P&F Industries Inc (PFIN) 2009 Q3 法說會逐字稿

Greetings, and welcome to the P&F Industries third-quarter 2009 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' third-quarter 2009 earnings conference call. With us today from management are Richard Horowitz, Chairman, President and CEO; and Joseph Molino, Chief Operating Officer and CFO.

Before we get started, I'd 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 historic performance and current plans, estimates and expectations, which are subject to various risks and uncertainties, including, but not limited to, the strength of the retail, industrial, housing and other markets in which we operate, the impact of competition, product demand, supply chain pricing, and our debt and debt service requirements and those other risks and uncertainties described in the reports and statements filed by the Company with the SEC, including, among others, as described in our annual report on Form 10-K for the year ended December 31, 2008.

These risks could cause the Company's actual results for the 2009 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. Forward-looking statements speak only as to the date on 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 to turn the call over to Richard Horowitz. Good morning, Richard.

Good morning, Rich. Thank you, and good morning, everybody. Thank you all for joining us this morning on our third quarter of 2009 conference call. I'd like to start off the call with a brief overview of our financial results for the quarter. P&F Industries reported revenue of $20,470,000 and $54,560,000, respectively, for the three and nine months ended September 30, 2009, compared to $22,104,000 and $71,983,000, respectively, for the same periods in 2008.

The Company reported an after-tax loss of $776,000 and $1,947,000, respectively, for the three and nine months ended September 30, 2009 compared to net income after taxes of $274,000 and $1,131,000, respectively, for the three- and nine-month periods in the prior year.

Of course, I would like to point out to you that our third-quarter results include after-tax losses incurred at WM Coffman of approximately $647,000. And furthermore, although Coffman's results for the three-month period are below our initial expectations, we view the formation of the Coffman deal as a key component of our long-term objectives within our Countrywide business segment, and we believe that further expense reductions that are ongoing will help as -- will occur as the integration process continues.

The Company reported basic and diluted loss per common share for the three- and nine-month periods ended September 30, 2009 of $0.21 and $0.54, respectively, compared to basic earnings per share of $0.08 and $0.31, and diluted earnings per share of $0.07 and $0.30, respectively, for the three- and nine-month periods ended September 30 of last year.

The Continental Tool Group reported third-quarter 2009 revenue of $9,753,000 compared to $12,253,000 for the same period in 2008. Specifically, revenue at Florida Pneumatic for the third quarter was $6,483,000 compared to $7,211,000.

Significant components to the reduction in revenue at Florida Pneumatic include the loss of the Home Depot business which we discussed in the past, which was in early 2008, as well as decreases in net revenue of its industrial and catalog, and OEM product lines. We did, however, see increases in revenue of our retail product line and our Franklin products.

Revenue at Hy-Tech decreased to $3,270,000 during the three-month period ended September 30, 2009 from $5,042,000 for the same period in 2008. A significant portion of the decrease this quarter is due to a reduction in sales to one of our major customers. The balance of that decrease was across its customer base. Despite the fall off in revenue compared to 2008, given the current economic conditions, we are reasonably pleased with the performance of this group as a whole.

Our Countrywide Hardware segment remains in the throes of a lingering housing recession. According to the US Census Bureau and the Department of Housing and Urban Development, new privately owned housing starts in September of this year were at a seasonally adjusted annual rate of $590,000 -- excuse me, units -- down 28% below the September 2008 rate of 821,000 units. The persistently low number of housing starts continues to have a material impact on this segment of our business in particular.

However, partially mitigating the reduction in the number of new homes being constructed, as a result of the acquisition which I just alluded to in June of this year, where we substantially acquired all the assets of Coffman Stairs LLC, our Stair Parts revenue increased to $7,353,000, during the three-month period ended September 30, compared to $4,961,000 for the same period in 2008. The formation of WM Coffman created a business unit which we believe will be a successful venture going forward; however, its growth and success will not come overnight, as it will take some time to see the full benefit of the operational synergies and to obtain all of our manufacturing efficiencies.

Lastly, we believe that WM Coffman is now the largest manufacturer and supplier of wood and iron stair parts in the United States, and that once the number of new home starts trends upward, we will be positioned -- well positioned in the marketplace.

Other hardware revenue, which since the Woodmark transaction consists of the kitchen and bath product line, and Nationwide Industries, continues to be adversely affected by the general overall economic sluggishness as well, diminishing recreational, vehicle and modular home markets, the downturn in new home construction and ongoing competitive pressures. As such, Other Hardware revenue for the three-month period ended September 30, 2009 was $3,364,000 compared to $4,890,000 for the third quarter of last year.

As for gross margins at our segments, the gross margins for our Tool segment for the three-month period ended September 30, 2009, decreased to 31.9% from 34.5% for the three-month period ended September 30, 2008.

During the period, gross profit for this segment decreased to $3,112,000 compared to $4,231,000 for the same period in 2008 due primarily to lower revenue, product mix and price reductions. Specifically, closeout sales of certain Franklin products, as well as overall product mix and reduced revenue, were key components to the decrease in Florida Pneumatic's gross profit.

Both gross margin and gross profit decreased at Hy-Tech when comparing the three-month periods of this year and last year. Gross margin decreased approximately 3.1 percentage points. The decrease in gross margin reported this quarter at Hy-Tech is primarily due to lower overhead absorption, which in turn was due to lower volume through the facility.

Our selling and general administrative expenses, as well as our interest expense, are as follows. For the three-month period ended September 30, 2009, our selling and G&A expenses were $5,734,000 compared to $6,083,000 for the three-month period last year.

Factors contributing to the net decrease include, among other things, an overall reduction in compensation Company-wide, payroll taxes and benefits aggregating $366,000, and a decrease in depreciation and amortization expenses of $61,000. The following items also decreased; commissions by $31,000, advertising and promotional expenses by $42,000, and travel and entertainment expenses by $84,000. However, we did encounter increases to certain expenses, such as bank fees, insurance and consulting fees of $74,000, $78,000 and $69,000, respectively.

Interest expense of $686,000 for the three-month period ended September 30, 2009 reflects an increase of $279,000 when compared to the same period in the prior year.

During that three-month period ended September 30, 2009, the Company incurred approximately $319,000 in interest expense resulting from the acquisition of Coffman Stairs, of which approximately $118,000 was from both short and long-term debt with PNC Bank. $66,000 was associated with a note payable to Visador, the patient company of Coffman Stairs, and $135,000 was an adjustment to the fair value of the contingent consideration payment.

Interest expense on borrowings under our revolving credit loan facility, which covers the balance of the P&F -- the balance of the P&F operations for this last three-month period, increased $49,000, primarily to the refinancing at March 31, 2009, and interest expense associated with our term loans decreased $102,000.

Further, as a result of the arrangement entered into earlier in 2009 to pay to the sellers of Hy-Tech their contingent consideration, we incurred interest expense of $41,000 during the third fiscal quarter of this year. And lastly, interest expense associated with the financing of overseas trade payables decreased $31,000 when comparing the three-month periods ended September 30 of 2009 with the same period of 2008, with other interest components increasing approximately $3,000. At this time, I'd like to turn the call over to Joe Molino, our CFO. Joe?

Thanks, Richard. Again, as Richard focused on the quarter, I'm going to spend a few minutes talking about the year to date period. Net revenue for the Hardware segment for the nine-month period ended September 30, 2009 continues to feel the impact of the low number of new homes being constructed compared to prior years, as well as the general sluggishness of the overall economy. Both are key drivers of the Hardware revenue.

