.1 percentage points when compared to 30.6% for the same period in the prior year. Gross profit for the hardware segment decreased $5,285,000 to $10,467,000 reported for the year ended December 31, 2008, from $15,752,000 for the same period in 2007.

Specifically, gross margins for our stair parts business, as well as our kitchen and bath businesses at Woodmark decreased 2.5 and 3.3 percentage points, respectively when comparing the results to 2007. These gross margin decreases combined with the reduction in respective revenue, resulted in an overall reduction of gross profit at Woodmark of $3,407,000. The gross margin decrease in the stair parts business is a combination of price reductions made in order to remain competitive, cost increases and lower absorption of fixed expenses, as a result of lower revenue. The decrease in gross margin for the kitchen and bath product line is due primarily to a combination of vendor price increases, combined with selling price concessions.

The gross margin for the year ended December 31, 2008 at Pacific Stair continued to reflect the impact of the severely reduced number of homes being constructed in the southwest region of the US, compounded by the inability to reduce fixed manufacturing overhead costs, as sales levels were decreasing. For the year ended December 31, 2008, Pacific Stair products had a gross deficit of 11.6%, compared to gross margin of 10.1% reported for the same period in 2007. Revenue generated directly from products manufactured at the mill, generated a deficit margin in excess of 50%, while revenue from products imported and then shipped, generated a deficit margin of less than 1%. Thus in an effort to improve the overall results of Pacific Stair during the third quarter of 2008, we completed the closure of its mill and consolidated operations into its warehouse.

Our gross margin at Nationwide of 34.4% for the year ended December 31, 2008 reflects a decrease of 3.7% from the 38.1%, reported for the year ended December 31, 2007. The gross margin decrease was primarily due to price increases from overseas suppliers, lower absorption of warehouse costs, as well as certain instances where we were required to lower our selling prices in highly competitive situations to key customers. Combined with decreased revenue, Nationwide's gross profit for the year ended December 31, 2008 fell $1,250,000 to $4,838,000. Selling, general and administrative expenses for the year ended December 31, 2008 decreased to $24.3 million from $28.1 million in 2007. A portion of this reduction is a result of managements ongoing efforts to reduce or control operating expenses where ever possible.

However, as a significant portion of these expenses are fixed, as a percentage of revenue, SG&A increased to 27.7% from 25.4% for fr the prior year. It it should be noted, that for the year ended December 31, 2008, our consolidated SG&A, included 12 months of Hy-Tech's SG&A compared to approximately 10 and a half months in 2007. Significant items affecting the change in our SG&A include reductions in compensation, noncash stock compensation, and depreciation and amortization expenses. Additionally, the following items also decreased, promotional expense, freight, warranty, commission, bad debt expense, and travel and entertainment expenses. Offsetting the decreases in SG&A, we incurred increases to certain operating expenses.

As a result of the loss of Home Depot's business we reported severance costs and equipment write down. Additionally, in an effort to improve the overall results to Pacific Stair, we completed the closure of the mill as we noted earlier, and consolidated our operations into the warehouse. As a result of the mill closure, we recorded a write down of certain assets and inventories and paid severance, all aggregating $136,000. We believe this action should improve Pacific Stair products financial results moving forward.

As Richard noted earlier, in accordance with the new accounting standard 142, we recorded an impairment charge of $7.5 million, relating to goodwill and other intangible assets during the fourth quarter of '08. This charge was necessary as throughout 2008, as was the case in 2007, the United States has remained in the throes of major downturn in the number of new homes being constructed. According to the US Department of Commerce data, new single unit housing starts were approximately 819,000 for 2008 ,down from 1,218,000 in 2007, reflecting a 32.8% decrease in the number of new starts when comparing the years. This decrease in annual single unit starts has resulted in a decrease in the value of our hardware segment in particular, Pacific Stair and Woodmark.

This was compounded by general sluggishness in other sectors of the economy, that directly drive our businesses leading to sales degradation. As a result, these business units were unable to demonstrate an ability to significant discounted future cash flows, to support the recorded amounts of goodwill, other intangible assets and other long lived assets related to them. And this necessitated the aggregate impairment charge. Our net interest expense for the year ended 2008 of $1,769,000 reflects a decrease of $1,149,000 or 39.4%, when compared to net interest expense of $2,918,000 for the year ended December 31, 2007. Interest expense decreased $436,000, and $554,000 respectively, on the term loans associated with the Woodmark and Hy-Tech acquisitions, principally the result of lower average borrowings during the period due to repayments, as well as slightly lower average interest rates.

