P&F Industries Inc (PFIN) 2010 Q4 法說會逐字稿

Good day everyone. Thank you all for holding and welcome to the quarterly earnings conference call with your host, Richard Goodman. Today's conference will begin with a presentation and then a question-and-answer session. Instructions on that feature will follow later in the program. I'd now like to turn the call over to Richard Goodman. Please go ahead.

Thank you operator. Good morning and welcome to P&F Industries' 2010 year-end 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 discussed on today's call by our management, including those related to the Company's future performance and outlook, 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 the strength of the retail industrial housing and other markets in which we operate, the impact of competition, product demand, supply chain pricing, 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 from Form 10-K for the fiscal year ended December 31, 2009 and our subsequent filings. These risks could cause the Company's actual results for future periods to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

With that, I would now like to turn the call over the Richard Horowitz. Good morning Richard.

Good morning Richard. Thank you so much and good morning everybody on the call. Thank you all for joining us this morning on our full-year 2010 conference call.

We tend to have very few participants on our earnings calls, so as we did last quarter, we decided to modify our previous earnings conference call process so there can be more Q&A at the end for anybody who is interested in discussing things. Instead of restating the materials already released in the Company's earnings, which are of course published prior to these calls, we will begin today's call with a brief summary of the Company's results of operations and earnings per share for the year ended December 31, 2010. Then I will ask Joe to briefly review the key (inaudible) information and then we will proceed to provide an update on key events affecting the Company. Afterwards of course we will have the Q&A session.

Firstly, the Company's revenue from continuing operations were $50.609 million for the year ended December 31, 2010, compared to revenue from continuing operations of $51.157 million for the same period in 2009. Revenue for our Tools group during 2010 was $36.478 million, compared to $37.816 million in 2009. Revenue for our Hardware group during 2010, which today consists of only Nationwide Industries, was $14.131 million compared to $13.341 million the year before.

Gross margin for the Company for 2010 was 34.8% compared to 30.7% during the same period last year. Specifically for the Tools group, gross margin for 2010 was 33.9% compared to 30.2% for the Hardware group. Gross margin was 37.3% this year compared to 32.1% a year ago.

We incurred $16.016 million of selling, general and administrative expenses in 2010 compared to $15.799 million in 2009. Stated as a percent of revenue, these expenses were $31.6 million and $30.9 million respectively for the years ended December 31, 2010 and 2009.

Interest expense for 2010 was $1.243 million, decreasing $99,000 or 7.4% from 2009's total of $1.342 million due primarily to greater positive cash flow and a $3 million tax refund we received in May of this past year, much of which was applied to bank debt reduction at the time. The above contributed to the Company's reporting of $341,000 after-tax profit from continuing operations during 2010 compared to a loss of $1.195 million during 2009.

Basic and diluted earnings per share from continuing operations for 2010 was $0.10 compared to a loss of $0.33 per share last year. The Company is also reporting basic and diluted earnings per share from discontinued operations for 2010 of $0.09. This compared to a basic and diluted loss per share from discontinued operations of $2.01 for 2009. The driving factor in earnings per share of discontinued operations during 2010 of course was the deconsolidation of WM Coffman, which we will discuss in a few minutes in more detail.

At this time, I'd like to pass the call to Joe to provide some insight into cash flow and Q4 results.

Thanks Richard. Before I get into the cash flow, I'd like to provide some fourth-quarter information that, while derivable from our full-year numbers, we are going to disclose for the convenience of our listeners today.

For the fourth quarter, revenue for P&F on a consolidated basis was $11.874 million. That's up from $11.720 million for fiscal 2009, 2009's fourth quarter. Gross profit for the fourth quarter of 2010 was $4.204 million, up from $3.288 million in the fourth quarter of 2009.

For the fourth quarter of 2010, P&F earned $147,000 on a consolidated basis. That's as compared to a loss of $833,000 on -- excuse me, a loss of $833,000 for 2009's fourth quarter.

In discontinued operations for the fourth quarter of 2010, P&F had a gain or profit of $12.769 million, as compared to a loss of $5.680 million for Q4 of 2009. Richard will go into a little more detail regarding that fourth-quarter number when I turn the call back over to him for the discontinued operations piece.

Regarding the subsidiaries for Q4 2010, Nationwide had $2.521 million in revenue. That was up from $2.138 million in Q4 of 2009. Gross profit for Nationwide for Q4 was $930,000 as compared to $700,000 in Q4 of 2009. Gross margin was also up at Nationwide; it was 36.9% for the fourth quarter of 2010 as compared to 32.7% for the fourth quarter of 2009.

Florida Pneumatic's revenue for the fourth quarter of 2010 was $5.565 million. That's up from -- excuse me, that's down from $6.506 million from last year. However, gross margin -- gross profit was up, going to $1.872 million, up from $1.625 million in Q4 of 2009. Gross profit was -- or excuse me, gross margin was also up to 33.6%, up from 25.0% for the fourth quarter of 2009.