As such, the Hardware segment reported for the nine-month period ended September 30, 2009, net revenue of $26.3 million, a decrease from $32 million from the same period a year ago. On a year-to-date basis, Stair Parts revenue declined to $15.1 million from $15.7 million in the same period in 2008.

We believe it is difficult to predict when the economy, specifically housing starts, will improve. However, as a result of the WM Coffman transaction in June, we effectively expanded market coverage and penetration, the decline in the Stair Parts net revenue was modest.

During the nine-month period ended September 30, 2009, revenue from our Other Hardware product lines also continued to feel the adverse effects of the sluggish economy, low housing starts and depressed modular and mobile home markets. Its revenue during this period was $11.2 million, compared to $16.2 million in the same period in the prior year.

As for the Tool segment, the overall conditions in the pneumatic tool market were exacerbated by the sluggish economy, the loss of a major customer of Florida Pneumatic in 2008, and inventory reductions and consolidations occurring throughout our customer base -- and these continue to adversely affect net revenue. During the nine-month period ended September 30, 2009, net revenue for our Tools segment decreased to $28.2 million from $40 million in the same period a year ago.

Until March of this year, many of these factors had not affected the performance of Hy-Tech, whose revenue for the nine-month period ended September 30 decreased to $10.9 million from $14.5 million during the nine-month period ended September 30, 2008.

Florida Pneumatic's revenue on a year-to-date basis was impacted by a weak general economy, as well as the loss of Home Depot. As such, its revenue decreased to $17.3 million from $25.6 million when comparing the nine-month periods ended September 30, 2009 and 2008. Additionally, during the latter half of 2008 and early 2009, a number of its major customers reduced or canceled orders.

With respect to our year-to-date gross margins, key factors contributing to the decrease in the Hardware segment's year-to-date gross margins include underabsorption of overhead costs throughout the segment, in particular Pacific Stair Products, which is now closed, and the facility in Marion, Virginia, inventory writedowns and obsolescence charges during the nine months of 2009 in excess of the same period in 2008 and market-driven price reductions. As such, the gross margin for the Hardware segment for the nine-month period ended September 30, 2009 was 22.1%, a decrease from 28.8% reported in the same period in 2008.

Until the number of new housing starts begins to improve, it is likely that our gross margins in the Hardware segment will remain under pressure. Gross margins -- gross margin for the Tool segment for the nine-month period ended September 30, 2009 decreased to 31.3% from 33.5% for the same period in 2008.

Florida Pneumatic during this nine-month period reported lower gross margin, primarily due to product mix, compounded by closeout sales at Franklin. I should point out that in 2008, Florida Pneumatic had a greater percentage of industrial sales, which tend to generate higher margins, along with high margin products sold to its major retail account.

Hy-Tech's gross margin also reflects a decrease when comparing the nine-month periods ended September 30, 2009 and 2008. While its gross margin was just slightly lower than that of the prior year to date, it is the decrease in the nine-month revenue which is the key factor in the fall off in gross profit.

Should revenue remain at current levels, it is likely that gross margins, when compared to prior periods, will be lower as it will be more difficult for Hy-Tech to adequately absorb manufacturing overhead.

Our SG&A for the nine-month period ended September 30, 2009 was $16.1 million compared to $19.3 million reported during the same period in the prior year. Key areas that have been reduced when comparing SG&A for the nine-month periods ended September 30, 2009 and 2008 include wages, payroll taxes and benefits of $1.8 million, commissions of $475,000, freight of $442,000, advertising and promotional expenses of $360,000, depreciation and amortization of $308,000 and warranty costs of just under $200,000.

Additionally, during 2008 we incurred severance and related costs in the connection with the wind down of certain product lines at Florida Pneumatic, along with costs associated with the closure of the mill at Pacific Stair Products. The total was $355,000. In accordance with the authoritative guidance pertaining to the accounting for costs incurred in connection with the business combination, we expensed approximately $432,000 in connection with the WM Coffman transaction.

Lastly, we increased our use of temporary labor and consultants during the wind down of Woodmark and transition of operations into WM Coffman by $137,000. During the remainder of 2009, we will likely see increased SG&A as a result of the acquisition of WH Coffman.

Our interest expense for the nine-month period ended September 30, 2009, $1.4 million, lower by $58,000 compared with the same period in the prior year. Interest expense associated with the two term loans decreased $414,000, due primarily to principal reductions through March 31, 2009, and their eventual refinancing effective March 31, 2009. Interest expense on the revolving credit facility increased $31,000.

As a result of this refinancing, we expect the interest expense for the remainder of 2009 will reflect increases of interest expense on the revolving credit facility and decreases of interest expense associated with the two term notes payable, as they no longer exist. As a result of the arrangement entered into earlier in 2009 to pay the sellers of Hy-Tech their contingent consideration, we incurred interest expense of $41,000 thus far through September 30.

In connection with the WM Coffman transaction, our interest expense for the nine-month period ended September 30, 2009 increased approximately $223,000.

Lastly, in accordance with current authoritative guidance, we recorded interest expense or interest income as may be required, and adjustment to the fair value of the contingent consideration associated with the WM Coffman transaction. Accordingly, we recorded an additional interest expense of approximately $135,000.

At September 30, 2009 our total borrowings were approximately $32.4 million, an increase from the $30.5 million at December 31, 2008. The net year to date change is due primarily from the acquisition of Coffman Stairs.

Other items affecting cash flow on a year-to-date basis were capital expenditures for the nine-month period that were approximately $1.6 million compared to approximately $700,000 for the same period a year ago.

Other significant items to our cash flows for the nine-month period were depreciation of $1,456,000, and amortization of $289,000. With that, I'd like to turn the call back over to Richard. Richard?

Well, thank you, Joe, and that's the end of our report today. And of course, now we'll be happy to answer any questions anybody on the call may have. Operator? Thank you.

(Operator Instructions). Our first question comes from Timothy Stobaugh. Please state your question.

Good morning, gentlemen. Timothy Stobaugh, 5% holder of the Company. Delighted to be on the call with you.

Good morning.

Good morning. I hope you can hear me okay.

We hear you fine, thank you.

Talk to me more -- talk to us more about costs. And what do you attribute the disappointments to specifically? Sales short fall -- a combination of sales short fall, the margin shortfalls, not the level of cost reductions you anticipated in the quarter, or what? A combination thereof?

It's a combination -- Tim, it's a combination thereof. Naturally, the housing market has not recovered as we were hoping it was not going to necessarily recover, but maybe just a little bit and it has not, so our sales are less than what we had anticipated they were going to be, and that's number one.

And number two, some of our grandest plans in terms of cost cutting and consolidating and all of that, we're a little behind. We're not -- we're making great progress and we're doing well with it, but we're not on quite the schedule that we had put there to begin with. But having said that, we're not too far behind that. We are saving -- doing a lot of work in that area. And, Joe, what else can you add?

Yes, I would add two things. While margins are less than anticipated, it's not really due to a lot of price reduction or cost of materials going up, it's really just an underabsorption of the overhead.

What I would also point out is that when the transaction was completed or nearly completed, we were kind of going into the heavy selling season, and typically there's a bit of a pickup there due to seasonality irrespective of where the market is, and that just didn't really happen as it typically happened -- as typically happened in prior years. So that was part of the miss as well.

Is there any sense that you may not be able to get where you originally envisioned as far as the synergies, the cost integration (inaudible)?

No, I think we're going to get there if the revenue -- when the revenue -- revenues of certain levels, we're still very confident that we'll have the synergies we were expecting at those revenue levels. Some of those synergies are contingent upon the level of revenue. So to the extent there's less revenue, there's a little less synergy. But every synergy that's identified, we have confirmed, and it's really a matter of just executing. And the ones that are just somewhat dependent on revenue, well, then those revenues have to get to those levels to achieve them. But we're pretty confident that the ones we've identified are executable.