Interest expense on borrowings under our revolving credit loan facility for the year ended December 31, 2008 was $672,000, compared with $607,000 in the prior year, resulting in an increase of $65,000, due primarily to higher average loan balances. Our total average debt under the terms of our credit facility with our banks, for the year ended December 31, 2008 and 2007 were $28,560,000 and $31,800,000 respectively. The total average interest rate for the years ended December 31, '08 and '07 were 4.95% and 7.13%.

Total borrowings of approximately 30 -- $30.5 million at the end of '08 reflects an approximate $3.5 million decrease from the $34 million outstanding at the end of '07. This year-to-date change is due primarily to a decrease in working capital, and is consistent with lower revenue. During 2008, capital expenditures were $759,000 compared to $1.3 million for the same period a year ago. Finally, we reported depreciation of $418,000 and $1,695,000 for the three and 12 month period ended December 31, '08 respectively. We also reported amortization of $234,000 and $936,000 for the same three and 12 month periods ended December 31, 2008 respectively. With that I'd like to turn the call back over to Richard. Richard?

Thank you, Joe. I apologize to everybody, that we probably lost you at hello with that very lengthy report. We will try to make that a little more concise in the future. There was just one correction I wanted to make in my comments. I said the impairment charge was $23,000 from '07, it was $23 million. So I apologize for that, and now we will leave the lines open for anybody who -- wants to ask us any questions

Thank you sir.

(Operator Instructions).

Our first question comes from Andrew Shapiro with Lawndale Capital Management. Please state your question.

Hi several questions. And I will back out into the queue but then come back to us when you please. Can you update us on the status of the extending or finally renewing our loan with Citi HSBC and other alternatives, since we've had a few 8-K's since the last conference call, that has continued to extend this loan on a few month basis at a shot.

The only update we can give you is that the loan expires, I believe at the end of the day, Tuesday. And we do not expect any issues. And what else would you like to know about it?

Do you expect it is going to be another short duration extension, or the final renewal for a decent amount of time period will get executed?

We do not expect it to be a short renewal.

Okay. And are your financial results for this quarter within the banks expectations?

Absolutely.

Okay. Can you update us on the status of the lawsuit regarding the sizable escrow payment on the prior attempted sale of the, I guess it was the Embassy property? And in particular, so we might be able to follow this public court case ourselves, the formal case name and case number?

Sure. We had a trial, a five or six day trial in early February, out in Riverhead, on Long Island, in New York. And we concluded, and the judge delivered the whole case on both sides and reserved judgment. And we are awaiting a decision, but there are a few briefs that have to go back and forth with the lawyers, and I am sure you are pretty familiar with how slow the legal system is. But the case is done. We are waiting for the judges answer. The name of the case is Jay D'Addario & Company, they're the plaintiff, J and D'Addario & Company, they're the plaintiff, and it was against Embassy industries. And our case number was

And the amount in question is?

$650,000.

How much again.

$650,000, which was the 10% down payment on the building.

Okay. And that's Suffolk County court?

Yes.

Okay. Thank you. Recently you issued an 8-K that disclosed the Steinberg who had been on the Board for a while has left the Board. There was no commentary either way -- suggesting why. Can you confirm whether there were any differences, and explain a bit why that he left? And what are your plans regarding the vacancy? Do you plan to fill the vacancy or shrink the Board.

There was no issues whatsoever with Mr. Steinberg. He remains a good friend of the Company. It was just that he had too many business pressures of his own, and he couldn't devote the time that we needed as -- for our board members to be here. So he just felt better he resign, and we accepted his resignation. And with the loss of Bob Steinberg, and with the loss of my father Sidney passing away in November, we have reduced the size of the Board to eight from ten. No plans to increase it.

Okay. Sorry about the loss of your father.

Thank you.

The impairment charge, the Q4 impairment charge, can you better clarify you or Joe clarify, against which businesses this impairment charge was taken, what amount was goodwill and what was intangible, other intangibles? And then, what businesses now constitute the remaining goodwill and other intangibles that are booked on the balance sheet from acquisitions previously made as of the end of, as of this current balance sheet here.