At Hy-Tech, revenue was $3.828 million, up from $3.082 million in the fourth quarter of 2009. Gross profit was $1.403 million, up from $956,000 in the fourth quarter of 2009. Once again, margin was also up at Hy-Tech. It went to 36.7%, up from 31.0% for the fourth quarter of 2009.

On a consolidated basis, capital expenditures for the full year of 2010 were $244,000 compared to $1.668 million in 2009. Other significant non-cash items affecting cash flows from continuing operations for 2010 were depreciation of $1.635 million and amortization of other intangibles of $351,000. Similarly, material components of net cash provided by operating activities of continuing operations were the income tax refund noted earlier of $3.3 million and changes in -- a positive change in inventory of $1.3 million. Our total debt decreased by around $8 million as well.

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

Thank you Joe.

During our last call, I discussed with everybody the new $22 million credit facility we entered into on October 22 of last year with Capital One Leverage Finance Corporation. This facility consists of a term note of $6.1 million with repayment based upon a 15-year term of approximately $34,000 per month and a revolving credit arrangement with a maximum borrowing capacity of approximately $15.9 million. This facility is collateralized by the inventory, accounts receivable and real property of P&F, Florida Pneumatic, Hy-Tech, and Nationwide. With this funding, we were able to completely exit from our banking relationship with Citibank and HSBC, payoff in its entirety two mortgages with Wachovia Bank, and repaid half the obligation still outstanding to the sellers of Hy-Tech. Subordinated notes payable of $750,000 of which I loaned the Company $250,000 remains.

The Company was permitted to pay the noteholders approximately $30,000 of interest. I believe this facility will provide added financial flexibility and stability to our Company going forward.

I would like to take a moment to discuss what I believe to be a significant positive event for the Company. In its soon to be filed Form 10-K, you will note that the Company has deconsolidated WM Coffman. As a result, the Company will not be including approximately $12 million of WM Coffman's liabilities and the liabilities of discontinued operations section of the balance sheet, and will be recognizing a gain in the fourth quarter of a like amount in discontinued operations.

I would also like to point out that, at the time of the filing of our Form 10-Q, for the quarters ended June 30, 2010 to September 30, 2010, based on our interpretation of available authoritative guidance and in fact that the application that the rules requiring deconsolidation did not appear to us as well as our accountants to be applicable to our situation, we did not consolidate WM Coffman at that time. In preparing our consolidated financial statements for the year ended December 31, 2010, management determined that, at the time of the foreclosure of the assets of WM Coffman under authoritative guidance issued by the FASB, WM Coffman was a variable interest entity because, among other things, we no longer had a controlling financial interest in WM Coffman. Further, we determined that WM Coffman should be deconsolidated. As such, we intend to restate the financial statements contained in our previously issued Form 10-Qs for the quarter ended June 30 and September 30, 2010 respectively.

Lastly, I would like to acknowledge and tip my hat to all our employees and management for doing an outstanding job in our continuing turbulent economic times helping to get our Company get to the point where we are today. All of us always believe in our Company's products, customers and employees and with the hard work and perseverance of all, P&F is getting stronger once again.

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

(Operator Instructions). Timothy [Stabos].

Good morning. Well, congratulations I guess are in order on getting off the Coffman debt off the books. We filed -- the Company filed an initial 8-K about -- it looked to me like a partial removal of the amounts, and now we got a whole amount off, or am I incorrect on that since that filing of that 8-K?

Yes. That's true. The 8-K that was filed a number of weeks back was related to a settlement and release with a specific vendor -- excuse me, a specific entity called Visador which was the original party in -- the counterparty in our transaction with the acquisition of WM Coffman. That release was specific to that liability, and that is actually a Q1 event

(multiple speakers) Go ahead. I'm sorry.

I'm sorry, that will be recorded in Q1, the $12 million gain --.

Forgive me, Q1 of 2011?

Yes, that is not as of the end of 2010. For 2010, based on the authoritative guidance, we have a $12 million gain related to the deconsolidation of WM Coffman, which is separate and apart and has nothing to do with the 8-K that was filed earlier with respect to Visador.

Just remind me then of that 8K. I'm looking at it right now. That indicated that there would be again of how much in Q1?

About four --

That was a settlement with Visador. There won't -- in Q1 there won't be a gain associated with that because WM Coffman is not on our balance sheet anymore. It's more of a theoretical liability of whatever the amount was, $4 million is gone now.

So in terms of getting an adjusted book value number of shareholders equity, if you will, it's the $26.4 million at year-end 2010 that is in your press release is pretty much the number, right?

That's correct. If we hadn't recorded the deconsolidation, that would have been a gain. But once the deconsolidation was recorded as of 12-31-2010, the gain was really a nonevent because the liability did not exist on the balance sheet anymore anyway. (multiple speakers)

I'm sorry Joe. So how will the balance sheet change between year-end 2010 and the first quarter of 2011 with regard to (multiple speakers)?

It won't change. It won't change at all. But liabilities came off at the end of '10, and that's the end of the story.

Very good. Do we have an estimated capital expenditure number for 2011?