And then finally, could you say what percent roughly of the short fall, if that's the word for it, you attribute simply to a missed estimation of the recovery in the housing cycle -- which in theory wouldn't be relevant to the quality of the acquisition for its own sake? I mean, is that two-thirds of the short fall that you say, one-third roughly?

I would say two-thirds of it is related to the revenue miss, and maybe one-third to the delay in execution on some of the synergies. Those are approximations.

Okay. That's helpful. Thank you. And then finally, I'll get -- I'll ask one more question and then I'll get back in queue. Can you talk about the financing arrangements? We've got, what? Two or three different lending agents that we are in violation with, or what exactly?

Yes. We have three different lending -- what I'll call three different lending arrangements, the largest of which a credit facility with Citi and HSBC Bank. We are in violation of a covenant there. But as we have stated a few times over the last month or so, what we are working with them on is moving to a full-blown ABL arrangement. We are in process on that with them and are working with them weekly on moving that along to completion, and we feel we're going to get that done. But it is going to take a little bit more time just to get it all done. There are appraisals that need to be done, and setting up all sorts of processes in place. So that's that arrangement. PNC is the lender -- and that's the non-stair business. PNC is the exclusive lender to the stair operation; and, again, we are in violation of a covenant there, and we're working with them on what the business looks like going forward, and we're in discussions with them on trying to move that along to a more permanent situation as well. So that is also in process and --

I might just add, Tim, that the covenants right from the get go when we bought the company were extremely, extremely tight, but we -- we -- and we kind of felt that we were going to maybe be bucking up against it here, but we felt it was the only way to make the acquisition, and we had to -- we had to agree to their terms. So it didn't -- it's not a total shock to us, though we were hopeful that we weren't. But it's nothing that we didn't expect.

Would you be disappointed, is it accurate to say, if these arrangements on all situations are not resolved by the end of this calendar year?

By the what?

By the end of this year?

No, I would say they'll be -- it's -- we're gearing more for -- it looks like January, actually.

Okay. I'll get back --

There's nothing magical about Christmas time, really. It's not for any other reason other than getting all the ducks lined up in a row. Everyone is working towards that end, so there's no great delay other than that.

Okay. Okay. Oh, just one other thing on Coffman, if I may. Can you give any guidance on the narrow issue of what we might see incrementally in Q4 in terms of savings? Are we looking at half a million, or any color whatsoever to reassure the shareholders, based on the direction of that?

The savings at Coffman going -- you mean for the last quarter of the year going forward?

Sequentially -- say sequentially, yes.

Yes, I think, Tim, the difficulty there is the fourth quarter is the worst quarter of the year. In a good year, it's the worst quarter of the year, and I don't think it's going to be very obvious at all what our savings are. But I will say that we feel that all of the savings will be in place by the middle -- no later than the middle of next year, let's say by the second quarter.

It's an ongoing thing, though, Tim. It's not something that stops. It's ongoing, and we've had significant savings already, really.

And then finally, are we budgeting a return to profitability in 2010 for the Company as a whole?

I would say it's too early to tell. We're at the budget stage right now.

Okay.

But it's really -- it's going to be a function of -- honestly, it's going to be a function of the economy. If the economy stays like it is right now, it would be a very big challenge for us to do that. Having said that, our third quarter really was not anywhere -- if you take out the Coffman acquisition, we were almost at a break even, so having said that -- but it would certainly be an improvement -- if things stay the way they are next year in the economy, our performance will be much better because of all these savings going forward. But we're certainly hopeful that the economy has some kind of a little bit of a recovery. It doesn't have to be a big recovery, but a little bit of a recovery. That's the best I can tell you at this point. It is a little premature.

Okay. That's helpful. I'll get back in queue. Thank you.

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

Hi. I have several questions. I'll ask a few and get back in queue. First off, I'm trying to understand here, it appears that there has been gross margin reduction here primarily caused by the huge underabsorption of your fixed overhead. And so what I'd like to understand is if you could go through what are P&F's main facilities and their respective capacity utilizations, and what are your plans to deal with a likely prolonged or double dip recession?

Well, in terms of capacity utilization, Andrew, we'll start with the largest facility, which is the Marion, Virginia facility. We are probably in the 20% range, maybe 25% range in capacity utilization. The next largest facility would be Hy-Tech, where we manufacture a great deal of pneumatic tools. We are probably at 50% capacity utilization.

The warehouses are a little tougher to say, but if you look at the Florida Pneumatic warehouse in Jupiter and the Tampa -- the Nationwide warehouse in Tampa, this is just a guess, but probably 50% there as well.

In terms of deal -- we feel that the business right now is right sized or is in the process of being right sized. I would say for the Tool groups and Nationwide, we designed the business now to have positive cash flow, and it does. And on the non-stair -- on the stair business, we're working toward that. Should the market go down again, I think we'd have to take another pass at the facilities.

And I don't know that I can answer a hypothetical because I don't know what -- if you're talking about a specific subsidiary or a specific reason that the market is down. I mean, I can't answer that question without knowing more specifics about what happened. So there are other things we can do to reduce cost, but it's highly dependent on the reason for the drop. So I'm not sure I can answer it any better than that.

And I will just add that we haven't noticed that -- we have noticed that our businesses, not so much -- the Coffman is a little more unpredictable, but our other businesses, the P&F businesses have really leveled off, I would guess is the best way of saying it. At this point we've seen, I would guess, three or four months or something along those lines of pretty predictable earnings from all of our other subs. So -- if that helps you.

In that matter, actually, regarding Coffman, can you explain in detail kind of in what ways and why are the Coffman results in the September quarter below your expectations and clearly below your lender's expectations? You mentioned how the covenants were tight and you thought this could be a problem. But either way, Coffman's results are still below your own expectations, and your lenders had a different expectation and your results are below their expectations.

I thought I had answered that question already, Andrew, but I'll say it again, that the sales -- more so in the Coffman group than in the Woodmark group --

Yes.

-- have -- they're just not -- they're just not meeting expectations, and it's a combination of many things. We have one -- we had a couple of large customers who got affected by their particular economy, it was a little bit low slower. I mean, there are a multitude of questions. But the point is, is the economy and the housing starts are just -- not the housing starts, their businesses in those markets that have -- that are affected mostly by the housing starts, it's just lower than we expected.

Let me ask you a question that will help maybe clarify where I'm trying to go with this that is incremental to what you shared with us. Is -- are Coffman's -- we don't have the benefit of Coffman's June quarter results, so -- or their revenues. Are Coffman's September quarterly revenues, were they down sequentially from the June levels and -- or is it that your predictions were that there was a bottoming or a V, or a return to sequential growth that you had expected for Coffman for the September quarter?

Well, I don't know if I'm going to -- Joe may want to chip in here -- chime in here, but up until the time that we acquired the company, Coffman, was running at a certain level, and since that level -- since we acquired the company, it has been lower, isn't that a fair statement?

Yes.

Okay.

That's exactly what I'm trying to get at. Now, do you -- are there possibilities or reasons to believe that it's down since it's gone into our joint venture in P&F's -- under P&F's management --

No.

-- that we've lost good will and core customers and the business has gone elsewhere?

Not even for one second. The answer is absolutely no.

All right. Well, I mean, that's obviously always a risk in an acquisition.

No, that's okay. All of our main customers are still with us, without one exception that I can think of. Joe, am I right?

There are no exceptions.

There are no exceptions. All of our customers are there. It's just a function of how much business they are doing at the time.