Andy, on the write down of 7.4 or 7.7 excuse me, about $400,000 was goodwill related. And the remainder was intangibles, primarily customer lists.

Wait. You said $400,000 of the $7 million was goodwill?

That's correct.

And then the rest of the 7 million is other intangibles.

That's correct.

Wow. Okay. And the customer list was that, that sizable?

Well, generally, the way these assets are set up, is you take a look at the customer list upon acquisition, you look at retention rates and sales levels, and that is really the biggest piece of an intangible asset, in an acquisition. There are other piece, trademarks or whatever, but that's the biggest piece. And whatever is left ends up being goodwill. That number is really just sort of the result of everything else. And when you have customers going out of business, losing customers to competitors, or customer revenue dropping off significantly, all of those impact the valuation of that asset.

And if there wasn't, to the extent there wasn't much goodwill left to write off, you write off what's there, and what is left goes to the intangible. As a result, where it went to was Pacific Stair and Woodmark. I don't believe it was impact on any of the other sub subsidiaries. We do have goodwill and some intangibles obviously remaining at Hy-Tech. There's no issue with that subsidiary. The 10-K will spell all of this out, which will certainly be out in a couple of days. There remains at Nationwide, some intangible assets on the books. There's nothing left at Florida Pneumatic to my knowledge.

So -- the balance sheet as reported is about $4.2 million of goodwill, and $3.1 million of other intangibles.

Right.

So about $7.3 million.

Yes.

And is the bulk of that Hy-Tech? Or is it 50/50 with Nationwide and Hy-Tech?

Andy, I don't have that in front of me. More than half is certainly Hy-Tech, but Nationwide is a fair chunk, a few million.

Okay. Now, can you break out the revenues from Woodmark and Pacific? You might have done it, but I got lost in the text. You guys talked in the press release and in the text here, about kitchen and bath, and stairs. And you broke it out kind of like product line, but it wasn't clear within building material, the revenues for the fourth quarter that are broken amongst Nationwide, Pacific and Woodmark, within the building materials segment which you provided in the past, that I am trying to be able to compare.

Sure. We said it. I apologize for -- I mean it was a lot of verbiage, so I guess it got lost in there. Let see. You just bear with us for one second. What page is it on?

Page 5.

Our hardware?

The top of the page -- in addition --

The revenue for the kitchen and bath was $844,000 compared to $1,000,276 the year before.

Right. See that's what caused the confusion, you guys talked about kitchen and bath, and stairs. And in prior quarters you have described Woodmark and Pacific -- as entities. Are you combining them now and breaking it out by product line, or do you have the entity break outs?

Well, the kitchen and bath has always been a part of Woodmark.

Right, so what is Woodmark in total?

Oh, so what is Woodmark's total --

So what is Woodmark in total for Q4, Pacific in total for Q4, and Nationwide in total for Q4? So we can compare to your prior presentation.

Okay, we will get it to you, just bear with us.

Okay, so I didn't miss it.

No, you didn't miss it, if you bear with us, if you ask another question while we --

Well, Nationwide's revenue was $1,000,682 for the quarter, compared to $2,000,794. So we just need -- we need to get --

Woodmark and Pacific.

Woodmark and Pacific.

Okay, I'll ask another question. Joe, are your goodwill tests now at this stage quarterly instead of annually because of the impairment and economic activity?

No. When we perform our tests, we take the data to the best of our ability, and look out through the remainder of the year. Our test is conducted using the November 30 data. That is when we choose to have our tests performed. We look at budgets going out into the next year, provide that data, along with economic data, general economic data to outside appraisers who perform the tests. We do look at it quarterly, internally. But we are not really required to do a formal examination -- third party examination except for once a year. I mean mean if management feels at the end of quarter there's a significant impairment, then we are obliged to go into that a little bit further. But we are not required to do anything externally by quarter unless there's some change in the market.

Andrew, the break down of the Countrywide division for the quarter, Woodmark was $4,128,000.

Yes.

Nationwide as I mentioned was 1,000,681, and Pacific Stair was $313,000.

It is only 313 for the quarter.

Yes. Remember we got rid of the manufacturing facility there. It is now only a warehouse.

So that impacts the revenue side?

It impacted, yes, sure it impacted the revenue side, and clearly the profit side as well.

Andrew, we had customers that only purchased manufactured product. And they had no interest in imported product.

Okay. And so we are no longer manufacturing, we are just importing now.