I don't know we have projected that. We've not issued a number publicly. I will say that it will be more than 2010 as we were in a position where we felt we needed to conserve cash. But we feel that we need -- there are some expenditures we need to have in 2011 to maintain the operation.

I'm sorry, but less than $1 million?

Yes, I would say it's less than $1 million.

Just a few more here and then I'll get back in queue if I may. So thanks for giving the quarterly numbers, the brief summary of the quarter, because I was kind of flying in the dark there trying to figure out the (inaudible) run through it myself there. We have a decrease in debt, just getting back to the balance sheet, or staying with the balance sheet, we have a decrease in debt by about roughly half. Obviously at December 31, 2009 all of Coffman was still on the balance sheet, right, or not as far as debt goes?

Yes it was. It was in the consolidated balance sheet.

So the primary reasons for the change in debt is due to Coffman being gone?

Well, I would say there's also quite a substantial piece related to the very positive cash flow that the continuing operations had in 2010. Certainly, we had the $3 million in a tax refund, and if memory serves like something like $5 million in cash flow from operations in the continuing operations. So something like $8 million in continuing operating debt came off the balance sheet.

I'm sorry. How much again?

About $8 million in continuing operating debt came off the balance sheet unrelated to the discontinued operation.

How do we achieve that again? We achieve that through --

Well, certainly positive cash flow from operations. We reduced inventory. We reduced receivables. Payables were a little larger at the end of the year than they were at the beginning of the year -- the $300 million income tax refund and then profits. (inaudible) the cash flow from operations are positive, you have to remember we probably have something like $2 million in depreciation and amortization add-backs. So that's all positive cash.

Let me run through a few quickies here if I can. What is the quarterly estimated impact of the restoration of 5% pay cuts?

I don't have that number off the top of my head. Annually --

Annually is fine.

Annually is probably, I want to say $0.5 million. That's a rough number.

Obviously pretax, right?

Yes.

Does that -- the restoration applies across the board, so that includes the CEO as well in terms of restoration, correct?

Yes. We had affected every employee in both directions.

The bonus that was announced in the 8-K to yourself and the CEO. I'm not totally clear on that if this is outside the [1-6-2-B] or whatever the heck the number was planned. Is that -- could you clarify that? Is the plan -- I'm sorry, I didn't look at that, I should've looked at that on my own time. But this is just part of the regular type of traditional cash bonus the Board can award, can choose to award, right?

This is Rich Goodman. It was outside of the -- the 161 plan was a plan set up for tax purposes, so if it goes over $1 million of income, there's a tax benefit to the Company. That's not the case this year and this was outside of that plan. So it's a discretionary bonus.

Okay. I'll get back in queue at this time. Thank you.

Andrew Shapiro.

Hi, thanks. A few questions here. Joe, regarding fourth quarter, you kind of gave just summary numbers. I would hope, in the future, the fourth-quarter detail would be provided as it had been in the past.

Sorry to interrupt. What detail was provided in the past?

I thought the detail of individual subsidiary, the business divisions --

We gave that. I gave you Nationwide, Florida Pneumatic, and Hy-Tech. Those are the individual --

I would hope in the future it would be in the press release so that one (multiple speakers) the numbers, shove it in their sheets and have that. I've written down the numbers, will come back to off-line with some individual questions.

So with respect to the fourth-quarter performance that you have, are there any non -- for example in the prior quarter, you've had various costs with lawyers, etc. With the refinancing and the default rates and everything else behind us, what amount would you estimate are we'll call it nonrecurring costs that are in this quarter's income statement that wouldn't likely than not be in the first -- the current quarter that we are in right now, first quarter?

I would say very little. The costs related to the new financing were capitalized and are being amortized over the life of the facility. Perhaps there were some costs written off related to the old financing that had been put on the balance sheet and were being amortized. I don't know that number; I think it's probably less than $100,000.

It was such a short duration loan compared to the other one.

Yes.

I don't doubt it would be much. So but other than that, everything else is pretty clean this quarter.

Yes.

The amortization of that large capitalized number which I think you quantified in the prior quarter at $650,000 is over -- is that the right amount and that's over the three-year term of the loan?

Yes. It would be over the three-year term of the loan, and we began that amortization at the end of October; we'll call it November 1.

The amount was $650,000?

No, the number was more -- it was over $800,000.

Okay, so over $800,000 over three years. Is that flowing through interest expense or is it flowing through SG&A or which portions flow through each?

It all flows through SG&A.

All through SG&A? Okay. Then when you give us the quarterly amortization number, it will include that?

Yes. It's in the second number I give you. I give you -- the first number I give you it's called depreciation and amortization, but that amortization is really just amortization related to leasehold improvements, but it's really depreciable, we will call it it's likened to depreciation. The second number I give you is amortization of intangibles. It's in that number.

What was that number for the fourth quarter, or you only gave it for the full year?

I don't think I gave you that number for the fourth quarter. Which one, depreciation or amortization?

Both. I'm trying to come up with your EBITDA that would be more of an ongoing --

For convenience, we'll all have our Controller try to work that out while we are on the call. It can be backed into by taking the full-year numbers and subtracting the first three quarters, but we'll try to get that for you before we get off the call.