Okay. And the principles of Coffman that were there when you bought the business from them, to what extent are they remaining with the business or what's the plans -- or their plans of migrating towards retirement, if any, to understand what extent this is a relationship business and customer relationships could be at risk?

We have -- we've had no -- at Coffman, we've had no changes in management since we acquired the business. And I would say that the key people there -- and there are a bunch of them -- are very, very, very good and know the business. It's just a question of reacting to the economy and the world around them. Joe, can you add anything to that?

Yes, I would also say they're -- none of them are near retirement age.

Okay. So the relationship -- there won't be a disruption in that relationship like other business acquisitions can have?

Not that we would envision. Of course, anything could happen.

Of course.

We could get hit by a bus, but nothing that we foresee at this time.

Okay. And your covenant ratios, are these quarterly or monthly that you may come back into compliance, or is this something that you basically are going to have to rewrite the covenant package?

Yes. We're rewriting all of those as we speak.

Okay. And do you have a timing expectation of when you feel you and PNC might come to terms on all of that?

Well, I think Richard had indicated that he felt January was a reasonable time frame. I think we might be able to get done something a little sooner perhaps at PNC, but certainly no sooner than that for Citi and HSBC.

Okay, and regarding -- while we're segueing on there, on HSBC and Citi, when you're migrating this to an asset based lending arrangement, is it with them or is it with a new lender or lenders?

No, it's with them.

Okay. And then while we're also then on the loan package -- so those were two of them. Then I am a little bit confused and ask for your clarification and understanding here, for the balloon payment due on the mortgage at Countrywide to Wachovia, according to your 8-K, that balloon payment was due in September and didn't get made. And I just don't understand, especially since it triggered across default provisions regarding Florida Pneumatic as well and its assets, that's a September event. Why would we have only heard about it just last week? Why wouldn't that have been an 8-K, and why did this issue not surface in disclosure and get resolved sooner than here we are in November and it's still not resolved?

Well, we felt that that was -- in and of itself was not particularly material. And in addition to that, the lender was fully aware of the fact we were not going to make that, and is working with us as we work with the other lenders to pull together the other financing. They're waiting for that, really, to happen. So they're working with us and are not expecting payment until we resolve that other stuff.

Okay. And the other stuff that you're needing to resolve or deal with in order to make a payment to them to pay off the balloon is what?

The ABL arrangement.

So is the intent is that these assets are going to migrate into the ABL arrangement, the balloon loans on Wachovia get paid off and the -- I guess the mortgages, those assets fall inside of the ABL, and that's where the money -- the refinance money comes from?

That is a possibility. Just so we're clear, only one ABL is due -- excuse me, only one mortgage balloon is due. The other one did not anticipate a balloon, and I don't anticipate that that one is going to get rolled in, but I guess it's certainly possible. There are a number of possibilities we are working on and trying to just structure it the best way we can.

Okay. So we got two mortgages, one's due -- that one is definitely intended to roll into the ABL?

Yes. We're trying -- we need to resolve that, yes, I would say to you.

And then the other one that's still got to -- everyone is haggling over where does the property go and who lends on it?

No, there's no issue at all with the other one.

No issue.

There's no issue whatsoever.

Just a cross default which will go away if we resolve the first balloon.

Okay. Let me segue one last question back on this SG&A issue, and then I'll back out into the queue. If I asked about the underutilization, underabsorption of fixed overhead as it impacted your gross margins and your capacity utilizations, now I want to understand is you had a sequential increase in revenues from June to September. A lot of that was Coffman, and I understand why SG&A dollars went up, but usually when you have that kind of increase in revenues and you've had some sequential increase in revenues from your other pieces of business -- again, sequential, June to September -- that should result in an increased utilization of overhead.

And I'm talking about in terms of the overall corporate overhead being absorbed with whatever gets generated here, P&F's sequential SG&A costs as a percent of revenue spiked, and they spiked by 140 basis points. So between June and September, can you help us understand why is it that that SG&A percentage of revenue did that kind of jump in addition to the absolute dollar gains?

Well, we've all -- we've got acquisition costs in there, Andrew, certainly.

That's not in the June quarter already? I thought we ate those in the June quarter?

No, not all of them. I also have wind down costs in the third quarter in two places, California and Plano. So that chewed up a lot of SG&A. So that -- there was no additional inefficiencies, if you will, in SG&A. It related solely to these extraordinary expenses as a result of the transaction.

Okay. And the aggregate of the wind down in Plano and California closing costs and the other closing costs would be about how much?

$300,000, $400,000, and then plus some acquisition costs into the Q3, which is certainly a few other hundred thousand dollars. That could be $500,000. I mean, I didn't add it up specifically.

But about $500,000 would be considered nonrecurring in the September quarter --

Third quarter.

-- that we won't see in December?

I would say that's true.

But there will be some other ending -- not at the levels.

There won't be anything related to the wind down -- there won't be much related to wind down of the transaction per se.

Okay. Let me back in the queue. I do have other questions, so come back to us.

Our next question comes from Timothy Stobaugh with -- go ahead and ask your questions.

I'm back. Now can you clarify, the Board members are participants, to a man and to a woman -- I guess to a man -- in the conference calls or they listen to them later?

Well, some of them listen to it on, they're online now, and some of them listen to it later if they're not able to do it.

Okay.

Is that the question you're asking?

Yes. I'm just curious about the involvement of the Board and -- okay. Great.

Sure.

Now, as far as the bank arrangements go, as we know, these have been tough times, obviously. As a shareholder, I'm concerned, of course, as I look at -- tangible equity is about $5 a share now, and I've got total debt that's approaching about 150% of tangible equity. Is there any sense that we're going to approach the situation with the lending agents and -- or perhaps they're asking for it and I'm just asking this -- regarding either temporary or permanent reductions in executive compensation?

I don't think I understand the question. You want to ask it one more time?

Well, I guess the question is, would taking temporary -- perhaps a 50% reduction in the CEO's salary -- help weather this storm for P&F? It's been tough, it's been tough for all of us obviously, and we're all in this together. I'm just curious if with the bank this may be a six month -- until we get through this tough period, a six-month reduction in executive compensation to -- of a more sizable magnitude, 50% or something, might send the right signal to both the shareholder base and the lending agents in that regard, and maybe clinch a better deal?

Well, as I say, we're in the middle of negotiating with the banks right now, finishing our negotiations, and we're not at liberty to talk about that clearly -- the details -- but that's not an area that comes up in conversation.

I see. I see. One of the things that I had looked at as an investor, and I just want to bring this to awareness, is one of the ways we look at measuring compensation is -- I looked at the profitability of the Company from 2001 to 2006 -- basically the bottom of the last recession to the peak of the previous recovery -- as a way of gauging what the Company makes and I had a -- I want to comment on this. I want to make the Board aware of it as well.

The Company had an aggregate net income during that period of about $22 million, and the CEO had a total compensation of $9 million. The net income was $22 million and the CEO compensation was -- for that position -- was $9 million. That's a large percentage of your full run economic cycle income going to the CEO position. So I'm just wondering if that's something that in that context from a long run shareholder value perspective, if that is something that could be addressed by the Board.

Our long run return on equity is not 20% or 25%. I think that the CEO taking out that type of percentage of long run net income would be understandable if we were a Microsoft or whatever, earning 20%, 30% returns on equity, but the long run return on equity is 10% or less. So is that something that we're looking at, especially considering the difficult times we're in right now?

Tim, I'm not going to get into a conversation about my compensation. I'm not the appropriate person to talk about my compensation. We have for many, many years -- we have a compensation committee, and it's comprised of independent directors and independent lawyers, independent advisers, and the compensation policy for all of our executive directors, we work with everybody and we do that and we've been doing it for many years. We follow the procedures to a T. And we report annually to our stockholders.