Yes. And also the market continued to shrink in the fourth quarter. So even if we would have had the mill year-over-year, it would of been --

When did that get shut down and what is your estimate of cost savings from that?

It got shut down in the fourth quarter.

I believe it was the very beginning of October, maybe the end of September even, I think September actually.

And our cost reduction by -- it is about $400,000, on an annualized basis.

Okay. In and speaking of the costs, the trial you said for the D'Addario case to get -- to with able to keep and recognize the escrow dollars as our income was in February. What are the legal expenses associated with that -- are Q1 periodic expense? And is it sizable?

Yes, there primarily would be in Q1. And --

Go ahead.

To the extent, to the extent there were any expenses there, they would be in the discontinued operations portion of the results.

Okay.

They are not booked as part of continuing operations.

Okay. I will back out in the queue, but I do have many more questions. Thanks.

Sure.

Thank you.

(Operator Instructions).

Our next question comes from [Frank Deta] with Colusa. Please state your question.

Is there any thought to reducing the executive pay say by 40% in view of these losses?

There is, there is talk of reducing overall company pay as of now, yes. That is part of our overall plan to going forward, yes.

Okay. Thank you.

Your next question comes from Andrew Shapiro with Lawndale Capital Management. Please state your question.

A few more in building materials materials, and then I'll move to Florida. Any areas of regional strength or resilience in the areas you are serving with respect to the hardware, because the aggregate numbers could be influenced quite a bit by very weak regions or states and Florida and California being them. And I am asking this because it appears recent data now shows housing starts are finally below ongoing demand levels and inventory will start to get burned off. Obviously, we don't know if it is an ongoing thing yet but I am wondering if there are areas where you are in the trenches, are seeing more regional strength or weakness.

Well, there was a report the last couple of week, I believe. I don't remember when, that said that of all of the horrible markets, the best of the horrible markets were in Texas. Of course we are situated in Texas with our stair business. So they were apparently less affected, of course affected like everybody else is, but less affected than certainly California and Florida. So that's one area that I guess you can say, it is a silver lining in a very, very dark room. And none other really come to my mind. Joe, anything else come to mind with you?

No. I mean if you look at the starts country wide, if you look at the map of the United States. And you broke it into four chunks, the northeast, the midwest, we will call it the southwest west, and then sort of the south in general, the bulk of the housing starts generally and this will be the case for a very long time come in the south. And obviously that's where we have got most of our business. So we are certainly going to fall right in line with that. But Richard is right, the top five markets in the US I think in the month of February were all in Texas. I think the Midwest is not slowed down as much. But still, it is still pretty bad. But outside of Texas we don't really see any, any real strength.

Having said that, Andrew, there has been more in the last couple of weeks, more activity in our housing related businesses than we have seen in quite some time. I don't know if it is a seasonal thing, or if it is maybe a little coming out of it, and also some of the reports of new home sales and February or January, whatever the most recent new housing start number was, it was up 24% for the month, I believe. So we are hearing little bits and pieces. We are just hoping that things -- it may not get improved, but if we don't get worse that will be a good sign.

Now, Pacific has been scaled back, Pacific Stairs was a move that, a very much raised the Company's California footprint. With the scale back of Pacific in your activities that Pacific does, does that scale back the Company's California footprint? Or it is still a major region in California's rebound, would benefit the Company a lot?

It has changed our plan going forward because we think from what we are being told and everything we are seeing is that California is, you know a few years away from really prospering, and it is a question of whether we want to weather that type of a storm going forward. So it is still in the talking stages.

Okay. What type of revenue assumptions are you basing your cost cutting plans off of? The current level of revenues and expectation of even further revenue declines, because we are getting close to anniversarying the sizable drop offs. Are you assuming any higher rate of revenues, when you're basing your cost cuts, or is it flat, or further decline?

Joe, can comment on it better than me, but we have of course we had our budgets that were done last year, at the end of last year, they had been, they're constantly looked at, but they have been revised for the most part in the last 30 days and we, and we have made assumptions that we think are pretty pessimistic, I guess. And we are basing our cuts on those numbers.

Okay. Joe, did you have further comment on that.

No. I mean we are certainly not looking at, we don't even look at the trailing data anymore. We look at the current month and expectations for starts going forward, and then probably or even a little more conservative than that. So the cuts have really based on the latest data.