Appreciate it. Now, overhead absorption and capacity utilization. We are coming out of a recession. During the recession, for sure in your prior calls, you talked about capacity utilization being down as low as 50%, maybe even lower. Things improved a little bit here in Q4, certainly year-over-year sequentially, because I guess you had less promotions this quarter, margins improved but volume was down. What is the overhead absorption and capacity utilization like in this most recent quarter completed? How are things looking here in the current quarter and in March that we are almost done with?

I don't know that there has been a great deal of change in capacity utilization, maybe slightly because revenue is up a little bit, but we are still at relatively low levels of revenue and activity compared to a few years ago. So, I don't know that that's changed a lot.

So how long does one travel with this sizable amount of capacity under utilization and overhead under-absorption? What's your thoughts?

I'm not sure what you mean by that. I mean we have a fairly fixed business. We've got three buildings. There are actually four if you count the one we rent for Hy-Tech. I don't know that it makes sense to go out looking for smaller buildings right now. When we feel that -- the economy is set to improve in the next few years. I'm not sure that makes a whole lot of sense for us.

I'm just asking how long before you guys make that call, that -- so it's a few years you'll give for the business to come back?

Andrew, this is Richard. The businesses are coming back. This is not the time that we're going to be doing that. But we will look at it. We look at it all the time. It's just one of those things we will look at. If we feel that any one of our businesses has got too much over capacity and we don't see it being used up in any foreseeable future, then of course, as managers, we'll deal with that. But I think right now, I think we are looking at the beginning of an upswing, I would think this would not be the time that we would be thinking about that.

Right, well, that's what I'm trying to get at, is to get a little bit of a better feel from that. Can you talk about your business segments and your feel for the turn in the business? New housing starts have, in the past, been cited as a high correlative item for your business, yet new housing starts really haven't gotten a lift yet. So (multiple speakers) what are you seeing?

Well, there is a limit to what I guess we can say in that regard, but, Andrew, I know you (multiple speakers)

[Why are you listed?] Isn't this a Reg FD enabled call? You're limited certainly to tell us off-line, and that's why I'm asking on the call.

Projections, we are not going to give you projections. But I'll answer your question as best I can. Now I lost my train of thought, I'm sorry.

I'm trying to -- let you get your train of thought here. I'm trying to basically get a feel. That's why you have the forward-looking statement protection. So if you can't you tell us what you're seeing, what your feelings are? (multiple speakers)

Oh I know what I was going to say. The housing starts, as I'm sure you must realize, housing starts we are not really so tightly associated with that anymore with the change, with the removal of WM Coffman and all that. That was the housing start -- the company that was most related to housing starts. So I don't know if we really look at housing starts as an indicator for us any longer, I mean a little bit of course, but not as much of a dominant factor as it was in the past. So the fact that housing starts have not responded -- recovered, which they have not, doesn't really, hasn't really affected us at all at this point.

Having said that, you're very quick to say that we're pulling out of a recession and all that stuff. I'll tell you we are doing much better, and we have been doing much better, but I don't really know if I would agree with that. It's an opinion on your part, but I don't know if I would agree with that. I see plenty of places that the economy is not being kind to anybody, and I just think that we've just been very fortunate with getting customers and getting things done and keeping our overhead under control so that we have been keeping it -- we've had a very very, very good stretch here and it's improving even more. We look at -- the first quarter of this year is going to be a good quarter for us, or I don't know what more I can say other than that. It's going to be better than what we've experienced in the past, in the recent past.

Yes. Well, what are you seeing in your individual businesses without providing the forecast?

Yes, I will say that all three of our businesses happily, all three of our businesses are showing uniform increases in profits and revenue. In other words, no one company is leading the charge. We are finding it across the board.

All right. Now, I saw, in this 8-K, and I'm going to ask the question a different way than Mr. Stabos. There was a bonus awarded above and beyond the 5% increase, the return in the 5% give back on the compensation across the board. There was a bonus provided to you and Joe that was outside of the 162 bonus plan, which arguably is a bonus plan that has certain objective targets. I just wanted to understand. Were there quantitative measures of performance that were used in the awarding this recent grant, or were they merely subjective qualitative bonus awards?

I can't really speak for the compensation committee. We did --

Based on your

(multiple speakers)

(multiple speakers) number or that number, or (multiple speakers) you ran the Company during tough times, so we're giving you some extra dough on top of your $950,000.

If you let me speak, I will -- when we filed the 8-K back on March 9, it said in there that, in the last paragraph, it said something to the effect of the achievements included but were not limited to the executives' role in successfully navigating the registrant through the critical liquidity issues of last year, obtaining the new multiyear credit facility, and the overall improved performance of the register. So that was what was said, so I guess the answer to your question was it was more subjective than not (multiple speakers).

I have some more questions. I'll back out in the queue in case we have others. So please come back to me.

(Operator Instructions). Timothy Stabos.