And I don't what the question is, to be honest with you, but we go through the procedure and we do it very diligently every year, and we're well aware of your concern, Mr. Shapiro's concern, and we're also well aware of what we do, and we have independent people advising us.

Yes, well (multiple speakers).

I suggest if you'd like to talk about other subjects, I have no other answer for you on this.

Okay. Okay. I'll just conclude by just saying that there is -- it's a public Company, and two-thirds of the shareholders are out here in the hinterlands and some of us feel -- we're a little concerned when we see -- it's been tough, the losses -- although you're doing pretty good considering you're housing related -- and almost at break even stripping out unusual items. But some of us feel like we're bailing water out of a ship, and from an executive compensation level, it's being put back in by -- and so that's -- it's somewhat disconcerting, and I just hope that that gets appreciated at the Board and executive level and I (multiple speakers).

It is appreciated. Executive compensation is down dramatically over the last couple of years because it's incentive based. It's down dramatically, it's not something that -- that's not something that we all don't understand, and honestly talking about it is not very productive to the overall scheme of what we need to do here in the Company. So if you want to be helpful, I think I would suggest you or -- talk about more helpful and productive things.

Well, I think everything is productive, and everything should be open and (multiple speakers).

Okay, that's your opinion.

We are a public company, so everything should be on the table, I mean that's just (multiple speakers).

Okay. Duly noted.

There's no adverse intent. It's just a matter of laying it all out, so (multiple speakers).

Okay. I appreciate it, and duly noted.

I appreciate the listening, and I'll step back in the queue. Thank you.

(Operator Instructions). Our next question comes from Andrew Shapiro with Lawndale Capital Management. Please state your question.

Hi. Thanks. Joe, I think, gave out the gross margins for the subsegments -- Florida Pneumatic, Hy-Tech, Stair Parts, Other Hardware -- for the nine-month periods, but it didn't come out in the quarterly period. Could you provide for those individual subsegments the September quarter gross margins and this year and last year?

We don't have those readily available, Andy.

Okay. Will they be in your 10-Q?

I'd have to check the MD&A. I'm not certain that we typically do that.

We used -- you used to typically do it. And then you gave the nine-month numbers, but the nine-month numbers for us versus the quarterly numbers are kind of in a vacuum and it doesn't -- it's not as helpful, obviously, so one can track sequential move as well as year-over-year move.

Yes, I don't know what to say. It's not something we've -- if it's not in the MD&A and I haven't checked --

I mean the Tools, you have the GM -- the gross margin for the Tools, but you don't have it for the Hardware in the press release. So it's just becoming consistent. It used to be consistent that you provided it, and now you guys have become inconsistent.

All right. Andy, we'll take a look at it. I don't want to -- we'll certainly try to maintain some consistency. I would say part of the inconsistency may have to do with the transaction and the fact that we moved some of the parts around and it may not be as helpful as it might otherwise have been, especially in the Hardware side.

Well, if you're able to create and compose as you've done the gross margins for nine months and year over year for nine months, it sounds like the reclassification -- we understand to be reclassed, but if you're able to do it for nine months, then you should certainly have it internally for the quarters, and we're just asking for that internals to be available for us in the external world.

We'll take a look at it.

Thank you. On CapEx and depreciation and amortization, you gave the nine-month numbers out, they came out kind of quickly in your script and we had a technical difficulty in here. Would you mind just repeating those -- the numbers --

Sure, no problem.

So we can put together cash flow?

Let me just grab my --

I don't think you do give us quarterly, we always have to reverse engineer it.

No, but I think I may have brought the quarterly stuff.

Well, if not, the nine months repeating would help as well.

Hold on a second. Let me just grab my notes.

While you're doing that, Richard could answer this question, if he wouldn't mind is, I do understand the Board's compensation committee uses consultants and lawyers and all that. Can you tell us who? And I thought in proxies usually it's supposed to be disclosed, but can you tell us who the Board's compensation consulting firm is?

It's in the proxy, Andrew. You can check it out there.

It is in the proxy?

Yes.

Okay.

Okay. Andrew, the nine-month depreciation number is $1,456,000 and the nine-month amortization, which is amortization of intangibles, is $289,000. I am having somebody calculate the other two numbers -- the quarterly numbers for both of those line items right now.

And the nine-month CapEx was?

Nine-month CapEx was $1.6 million.

$1.6 million. Excellent on that one. Okay. Let's talk about the status here now of the substantial amount of monies that if P&F is successful come through the income statement into our bank account and our balance sheet regarding the escrowed sale of the Embassy parcel that the Court has now decided P&F was in the right and we're entitled to money.

So the first thing is, just to get a better handle on the monies, $650,000 was escrowed, but also there will be accrued interest and a reimbursement of certain costs. So what is your estimate of the accrued interest and reimbursable expenses to date that P&F would be seeking?

I think it's approximately -- a little over $700,000 if I'm not mistaken.

700 incremental to the 650, or 700 --

No, no, no, no, no. It's the 650 plus the accrued interest, whatever it was -- I think it's a little something north of $700,000 right now.

Okay. And then what about the expenses or costs that would be reimbursable?

The costs are pretty nominal. There's just a few thousand dollars. I want to also add that we haven't gotten the number back from the Court yet of what they've accepted, but there is also a good possibility that the interest will be higher because there's a New York state statutory interest rate that could be involved as well.

Right.

And that could push us up in excess of $800,000, but we haven't confirmed that yet.

Okay now, in prior quarters during the trial and discovery phase, the Company incurred substantial legal costs that went through the income statement, and you just mentioned how it's only a few thousand dollars of costs. Are you saying that based on this kind of case and the judge's determination our legal expenses in pursuing this and keeping the monies will not be reimbursable?

That's correct.

Okay. So P&F is not even seeking that, it's not going to be allowed?

It's not allowed.

Okay. So now in terms of the $700,000 to maybe $800,000, when is the Court scheduled to establish the amount, which I would assume has to occur before the time period for appealing by the defendant or the plaintiff in this case would occur?

We advise over the next few weeks the Court will enter the judgment, and then there's a 30-day period for the other party to appeal. So it should happen all the next several weeks, but I don't know exactly how many weeks that would take.

Okay. And do you have an estimation or an opinion as to the likelihood of that the D'Addario people will appeal?

No, you have to ask them, Andrew.

We don't know.

We have no idea.

No idea. All right. Well (multiple speakers).

We think we got -- our lawyers seem to think we have a very -- it was a very, very good judgment and the judge's decree was very strong on our favor, but people do what they want to do.

And is the judge's decision and decree and opinion on this matter published and available?

Of course.

I think they have to enter it first. I think that it's not there yet, but it again will be in the next few weeks. That's my understanding.

Okay. And if it becomes publicly available, then would you mind letting us know where and how we could access it?

Sure.

Okay.

How about Andrew, how about "good job, guys"?

Well --

Well, okay, next question. Next question.

Andrew, before you go on, I got those depreciation and amortization numbers for you.

Thank you.

Depreciation for the quarter was $561,000, amortization was $109,000.

For the quarter?

Yes.

Okay. And in terms of the "good job", I mean I'm happy that we're getting the money in. They put a deposit on it, we sold the parcel, they breeched the contract, your lawyers pursued the case under the law and the judge saw it that way. In that sense, great, I'm glad that the law is being honored and your lawyers did a great job.

Right.

Right, okay. Next question, Andrew.

And you're paying the lawyers a good chunk of money for having done the job, and we're not being reimbursed for those monies and it's too bad under New York law that we can't be.

We can do a lot of things. The one thing is we can't rewrite New York law.