Okay. Stepping back to an earlier question I asked on the bank loan, and then I have to Florida Pneumatic questions, and will go back on the queue after this loan question. You mentioned how the renewal is for a longer period of time and it is coming up next week. What was the time period for which your loan request is out for, and that you're trying to get documented and finalized.

There is no such loan request per se. We are asking them for as long of an extension as they'll give us.

Our bank relations are good, Andrew especially in these times. So we, I think we will all be pleased with how it turns out.

Well, I mean so far the rate increase we have already been suffering from, I am not pleased, but that's not your fault. But I am not, I'm not happy about the much higher interest rate we have got to pay. But, it is the function of the market.

Right. It is.

I mean I would just be pleased if we would stop having these six month deals, and then with one month extensions and we could get a one year longer duration on a loan instrument.

First of all they have been three month extensions not six months, and I think you will be pleased.

Good. I will back out in the queue. I have questions on Florida Pneumatic and the tool business when I come back. So please come back to me.

Thank you.

(Operator Instructions).

Our next question comes from Andrew Shapiro with Lawndale Capital Management. Please state your question.

Okay. I am going to plow through the rest of them. It doesn't seem anyone else here is wanting to ask questions. Tools, Hy-Tech's results obviously very nice. I am trying to get an understanding, is there anything that was one-time in nature, or mix shift in Hy-Tech that is unrepeatable and what are you seeing Hy-Tech here in Q1?

There is nothing in there that is unrepeatable, it is all on going customer business. We, I think there's a little bit of caution here in the last 30 to 60 days. I mean I think it is fair to say that the growth that we experienced '08 is probably unlikely to occur in '09, but we are not saying it is going the other way. It is just that I think there is a little bit of a slow down going on out there generally, it is not any specific segment. It is just the result of some overall sluggishness, but I would say it is definitely a little slower than it was three or six months ago.

Okay. The new product development of Hy-Tech, can you discuss the necessity of new product development relative to it seems like a greater need or a sizable need of refreshing the product lines in the retail line of the pneumatic business? And where do you understand the process of rejeuvenating the product line at Hy-Tech.

Well, Hy-Tech doesn't go to retail, Andrew. That's Florida Pneumatic.

Right. I know that Florida Pneumatic has a pretty, decent need, regularly to refresh and provide new products into that channel. So my question is.

Right.

Can you talk about Hy-Tech's new product development, where does its need to develop new products stand, relative to the need you have to do in retail? Is it less? Is it greater.

Oh, it is, we are, we have a very vigorous and good product development program going on at Hy-Tech all the time. And there are several new products. Really our products get -- get customer requests and customer interest in a particular product that we do not make, that they would like to buy from us. We develop for their needs and then send it to the general market place, as well as our own refinement. So there's a very active program there in term of you products. Is that your question?

That helps. That answers it. The Hy-Tech replacement, replacement business, what portion of Hy-Tech sales, do you feel are sales that are really replacement of existing tools versus new product sales?

Replacement, I am not sure I understand what you mean by replacement. Obviously any of the parts we sell are obviously --

Replacement parts.

Excuse me?

Replacement parts.

Replacement parts is probably 25% of the business.

Yes. Okay. So that is a decent portion that is consumed.

Yes, and very steady. Business.

Regarding Florida Pneumatic, the gross margins obviously are down substantially. And I am wanting to get a handle on what is the primary factor or the sole factor if it is sole, is it lost unit volume or lost unit pricing?

At which division? I'm sorry.

Florida Pneumatic, where the margins have been just crushed.

Well, are you asking about revenue or are you asking about margins?

I am asking the cause of the margin compression is lost unit, if it is lost unit volume, we have a substantial amount of fixed capacity under utilization, and it is lost unit pricing, you could be utilizing your capacity fully.

It is more of a mix issue really, and that's more, more retail sales less industrial sales and that type of, that type of a situation.

Andrew, gross margin percentage.

Was the same. Last year.

Gross margin percentage which we refer to as gross margin is either the same or higher. Gross profit which we as a convention are referring to the dollar amount is lower.

And that's only because we had less sales with the same margin.

Yes. In fact I would argue that our mix is improved and that we are selling more industrial products and catalog products vis-a-vis retail than we have in the history of the Company.

Are are we talking about the total tool division including Hy-Tech?

You are asking about Florida Pneumatic.

You are asking about Florida Pneumatic.