Okay. Richard, you said that the first quarter -- I'm sorry, you referred to the notion that the Company is I guess hopefully at the beginning of an upswing. I guess my question is -- I forgot my question. What is the -- how do we view the seasonality of the Company now? Is Q4 still commonly the strongest, or am I wrong on that? What's (multiple speakers) or Richard, whoever?

Traditionally, the second and third quarters are our strongest quarters in our business. I would think that -- we are not a very seasonal business, but generally speaking the second and third quarters are the better quarters for us.

Yes, I will say this. For Nationwide, by far second and third are the best quarters. They don't do very well in November, December, January and even part of February. I would say Hy-Tech is extremely steady. There is some slowdown related to the holiday in November and December, but other than that steady. In Florida Pneumatic, I would say steady except for the fact that there is usually some point in the year that Sears does a major promotion. It usually falls just into the fourth quarter. Sometimes, it falls at the very end of the third quarter. So that would be the one thing that might move -- I wouldn't call it a seasonality -- well, I guess it's a seasonality, but it moves. It could be Q3; it could be Q4.

Q1 is typically seasonally the weakest?

For what business?

Across the board, the whole Company.

On an average basis, I would say Q1 is the weakest. Yes.

I guess the question I had that I remember now is, Richard, you stated we are at the beginning of an upswing, and you said the first quarter is looking pretty good or whatever. I guess my question is does the Company anticipate a revenue increase in 2011? It doesn't seem like it's asking for much, frankly, to get management to take a stand on that, I would think, based upon your qualitative statements.

I would say we're expecting a modest increase in revenue, but we focus more, Tim -- I mean revenues are good, but profits are better. So, I would say we're focusing more on profits. If we can squeeze more dollars of profit out from the same revenue, I would say that's better, not that we don't want to increase revenue; certainly we do. I would say it will be a modest increase in revenue, but we are focused just as much on the bottom line as we are on the top line. I think that's the best way of saying at.

I don't mean this question to be antagonistic, but is there a reason that we didn't emphasize more firmly in the press release the increase in book value owing to the per share or otherwise owing to the Coffman adjustment? The book value is a way a lot of people measure values of entities, and of course we are selling at about half of adjusted book value now. Just kind of curious (multiple speakers)

It's a fair question, and I don't really, honestly speaking, I'm looking to my attorney and my [counsel] to see, and we have never really expressed that in a press release before. Maybe it's a suggestion and maybe -- I don't know if -- I think it's hyperbola to be honest with you. I don't know if it really means anything. I mean it does mean -- of course it means things in the world (multiple speakers)

I will say this, I wouldn't own 7.5% of the Company if the book value wasn't what it is.

No, no, clearly. All I'm saying -- I'm not saying the book value is not important. Of course it is. I'm saying citing it in our press release, I don't know if it really is something that we would do. But I promise you we will look at that.

I'll make two other comments. My personal view is the tangible book value or real book value of the Company didn't change as a result, because those liabilities were never going to get paid. So, were they true liabilities or not?

Second, in working out our new bank arrangement, Capital One was fully aware of the situation with those liabilities and the fact that they were on the balance sheet, but really didn't have an effect on the future cash flow of the Company. So we really viewed the deconsolidation as a nonevent with respect to the tangible -- or excuse me, the book value, although obviously we did have to write it back up.

Okay. What percent of the revenues of the continuing operations do we now estimate are tied, on a run rate basis or whatever, are tied to housing starts or tied to the housing industry now (inaudible)?

4% to 5%

That's it? 4% to 5%?

That's it.

I said a little earlier we're really -- it's a really small part of our indicator business now. (multiple speakers)

I guess maybe I understand though why Mr. Schapiro has been -- I'll use the word "harping" on -- maybe I didn't fully understand it. I guess maybe I do understand it a little bit better now, the notion of utilization and capacity, because I guess I may have mistakenly thought that he knew otherwise apparently that a return of the housing market is going to increase our capacity. I guess the question maybe would be and my initial motion is to hesitate to cut back on capacity because I want to recapture the revenue and recapture the profits. But I guess (technical difficulty) I guess it does bring up the question, which is if it's not simply a matter of the housing market coming back obviously anymore, how do we capture the types of sales that will allow us to return to -- is this tied to the economy being down generally (multiple speakers)? We're back to a high watermark on GDP in this country.

I'm not sure what the question is. Maybe you could state it a different way?

The question is how do we get back the sales that allow us to use that capacity and earn decent returns?

Again, the two tool companies have never been related to housing starts, so their shrinkage was related to the overall economy, the industrial tool market, the manufacturing sector, the utilities sector, the energy sector, automotive sector. So those, as those rebound, those businesses will rebound.

So we really -- this company does -- these remaining businesses -- these businesses do well at the cyclical high point of an economy, the late stages, the high point of economy, not the beginning, not the early stages (multiple speakers)?

Yes, I would say that's true. I think our business would mirror most reasonably well-diversified companies. I don't know that I would even point to a single market and say you look at that statistic and that's going to drive -- that's going to be a predictor. I would say overall GDP is probably what you should be looking at. And to Richard's point earlier, we are still near the bottom.