I understand. Congratulations are due to where they're due.

Okay, next question.

[Toll] Brothers reported encouraging contract and cancellation data recently in the housing side. Can you discuss the environment better that you're currently seeing on the building material front? Do you feel there it's stabilized or it is still declining? I know year-over-year, numbers are going to have to anniversary soon.

Andrew, the -- while starts are up, permits were actually down the last month. In addition to that, stairs are not put into a home until the very end, so you also have to factor in from permits to starts to a completion is -- well, starts to a completion is five months, permit to a completion could be much longer than that. So even if there was a turnaround, we wouldn't see it. We wouldn't see it for a while. And now we're into the very slow part of the season, so it would be also hard to really see much of an impact. I mean, Toll Brothers could be absolutely right, but it would be a while before we saw that.

Okay. And on Hy-Tech, there's a good chunk of Hy-Tech that's oil and gas related, and energy prices have certainly stabilized and they have started to move back up. Have you seen trends in the CapEx in that field that are stabilizing or impacting how Hy-Tech is doing now?

No. I mean, that business is still very up and down and sporadic. We have good months, we have bad months. So, no, I wouldn't say we've seen anything stabilize.

Okay.

I would say just as a side note, the management in that company is doing an outstanding job in these times, for sure.

Now, when we bought that business, we booked an enormous amount of goodwill based on the level of business and cash flows it was generating. When is the next testing that has to take place regarding the goodwill on Hy-Tech?

It would be November 30, we would begin the testing of -- for goodwill impairment across the Company.

Across the Company. It will be all segments, there's no segments that are off that schedule?

Well, the Stair business is not on that schedule because you get a year before you have to do that. And I could be wrong, but I don't think there's any goodwill left at Florida Pneumatic or Nationwide to even test. So really it would just be the Hy-Tech.

Yes, no, those acquisitions have been made a long time ago, and we lost their goodwill, and I'm just worried and concerned as to the timing of when we lose -- when and if we lose the goodwill on Hy-Tech because it's --

Well, I don't know if there's anything to be concerned about. It's a non-cash item if it is, and any time you buy a company and there's a downturn the next year, and then the next three or four years, it's entirely possible that goodwill gets written down because it's simply a mathematical formula.

But Joe, I'm a large -- and the largest independent shareholder of the Company for a long time. Goodwill is put on the books because cash left the Company to buy an asset; and then if goodwill is written off, it is because the assessor assumed valuation of the asset purchased with that large amount of money upfront is no longer worth that asset value.

It's no longer worth that at a point in time, Andrew, but I am highly confident that when the market returns, we will have paid less for the business than it will have been -- than it will be worth at that point in the future. So I am not concerned about a short-term reduction in goodwill, and I remind you that when it turns around, we don't get a write up.

No, you don't, until -- and if you either generate cash flows on it or you monetize the division through the sale of the business.

That's right.

Then would be a large book gain.

So it only goes one way.

The cash went out in the front -- on the -- on day one, though. So --

That's the nature of acquisitions.

Yes, it is.

We didn't buy it for a three year valuation. We bought it for a very long valuation.

Yes. But we've owned it now for three years?

We bought it in 2007 -- two and a half years.

Yes, well, then this -- in the historical trend of this Company, that's a -- right about the time when we suffer the hit. So what about the customer list issue? The customer list was a pretty heavily, I think, capitalized item, and the customer area is, I think, in transition, you've mentioned?

I never said anything about a transition. I'm not -- could you rephrase what -- your comment or question?

Okay. Well, you have one big customer --

At Hy-Tech --

At Hy-Tech that you've mentioned is down.

Yes.

And so does that have an impact in assessing the capitalized value of customer lists as well?

I don't think so. Not -- individually, probably not. There was some monies assigned to the customer list. I don't know how much it was of the intangible number. It will be looked at in the context of all the other customers. They really look more at turnover of customer base than revenue by each customer.

Yes. That would make sense.

And Andrew, I'll just say one other thing. Hy-Tech was and is still a very, very good acquisition for us. It is the best performing division we own, still to this day.

And our return on assets --

I might accept that as fact at present, except I've heard that exact same phrase on the Woodmark and other acquisitions a year or two ago and on other calls, because we've been in here for more than a decade. So I've heard that phrase about the other acquisitions being the best acquisition to date, and then they got written down; and I know a lot of those circumstances were circumstances beyond management's control, but timing is everything, isn't it?

Timing is everything. We have diverse businesses, we're in different industries, and that's just the way it goes; and I know you certainly know what's going on in the housing business, which is where we're tied to with Woodmark. So I know you read the papers every day and see what's going on.

Oh, yes, oh, yes.

So -- and we're positioned in a place now, and we think we did a very good thing for the Company going forward when things improve, which is why we did what we did.

So --

Remains to be seen.

On Hy-Tech, who's the large client that gave you troubles this quarter? And more importantly, can you discern whether the drop was more market driven or customer financial distress?

It's market driven.

Okay. And so do you have a large receivables exposure to them at all?

No.

No.

Okay. And on Florida Pneumatic, main customer obviously being Sears and all there, what are you seeing at Sears in terms of their inventory and promotions as we see -- we see news coming out of Sears, but it's really the broad, big picture and you're only at a certain sub-segment of their business, --a small sub segment.

Sears is still doing very well with us.

The bargain you guys had with them in terms of when you migrated to the new products and their cooperation with you regarding inventory and the promotional work?

Andrew, I'm not sure I'm following you, what bargain?

Well, I guess you had understandings with Sears when you introduced the -- I guess the last slew of new products, about what type of promotions that they would be doing and what kind of inventory you would need to house on their behalf versus what they would take, and has that lived up to your expectations?

Yes. They're doing -- they're doing very, very well. We've added new products into them and, again, our management down there is doing a very good job of managing that account in distressed times.

Yes. Okay. And so I -- I'm not trying to ask this question to be antagonistic, but I am trying to get better clarification on where things stand because there's been a publicly made request through Mr. Stobaugh's 13-D filing for his representation on the Board, but followed by this Company's substantial amendment of your corporate bylaws and director nomination procedures. So what I'd like to find out is what your position and your Board's position regarding his specific shareholder nominee request of himself, and also what is your view and the Board's view regarding highly qualified nominees at other large or even larger shareholders would be willing to recommend if they had any confidence that the nominees would be greeted not only warmly, but would also -- those nominees would be listened to if they were on the Board?

The entire Board is well aware of Mr. Stobaugh's filings, as well as your filing.

My filing is a 13-G filing, my friend.

I understand.

I have not made any request for Board representation, and when and if I do, I will be amending my 13-G filing into a D, and everyone will know and that. That's why I asked about what your view regarding highly qualified nominees that other large or larger shareholders would be willing to recommend if they had any confidence the nominees would be greeted not only warmly, but also they would be listened to?

The Company -- the Board is aware of the filings, aware of Mr. Stobaugh. I just don't think it's appropriate for me to comment on the Board's deliberations on that matter, but we certainly don't ignore SEC filings by our stockholders, and this is no exception.

No, I'm sure you don't ignore it, because soon thereafter you substantially amended your bylaws and your director nomination procedures. So I'm just wondering as a large shareholder, if this Company is gearing up for and spending a bunch of money on legal advisers, et cetera, and (expletive) it away on some supposed potential fight?

Well, we did overhaul our bylaws last month, Andrew, and we filed the revised document on the Form 8-K. We made a number of changes to bring them current with developments in the Delaware law, and it was as well as with current practice, and we clarified some provisions. And the Board concluded that it was the appropriate time to go through that exercise. I am not going to say that Mr. Stobaugh's filing was irrelevant to that decision, but it was a timely exercise and it would have been done anyway. And we did it, and it was something we did that should be in the interest of all of our stockholders, and we did.