Because I'm -- My interest is understanding what is going in out of everything, but Hy-Tech on the tool side.

In my report, in my report I said that, I believe 25.9% if I remember correctly, was the gross margin in '07 and '08. The numbers were the same in both years, the margins were retained. The dollars were less because obviously sales were less.

Yes. I guess I am looking at sequential margin drop but that's partially seasonality.

You really can't do that because we don't know when.

Sears is ordering.

Well Sears retail business is fairly constant. What we don't is when the promo business comes in. It could be Father's day special one year, a Labor Day special another year, a Thanksgiving special . It moves all over. So to look at one quarter, to the next, in Florida is a little dangerous. I think you really need to look at the margin year-over-year there to have a fair comparison. And actually their margin for '08 over '09 went up by, excuse me, '08 to '07 went up by 4.2%.

When does the Home Depot revenue termination anniversary for the Company?

We finished with them basically by midyear of last year.

Mid year.

But it was significantly down in the second quarter. I mean -- I am just telling you it was way down in the second quarter of '07 as well.

What are you seeing with respect to Sears in terms of inventory and promotions, I'm not sure if you have much to look into.

Sears inventory levels I think are pretty good and their business with us has been very good.

And so they're living up to the bargain you guys had with them.

Yes.

Okay. And what are your contingencies with them as their business overall has been clearly weak. If don't know if that's the case inside of the Craftsman tool side though.

What is our contingency with them in what regard?

Well, I mean the loss of Home Depot is a mutually made decision, it was very low margin business for you.

It was a very good, it was a very good decision for us, our company.

Right. Okay. But the loss of Sears would not necessarily be the best thing for this company.

No, there's no issue with that. What is your question?

Well I was wondering what your contingencies were in the event you lost the sizable customer concentration?

We have an ongoing contract with them for another couple of years. And there's nothing, there's nothing to talk about.

Okay. It is a multiyear contract. If they were to sell the Craftsman brand, would you think that would be a positive for you or do you have any thoughts on that?

I'm sorry. One more time, Andrew.

There's talk of Sears possibly spinning out or selling the Craftsman brand. And that f that happens do you have any views of whether that would be a positive, neutral for you or a negative?

It would be pure conjecture on our part, but we are the Craftsman brand in that area. I would imagine our business would be our business.

Okay. I really couldn't speculate or guess, I can only comment about our Company. I can't comment on other people's company and plan. in terms of the cost cuts and balance sheet questions here. You guys gave out the segment results, and the overall combined result, but included the impairment, do you have readily available in maybe you said it, and just I am asking you to repeat it. Is, we can understand is the corporate G&A -- the corporate G&A, this quarter Q4 to compare to Q3 to understand where things sequentially have risen or declined?

I don't know if I understand the question. Joe, do you understand. Well, certainly we have reduced corporate expenses. There are some, there's a little bit of seasonality to some of those expenses depending on what's going on with audit and various things but in general, I would expect year-over-year P&F corporate expenses to be less in '09 than we were in '08 barring some unusual event or circumstance.

Okay.

I don't know if that answers your question or not.

I was trying to yet to the heart of Q4's SG&A versus Q3's.

Well, I mean I don't have in front of me. Obviously, when you have got the 10-K you will be able to.

Yes.

Do that.

All right. Except we won't be able to ask you a question on that for a while. You mentioned further cost cutting efforts that have been made or are planning to be made, trying to understand the timing. Would those efforts, have they been made at the beginning of Q1, presently which is the end of Q1, or perspectively, when should we start seeing the benefits of the, the additional cost cutting that you have talked about?

Well, they're fist of all they have been on going for six to nine months. But we had a more aggressive I guess I would say plan that went into effect, that will show the end of the first quarter and really more effectively second quarter.

Andrew my only follow on to that is, while aggressive the cuts are not going to make up for the drop in revenue. We are not capable of rationalizing the income statement to the significant change in revenue, it is impossible. I mean we are doing our best, but we are not going to camp, we are not going to get all the way there.

Right.

There's just some fixed overhead we are absolutely stuck with.

Yes, and one of those items you are absolutely stuck with and based on the shrinkage of the size of the revenues and business et cetera, it is a sizable fixed overhead cost. And that is the cost of this company being a public company, and bearing all of the various costs that go with it, which are probably a full million a year if not more. Some of that more that is probably stuff you will have to continue doing even if you were private. But Richard, can you discuss here on the call how often and in what ways the Board discusses that quandary, that paradox of being a public company and the costs associated with it, with the fact this you're stuck with a bunch of costs you can't get rid of in your present state?