What is the bank's -- I haven't looked at details quite honestly in the bank agreement. What's -- there's no provision at any point in time for a stock buyback coming back online?

I'm not sure I follow. You are asking if we are precluded from buying back stock?

Yes.

I don't believe we are precluded from buying back stock.

So at what point in time does management consider something like that?

Again, gee, it was just a year ago that we had quite a bit of debt we were trying to get out from under, and I think we're focused right now on reducing that debt and getting into a very comfortable zone with our debt with respect to our cash flow and fixed charges. So, I'm not sure that's really at the top of the agenda. I think we need to work down this debt a little bit more.

Tim, I think, to your point -- this is Richard -- certainly that will be something on our radar once the Company -- remember, a year ago now, let's not forget history. A year ago now, not that we are proud of it, but a year ago now we were in the throes of some very serious issues with the banks and all that stuff. Now, we have been very fortunate to find a new bank who is very, very, very happy with us and we are happy with them, and we are getting our sea legs again. So once we get our sea legs, a lot of things can happen, of course that being one of them, and there will certainly be something on the radar screen. But right now, I think it would be in all of our best interests, you as a shareholder as well as all of us, me and Andrew and everybody else, for us to have stability in the Company and have some ground between the last year and where we are now and get a little momentum, and then we can look at things like that, many things. So I don't know if I'm answering the question but --

Well, yes, let me ask -- let me transfer the question over to the insiders then. With the Company back to basic breakeven or profitability even here it looks like, of course credit facility in place, your stock is selling about half of book value and still really bumping along not too far from, oh, I'll say generational lows, but multi-year lows for the stock. Will the Board members -- one, does the window for insider buying opened up, in the open market buying open up within 48 hours of this call, and will Board members be stepping in to buy stock, or is there consideration of that? I just want to emphasize again that I had asked to be put on the Board of Directors partly because I own 7.5% of the Company and there is concern about representation on the Board of people who are vested other than you, Richard, adequately vested or vested in seeing the stock go up and seeing returns happen. So can you speak philosophically to what I'm getting at in my question?

Yes. It's always been one of your, for lack of a better phrase, pet peeves. I don't necessarily disagree with you. But I can't really speak for the other Board members. But I know that we have discussed that before in the open forum of the annual meeting as well as at our Board meetings. So I think that it's something that we will revisit again. The Board members are on the call. They will hear what you're saying of course now. Again, I can't really speak to them. I know, if I was one, what I would be doing, but I'm not so I can't really speak to them.

I'd just like to add the window doesn't really open up until May 15. Again, we have sort of this oddity at year-end. The rule is -- and Rich will correct me if I'm wrong -- we are not -- the window can't be opened once we have closed within two weeks of the end of a period up until 48 hours after you've released those earnings, so that kind of takes care of the end of the year. So you would argue that if we released earnings two days from now, the window would open, but then we are right back into the Q1 earnings process, and we are within two weeks of the closing of Q1. So again, you have to wait until Q1's numbers are released, which is around the middle of (multiple speakers).

I can tell you, from our past history, our legal counsel has been very, very pointed in telling us when the windows are open and when they close. The windows, believe it or not, I don't know if it's our company or all companies or what, but in our company certainly, the windows are very, very of short duration and there have not been many of them, to be perfectly frank with you. It's a legal question. We can get more answers for it, but I can tell you that's been the case in the past. But having said that, nothing can happen until May 15 when we release -- after we release our Q1 numbers, at this time.

Do we have a date of the annual meeting and a date when the proxy makes the preliminary or whatever proxy is going to come out?

Yes, we are anticipating the exact date will be in the proxy statement, but it's -- I would think it's going to be around May 25.

Proxy statement out in the next couple weeks or what?

The proxy statement comes out the third week of April.

That's all for now. Thank you.

Andrew Shapiro.

Thanks. There's a few other items in the balance sheet here on this discontinued ops and such. What are the liabilities of the discontinued ops that remain on the balance sheet of I guess $300,000?

Yes, that is related to the discounted present value of the future payments that the Company is required to make quarterly into the pension plan that existed with Embassy Industries. That is a legacy of that (multiple speakers)

I think that's explained in the K, actually.

Well, the K is not out, so --

But it will be, but it was in last year's K as well.

That's it. There's nothing else. That's what it is.

Then other assets, is that where you capitalize the financing cost? That's what took a $600,000 jump from last quarter?

Yes, that sounds right to me. It would be prepaid. Yes, that would be what that is. Yes (multiple speakers).

I've asked on prior quarters, and about six to nine months ago the response was we should be going to have the appellate process move forward about six to nine months ago, in about six to nine months. So I ask on this call, what is the status of the milestones in timing on the Company's contingent asset in the escrow litigation?

Yes, you talk about it pretty much every quarter on these calls, but we talk about it pretty much weekly here. What can I tell you other than we are in the legal process. In February I believe, February was the appeal. The [Dario] Group, they appealed the decision and we had the hearing in February. We can be notified after that anywhere from 30 days to G-d knows when. But it's supposed to be, if the judges are doing their work on a timetable, it would be 60 days from then, which would be some time in the middle to end of April. But having said that, judges -- and I'm sure you've been in cases yourself -- they don't necessarily adhere to timetables. But what we're -- that's their responsibility. You should know that, if we get awarded again the interest and everything else that's there, it's in -- it's north, a little north of $900,000 at this time.