Okay. And -- (Overlapping Speakers)

Andrew, you asked me a question, let me finish.

Okay.

The Board believed they were useful and even-handed amendments, and that making them well in advance of our annual meeting put everyone on a level playing field.

Okay, and I won't disagree.

I'm sorry?

And I won't disagree with that. So what is your position and your Board's position regarding his nomination request? When is --

We will look at any -- we will look at any qualified person. Having said that, owning stock is not a qualification. There are qualifications. And if we have people that are qualified, we will absolutely entertain putting somebody on the Board if they are qualified to help the Company.

Okay, and has any independent committee yet reviewed his request?

It is in the midst being done.

Okay. And I guess I'm trying to find comfort or understanding about whether or not -- because you keep on throwing me in the same bucket here, and I have a 13-G filing and Mr. Stobaugh has done his D and done his thing, but you throw me in the same bucket. I would like to know if highly qualified nominees were introduced to you guys from us, whether or not they would be viewed as dissident directors and/or would their ideas and advice would be listened to equally as any of your other buddies on the board?

Andrew, I'm trying to just say this as clearly as I can. In our 8-K filing, the policy and the procedure was laid out clearly.

Yes.

So read it. I mean, I don't know what else to say. I could read it for you if you want me to, but I mean I know you --

It doesn't --

We will consider --

I appreciate you might not be able to -- if you want to give us a call, I'd like to get comfort, if I was to get you some highly qualified people, whether or not that they would be able to have a favorable impact inside the Board room and with you or not? Or this is just -- you're the largest shareholder, although you're not a majority shareholder, and you view this as your Company and you want to run it your way and so in some respects it can be a waste of time to get someone highly qualified who could add value to be in your Board room. I'd like to help you, I'd like to help the Company. I'd just like to know --

Honestly, I'm really offended by that question. If you want to reformulate that in a less inflammatory way, I'll answer it. If not, I won't.

I mean, I -- whether it's offline or online, I'd just like to know, I guess, if you would be open to, you welcome, you encourage, you would like to have some incremental help --

Andrew.

-- in that Board room or your view is the Board is fine as it is, we don't have any gaps, we don't have any -- we haven't -- we don't feel we have any needs that we could be helped on, and more like "leave us alone"?

Well, I wouldn't say leave us alone. And, again, in the filing of the -- the 8 K filing -- I'm looking right at it right now and I'm going to read the first sentence.

I've read it. But you don't really put out a press release for it -- and I appreciate that you don't. But do you have any particular areas that you think may be lacking within your group of Board members that you'd love to have some additional expertise to assist you with in the Board room so we might know what type of person to look out for to introduce to you? Now, is that clearer?

Yes, it's clearer. I'm not going to comment about the Board deliberations. I'm just not going to do that, Andrew. I think our 8-K says it very clearly. We will consider individuals that we think are qualified.

But if I give you an individual -- Richard, I'm not trying to be antagonistic, but if I give you an individual right now and throw one out there, it's like throwing up a sponge on a chalk board. It's a shot in the dark, okay? If we would know what type of areas -- you're the CEO. You know what kind of advice you'd like to get from the Board that you might feel the Board's current composition is lacking in. You know you would say, "God, if I could have a person, male or female, with this kind of expertise, it would be helpful to us." That's what I'm trying to understand.

And I don't care if it's online or offline, to understand what areas you guys have either identified that there's a deficiency in the Board's skill set -- and whether you do it or Mark [Gutae], the purportedly independent Chairman of the Nominating or Governance Committee -- tells us, that's fine. We'd like to be helpful and come up with some people, because I've got a whole slew, a whole file, of highly qualified Board people, most of which would never serve on a Company this small, who might be willing to serve if they knew that their input would be value added, would be warmly greeted and you could use their help. That's what I'm trying to get at. I'm not trying to be antagonistic, I'm not trying to be hostile here, I am not even trying to throw out an alternative slate. I'm trying to come up with some ways that you guys could use some help in the Board room. I mean, you have problems with your banks. You have some problems with some historical capitalization issues. Our return on our equity and where our equity is today versus more than a decade ago when I invested in this Company, we're not all that much better. And so I'm trying to think for the next decade where you and I can make and improve our personal wealth and our sizable investment in this Company.

Andrew, I don't -- I do not think our Board has any glaring deficiencies. I think we have a very well positioned Board in very, many different areas of the world and we have -- it has great value and it's one of the reasons I'm happy, and I'm happy and appreciative that they all serve for the Company and for the stockholders. Having said that, if there is somebody that you think has a particular value that you want to suggest to the nominating committee, please do so. That's all I can say. I -- there is no glaring deficiency. If there was, I wouldn't be waiting for you to be getting a name. I would be doing it myself.

Yes, but I would be more comfortable if I gave you the name rather than you find your own boss, because they're your boss, you're the CEO and it would be nice if the Board members would increase and improve in their independence versus the level of, in a sense, creeping lack of independence that exists because you've got your insurance buddy there, you've got one -- now you've got a bank you're involved with -- or your letter of credit that is a bank much one of your other Board members -- it's a migration away from independence, albeit whether the Nasdaq says they're independent or not, I'm not really concerned about -- I'm only looking at related party issues, and it's going the wrong direction. So I would be -- feel much better if you had a need, that the need got filled by an independently suggested nominee rather than you finding the nominee. I would hope you would appreciate why.

If you want -- again, for the fifth time, if you want to give us a name of somebody, submit it to the nominating committee and we will consider it. We are not -- this is not a good boys club. If you have somebody that you think can help the Company, I am more than happy, as one Board member and the nominating committee will consider it. But it's going to be our decision at the Board level to determine if that person is of value to the Company and our Company is well -- -- the nominating committee will do that -- but our Board is well represented in many industries.

Okay.

They are, and they're not -- they're not our friends for the most part. As you always say -- it's just -- you don't want to be antagonistic, but Andrew, you are. So I'm not going to have a town hall meeting on this call. If you want to -- if you want to submit it, submit a name, and I'm happy to -- we'll be happy to look at -- the nominating committee will be happy to entertain it.

Okay. Thank you very much.

Thank you.

Our next question comes from Timothy Stobaugh, please state your question.

Just following up on Shapiro's -- Lawndale's question. I think it's important -- I'm going to ask the question here. Richard, do you acknowledge that there is a public -- because I think it's important that you are willing to acknowledge this, that there's a public impression of a lack of independence on the Board of Directors? These may be wonderful people and qualified, for their experience in business and their industries and your industry and that's fine -- that's valuable, no doubt. But I guess when you dismiss a large shareholder as being not a qualification, and yet when there's a discount that the stock trades at on the long run in my view because of independence issues, I feel like we're talking about two different languages. Can you speak to that issue?

I can't. I really -- I don't -- I acknowledge some of the things you say, Tim, but I can't acknowledge -- that's your opinion. It's your opinion.

I guess the point being -- I guess the point being --

And you're entitled to your opinion.

When you say that stockholdership is essentially insignificant, I think you're saying that, aren't you?

No, I didn't say that. I said it's not a qualification necessarily for representation on the Board. I didn't say it's insignificant. Obviously, it is significant. You're a stockholder. All of our stockholders are significant. I didn't say they're not significant. I didn't say that whatsoever. I said it's not a qualification for the Board.

Okay.

If somebody who has stock is also qualified for the Board, then that's great.