We discuss it very regularly, Andrew. And we will continue to do so. When Joe talked about fixed costs, it is not just those fixed costs -- obviously those public costs. Those are not insignificant, but they're almost the tail wagging the dog, with the fixed costs we have in the business. And we always are looking at it and when the economy gets better, when the economy gets better and our business gets better, and our banking relations are in the firmer, not just us but the whole country, I guess at that point we can address it with more vigor, but we look at it all the time.

You guys mentioned you are getting rid of the overseas third party sales, logistics people, et cetera, but aren't these the people who coordinated the low cost purchasing efficiencies, you sought maybe only last year?

No.

This is different?

Yes.

Yes, the, what we have eliminated was or primary relationship with our Asian go-between on tools. That relationship goes back some 30 years probably. And in the beginning, when it was difficult to make your way around Asia and find manufacturers, and more importantly work with them in developing products, you needed that go-between. They spoke the language, they had the communication access, they knew where everything was.

We have so many people going back and forth to Asia, and now so many people speak English, and we're so familiar with the territory and where all of factories, and which are the better factories. Because we have been just doing it for so long, that relationship and the costs associated with that relationship are really obsolete. So, in the spirit of trying to get the income statement in line, despite the fact we are, we have a long term relationship and we are friends with those folks, we had to go a different direction. And it really isn't going to have any impact on us, because we were already dealing with those factories, most of those factories directly already.

Okay. Okay. Receivables came down obviously a lot, and somewhat in line with the business. Can you discuss the composition of the inventories now, and have they changed, hidden inside of the fact that the inventory levels are effectively pretty flat sequentially, while the revenues have dropped off? And what efforts, can you provide more details on your efforts you mentioned in the press release and your script here, what steps you are talking to reduce those inventories.

Yes. I mean some of the inventory reduction is just a matter of a change in buying pattern last year. We had bought ahead of a change in vendor in price increase at Florida Pneumatic. That number was not insignificant. There was also some purchasing done for Sears where they pushed out the sale into '09, which and they're going to make good on the -- on the purchase. But what we have done probably more dramatically is reduced the supply chain at Nationwide and Woodmark going forward, and these numbers are going to be making up a little bit. But we have cut a couple weeks a month off of Nationwide. And we probably cut at least that and maybe more off of Woodmark supply chain. To the extent you can order something and know it is here sooner than before, you can order less, you know a little more about what you need, you just order in smaller quantities, so that going to reduce your inventory in general. And we would expect that reduction in inventories in '09 to be in the millions, from the end of '08.

Now, part of this talk about being public and the fixed costs et cetera, has a relationship to another issue. As you have written down your goodwill and other intangible assets, the tangible book value of this company is around almost $7.00 a share. And the Company stock price is at only $1.00 a share. There's a there's a big spread here on that. What steps or thoughts have you guys discussed on the -- at the board, that the Company might take toward reconciling that vast difference of arguably the Company's liquidation value, and that in which its securities are trading in the public markets?

Andrew, P&F is no different than practically every single company on every stock exchange in the last two years. I will cite you every single company you will show me no company anywhere.

I beg to differ in the fact you are at 0.1 times your book value.

Whatever it is.

Others might be at 0.5 times. I know everyone's stock has dropped but you are at a huge discount, you are at a huge discount to your liquidation values, a larger discount to your liquidation values than the Company has ever been. Your stock price is at 22 year low, 22 year lows, not 12 year lows, 22 year lows.

Andrew, I can only tell you. I guess you must not be in this world, because the entire world is suffering --

I am not happy --

Let me answer the question. Andrew, let me answer the question. You asked the question.

Don't --

Let me answer, please. There is barely a company anywhere in this country or in this world really, that is prospering or is not suffering greatly now with its price of stock, with its business, with its revenue, with its profits, with all of these things. Having said that, P&F is in no different place, maybe worse than some, and better than others. All we can do is maintain our business profitably as best we can, and continue to do things and we have a stock buy back program. But frankly right now, I don't think it would be in the best interest of our company to be spending money in our Company on buying back stock, when we should be doing -- using it for operations, generating profit.