North of $900,000? If that was awarded, that would then all get taken into income at that time, because I don't take any of it is in income?

We can't take anything into (multiple speakers)

There's nowhere on the balance sheet. It's all off balance sheet.

It's nowhere on the balance sheet.

That's nowhere on the balance sheet, but let's not count our chickens before they hatch.

No, you know the argument we made on appeal; you know the argument they made on appeal. What's your feel?

Our lawyers are confident, but who is to say? Our lawyers were confident the first time when we won the case. There was nothing at that hearing. Rich could maybe speak to it more than I can, Richard Goodman, but there was nothing said at that hearing that was any different or anything more profound than before. Am I right, Rich?

Yes, nothing that we perceive as any game-changers (multiple speakers).

But it's an appeal, so there's certain things that can be appealed and not. What's the basis for which they are claiming the lower court decision was wrong and that the decision ought to be appealed?

They're arguing both the facts and the law applied. I don't (inaudible) this call here, but they think we breached the contract originally and they disagree with the court's assessment.

Are they held -- in the appeal, is it held to a higher standard that the upper court there in New York would not overturn the lower court unless there is a higher threshold or burden shown by the losing party?

I'm not sure if I can speak to that, but it's -- they're not revisiting everything from scratch, but they can -- the panel of the court can look at the facts themselves as well as the application of law. So it's -- I'm not sure how to answer that.

On the debt, you said the Company has now and Tim asked a little bit on this -- obviously we are, I'm happy to say, I think it's the first or the second quarter now here when we are in compliance with our lending covenants and probably by a wider margin now than before. I do appreciate that no one is in any rush to do a buyback because you'd like to get the debt levels paid down. But Richard, do you -- and Joe -- for management or along with the Board or the Board, do you guys have in mind a targeted debt-to-equity ratio or a targeted EBITDA to interest coverage level you'd like to be when buying back shares or other alternatives become a higher priority? Because I understand it's not the highest priority at this point, but I'm just wondering if you have a -- have you started to establish or already have kind of some capital ratio, leverage ratio ranges in mind for when this starts becoming -- let's start talking about it?

Honestly, I would have to be honest with you and say no, we have not -- I have not focused on that. There had been clearly many, many more I'll say important issues that we've been dealing with, putting out the fires and getting the Company back. That was something that honestly has not been on the radar screen. But I would say at our next Board meeting, which will be after the annual meeting, we will -- I will put that on the agenda myself. But we like to grow the business and invest in the business. I think that has a bigger impact. But I will put that on the agenda, and I will get -- we will get to you on that I'm sure.

With that in mind, I appreciate you'd like to grow the business and the historical approach of this Company, and you as manager for the almost two decades has been we deleverage the Company and then we make another acquisition using leverage, and then pay down that debt and do it again. Whether -- we've had this discussion at the last annual meeting, whether it is then poor timing, bad luck, or whatever it has been, the overall situation of where we are today is book value per share versus where we were before. We really haven't gone anywhere in 15 years.

In terms of the rates of return earned based on the cost of capital and offsetting losses, it could've been worse. I appreciate it, whatever. But the point is we have only gone so far. And so when the decision is made, our debt-to-equity ratio is low, and now strategically the Board has to come to a decision, well, do we make an acquisition and try to grow the business and lever up to do so, or return capital to the shareholders because we are not over-levered? Is there a different frame of mind inside of the Board room these days in terms of their approach to acquisitions now than in the past?

I don't know what your real question is, but if you're asking me if there is a different mindset with the Board and with me being a Board member in terms of acquisitions, I would say the answer would be yes in terms of that -- we would be way more conservative in terms of -- we wouldn't be shooting for the moon. That's the best way of saying it in terms of acquisitions. If we make acquisitions, it's going to be things that fit nicely into our exact businesses and that are enhancements to what we presently have.

Do think Woodmark and those other spare parts businesses initially -- I understand Coffman because that was an attempt to double down and salvage already a bad situation. But before that, we got into that bad situation, do you feel that acquisition and those product lines were further afield from your core businesses than you would want to go in the future?

Yes. There's only in hindsight.

Well, we all try to learn. We like -- the best managers are the ones that learn from their mistakes and don't make them again.

Yes, well, then I would say the answer to the question would be yes. Anything we would do in the future would be more of what I would phrase a direct hit to what we presently do, or horizontal integration, not necessarily vertical.

I think we would be looking, to your point earlier about capacity utilization, I think we would be looking to do something called -- we use the term bolt-on acquisition, or it's a substantial product line -- I'm going to make this up -- a $5 million product line or a $10 million product line that we could satisfy out of one of our current facilities.