If the Board believes as I do that this Company over the long run would sell for a higher multiple at up cycles based upon a perception of widespread independence, you'd be able to monetize stock at higher prices, we'd be able to monetize stock at higher prices, the Company would be ascribed a value that reflects a true bonafide image as public entity versus an image -- it's just a reality -- rightly or wrongly, it's just a reality that the image is partly or even primarily for a family business that happens to be public, and that's the point I'm trying to get across -- without adverse intent or hostility, just that if the proper salary level -- because you work your tail off -- is what's made, then maybe the Board should have realized years ago or needs to realize now that the Company needs to at an appropriate time be taken private or should there be taken private five years ago when it saw that during the last upcycle there was 22 million in net income and 9 million in salary taken up by you -- not to bash you, it's to say, "Okay, this is a Company that shouldn't be public, can't be public because the work involved in running it, and so we need to take it private to be responsible for the two-thirds of shareholders that are outside? I mean, what -- there's a legitimate philosophical question about what percent of the long-run profit potential of P&F Industries should the outside shareholders get and what percent should the founding family? You built the Company from scratch, Sidney founded it in 1968. That's important stuff, and I'm not minimizing that. But it's a matter of fairness, and the Board needs to look at that in terms of if the return on equity is going to be below 10%, then this Company maybe shouldn't be public.

Okay. I hear you. And I mean -- I hear you. I hear what you're saying and you're entitled to your opinion. You certainly are, and you have an opinion.

And that's why I'm asking for a Board seat and that's -- I appreciate the consideration of that specific issue and the broader question I just brought up. So thank you.

Okay.

There are no further questions at this time. I'll turn the conference back over to management, thank you.

There are no more questions, operator?

I do not see one in my queue. Would you like to poll again?

Yes, please, one more time just to make sure.

(Operator Instructions). Our next question comes from Andrew Shapiro of Lawndale Capital Management. Please state your question.

Richard, thank you for going back to the poll there on that. I have a question about the Board's policy and your views. You own a large amount of shares in the Company and so I am -- I clearly feel that you're incentivized to grow the Company and do what it takes for the Company. I don't get a salary -- you get a very large base salar --, but other than that, we're all shareholders together, and one other director, Mark Gutae, has a decent amount of share ownership, but barring Mark, looking at the proxy, no other directors really have a substantial amount of owned shares in this Company; and, frankly, Joe has a substantial amount of options, but he doesn't have any owned and hasn't maintained much owned shares in the Company either. Does the Company have on its agenda in a best practices evolving thing in governance, which is share ownership -- not options, -- but share ownership requirements for its Board members and senior management, or can that -- what is your views about making that a board agenda item so that Joe as well as other senior managers -- and importantly for me -- all the members of the Board have a substantial equity ownership in this Company? Because I feel that that would better balance their independent judgments when it comes to compensatory or other acquisition or capital allocation decisions?

Yes, Andrew, in this environment, as I have said before, I'm very -- we're very fortunate to have the directors that we have on this Board. They're all very qualified, very astute people with a lot of experience, and we're very qualified -- very lucky -- to have them and for them to give us their time in all their different areas. Having said that, we -- you know, I don't insist on people buying stock.

Are you afraid they won't serve on the Board if they were asked to or forced to buy shares in the Company's stock, especially at these prices?

It's another barrier, and I don't -- I've never in my career insisted that Board members buy stock. Having said that, a few do and most don't. And I can't spend people's money, like I'm not going to spend yours and you're not going to spend mine, and I can't insist on people doing that. I don't think it's a requirement. We get much better value as a Board and as a Company from these people than the stock ownership means.

What if the shareholders recommended that this be the case and --

Then I think that we would be hurting ourselves because we may lose some Board members.

Well, there's plenty of other people who might be good -- who would serve and have no problem owning shares in your Company. I mean, in that sense -- and again, I am not endorsing Mr. Stobaugh by any means and I haven't seen his resume, but he owns 5% of the stock and he's willing to serve on the Board. These guys don't own any shares other than Gutae, and they're sitting there serving on the Board with their little options, and I don't think that they're the best people, maybe, then, to determine compensation or acquisition allocations of capital or the decision to sell a division or not.

Why is their advice all that great when they're not willing to own shares in this Company, especially when the stock got down and is as low in valuation as it is today? You would have the Company buy back and retire shares if you weren't in the pickle you are with the lenders right now and you were sitting on excess cash, and since the Company can't buy back shares, but it would be a good allocation of capital, why on earth is it not a good allocation of capital for every one of these directors to be buying a bunch of shares? The earnings are out. I'd like to see Form 4 filings in the next 30 days from your existing Board members buying shares in this Company. For (inaudible), it's at $3 a share. Why aren't they buying and owning shares in this Company? It really bothers me more than almost anything else about your Company's governance. I think it leads to the other weakened or poor governance aspects of the Board.

Andrew, again --

I don't understand why you wouldn't want them to be share owners and ask for them that, "Hey, guys, put up some bucks and buy some shares here." It's cheap, you'd have the Company buy back shares if we had the cash.

I would want them to, but I -- again, I do not spend other people's money, I do not know what their needs and their requirements are with their families, and I do that. They all know my opinion, but they have to do what they want, and I weigh that with the return that we get for their value received in the Company on the Board.

Well, you know.

Completely it far outweighs, Andrew -- it far outweighs if they buy a small amount of shares.

I don't think they should buy -- at this price level, I don't think they should buy a small amount of shares. They ought to be buying by the boat loads. And they're not buying by the boat loads sends a message. And maybe that message is similar to Mr. Stobaugh's concerns or periodically my concerns when it comes to compensation-based compensation and it comes to capital allocation issues. Maybe they privately have those concerns, but when it comes to the public shareholders who own two thirds of this Company, they could give a -- It just -- it's just inconsistent.

All the Board members are either on the call or will hear it later.

Exactly, and that's one of the reasons I'm making that appeal, and I'm making the appeal as thoroughly as I am. I mean, I appreciate you're only one voice, but I hope you appreciate the case I'm trying to make to your Board members since you've adopted and they abide by this communications policy that we only can communicate to them by having to write big, long letters.

Okay. Well, they all -- they're all going to hear your comments.

Great.

And Mr. Stobaugh's and they will make their own determination in that regard.

Right. And if any of them want to call us up and make us feel better about this, that would be wonderful; because in the absence of dialogue, we only can think the worst. And in the absence of dialogue, that's when things escalate. So I only would encourage dialogue and working through these concerns and issues.

Okay. Duly noted, Andrew.

All right. That's actually all I have. And thanks for coming back and polling for the questions.

You're welcome, thank you.

Our next question comes from Timothy Stobaugh, please state your question.

Ping pong game.

Yes, Richard, thank you for coming back to us. It's very gracious and I appreciate it very much. I would like to follow up on Andrew's point, I think it's a good point. It is an affirmation, frankly, of the Board's face in the Company and its management. It's a de facto viewpoint, and if they're not interested, it's disconcerting -- and frankly, demoralizing -- to shareholder whose -- major shareholders, or all shareholders, frankly, that they're not interested. The Company is at a decade-plus low, and it's just like we want to see that interest from the Board members as a reflection that they view this Company as, one, well-managed; and, two, having a good, long run potential. And this is -- if it doesn't at $3.00 or $1.00 or whatever, then it's jarring, frankly. It's jarring to one's sensibilities, and it does make one wonder and whatnot. So I'm just seconding that point. I think it was well stated, and I just want to second the point of the Lawndale people.

Okay. Duly noted again, Tim. Thank you.

Thank you again.

Thank you.

There are no further questions. I'll turn the conference back over to management.

Okay. Everybody, thank you for being on the call today, and we look forward to better times and better numbers as time goes on hopefully. Thank you so much for your time. Bye bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.