I think that we have to do, as management of this Company is control our own destiny as much as we can, and the way we do that is through profits. If we increase our profits, I am totally confident that the stock price when the economy and world gets back, will rebound. And there's nothing more I can say about it. And we can talk about it and debate it forever but there's no more I can say. I'm happy to answer any other questions you have about it. If you think we are happy with the price of the stock, I think you would be mistaken. We are painfully aware of what it is, but there are certain things that are out of our control. And the market perceives our Company and all other companies at whatever value they perceive it at, and it is our business to make the Company better. And when we do that we are confident, that the stock will reflect -- the price of the stock will be reflected.

You are missing the point.

I guess I am.

And I won't cast dispersions upon you as you did upon me, about that you must be living in a different planet kind of comments.

Okay.

Because that's uncalled for, when you are collecting a full guaranteed $1 million a year salary on a Company whose market cap is $4 million, and we're shareholders, not receiving a dime of dividends. Arguably, you are receiving a special dividend by achieving such an egregious and compensation.

Thank you.

And you are calling me names as I am living on some other planet. That's just uncalled for.

Okay.

Okay.

What other questions would you like ask?

I asked a question about the fact that the Company's liquidation value is almost $7.00 a share, and the stock price is at $1.00 a share, okay? What factors or alternatives does the Board consider, in terms of addressing this very wide disparity, a disparity wider than in history of this company, and frankly a disparity that is greater than most companies out there, which I am probably more knowledgeable of and see day to day, Richard than you do. The Company is at a 0.1 times its book values, while other companies are at far greater multiples, acknowledging that they're at big discounts, and we are in the worst recession probably since the depression. But that doesn't discount the fact that is Company's liquidation values are $7.00 a share, and this company is not hemorrhaging. So what are the things the Board contemplates or considers -- or is discussing toward rectifying or narrowing that huge gap, other than we come to work everyday ask collect our million dollars.

But Andrew if you are looking at, well, okay let's just liquidate the Company or put it on the block, and we will give the shareholders some number greater than $1.00 a share, I guess that would be true. But that seems to me to be very short term thinking. We know why we are here. The businesses that aren't as affected by the bad parts of the economy are doing quite well. So, I have every reason to believe when we get back to something that is close to normal, the stock is going to be well above the book value of the business, as it used to be. I don't know why that wouldn't be the case. I can't think of a reason why it wouldn't be. So why would we do A or B? It doesn't make any sense.

I am not, and you haven't heard me propose that you do A or B. I asked what are the things the Board considers and discusses about those issues. I didn't say you should sell the Company here at this particular time, but I am setting the stage if management proposes a LBO below book value, you just made the argument that that is stealing the Company away too cheaply, because the Company ought to return above book value in the event you are rebounding here.

And it will. So I am not sure, I think Richard's point is exactly right. We do come to work everyday and manage through the crisis, and live -- live to fight another day when the economy is in different, different shape. I don't know, I don't think a strategy.

But however, Richard and his family own about only less than a third of the Company, they're the largest shareholder, but they are a minority, they are not the majority. The non- Horowitz shareholders own a majority of the Company and in the event there was an opportunity for the Company to monetize, maybe that it is something that ought to be considered an opportunity for the rest of the shareholders to have a choice in.

Andrew, I don't know what else to say so you. I have told you what our plan is, I have told you what we do. You have your opinion and I respect it, and we are doing what we can do.

Okay.

I mean I don't know what else, I don't have an answer to whatever your question.

Well, the original question before things got out of hand, was basically what are the things, how often and what are the things the Board considers toward addressing the very large, in my opinion, abnormally wide disparity and discrepancy. Because once you get so small as you have been, the fixed costs of being public and the fixed costs of certain executive compensation, start becoming an untenable burden on a Company so small.

If we thought the Company was going to stay this small, we would agree, but our hope the to make it bigger, again. I mean I don't, Andrew, I am really at a loss, I'm at a loss as to what I to say to you, other than what I have said to you. I apologize. I can't say any more, I don't know what else to say you.

Probably better nothing more said, at this time.

Thanks.

I'm --

Thank you. There are no further questions at this time. I will turn the conference back to management for closing comments.

Thank you for listening on the phone call today, and we will look forward to speaking to you when we release our Q1 numbers shortly. Thank you so much.

This concludes today's conference. All parties may disconnect now. Thank you.