I'll just make a note -- a statement that any acquisition that we would make or stock repurchase or anything else would have to be approved by our bank. But having said that, our banks have said -- our bank has said to us on numerable occasions lately that they want to see us grow, and they would be, once they see us continuing in our -- the way that we are, they would be all in favor of us doing that.

Okay. But in the absence of finding one of those bolt-ons to put in there, are you going to be returning capital to the shareholders?

(multiple speakers)

[Over all] this period of time, we never really had -- we never had dividends. It was really minimal buyback activity going on, and then the cash got used up on unfortunate acquisitions.

Yes, I would say who knows? It's certainly something we could address at that time, but it would be such conjecture on my part, on our part, at this point to say that. But nothing would be out of the question I guess is the best way of saying it.

Now given the timing of things, maybe Richard Goodman can answer this question. This Company's fiscal year end is December. Because of that, we come up for the annual meeting. Is there a say on pay provision that has to be put into pursuant to the Dodd-Frank legislation that has to go into this year's proxy at this year's annual meeting?

As a smaller (inaudible) company, we are for the next I think it's two years exempt from the say [on] pay requirements.

Okay. So in April, that doesn't -- by the way, that doesn't prevent the Company from putting one into its proxy. I've seen several companies who are smaller trying to be best practices in governance, putting forth the say on pay proposal in earlier than even required, or just a thought to plant into the minds of all the Board members who hopefully are all listening into the call.

The second thing is I think, since your nominations and everything are not done yet for the upcoming May or June annual meeting, and in sympathy, [one, to] what Mr. Stabos has said, but I made this point pretty clear at the last annual meeting in highlighting that other than independent lead director Utay and Richard Horowitz, no Board members have -- and especially those who have been on Board for a long time -- have any meaningful amounts of shares. I think Board members who are not prepared to purchase shares of this Company in May when the window opens, they ought to not stand for reelection at this coming May/June annual meeting. There's no one forcing them to be on the Board. Maybe it's time then they don't stand for reelection if they are not prepared to put up some money into our less than $4 a share company and buying some real shares to align their interests with us fellow shareholders.

All right, that's -- again, we're beating -- it's a dead horse. We're beating it forty times.

I think I made the point a little bit clearer than Mr. Stabos in terms of the timing things that are coming up, because Board members and the nomination committee and who goes on this Board is -- that's all coming up and the timing all works in conjunction. As you remember or know, I gave you the names and resumes of four individuals who are highly qualified, and are willing to serve on this Board, one of which I am happy to that you did select. I know that he has helped the Board and the Company substantially over the last nine months or six months that he has been on the Board. If others want to leave the Board, we can certainly help you find new directors whose interest would be aligned with shareholders' and with value-added.

Okay. Again, it's not appropriate for me to comment on that at this time, and we will wait for the proxy statement, and then we'll have more conversations about it. I don't know what else to say here.

Well, I would like to ask you though, and it is appropriate for you to comment on this part. I would like to ask you -- you are the largest individual shareholder of the Company. I believe I am the second-largest individual shareholder in the Company. What is your personal view of Company Board Members? Ought they own shares in a company and have their interests aligned with fellow shareholders? They'll have to do what they have to do, but I'm wondering what your personal view is on that, Richard. Would you like to see these guys own more shares than they own?

Again, I cannot tell -- my view is I cannot tell anybody, no less a Board member, anybody, where to spend their money and how to do it. Having said that, it would be nice for them to do that, but I can tell you that the value that our Board members have working on this Company and what they do on a very regular basis is -- far outweighs, to me, if they buy or they don't buy the stock. If they don't, that's their own individual decision based upon their own finances, etc. It may be textbook and it may be very nice for them to be buying stock, but I don't know what their responsibilities are to their families, etc., etc. So all I can do is say what I say and you can say what you say. But the bigger and more important thing to me and to any shareholder would be the value that these Board members have and how much work they put into this Company. They put an enormous amount of time, effort into it for very, very modest pay.

Well, in that sense, though, if you pay peanuts, you get monkeys. So I wouldn't necessarily -- (multiple speakers)

I don't agree with that and (multiple speakers)

I don't necessarily want them to have modest pay. I just (multiple speakers) to be in terms of stock.

I take great exception to what you are saying, and I'm not going to lose my temper about it. I just think it's way out of line. These guys (multiple speakers)

But I'd like them (multiple speakers)

I am talking. Please let me finish. I think that these people on our Board go way beyond what they're doing. It's not about the money that they are receiving. It's about their obligations and their responsibilities to our Company. They go way above the Board in doing that. That's all I'm going to say about it.

Well, then I guess I hope they take those responsibilities seriously as the long-term employment contract arrangement they have with you comes for expiration at the end of this year in doing what's right for the Company and evaluating strategic alternatives and evaluating a renewal and the rate at which the renewal of your employment terms then are paid.

Andrew, I would be very disappointed if you missed one phone call and didn't talk about it. So you said what you want to say. What else would you like to talk about that's productive for the Company?

Okay, well, I mean, I think some shareholders would think that was a productive [use of] shares.

You say it enough times that everyone knows how you feel, including me. Next question.

I don't think I have any further questions for this call based on the information provided.

Thank you.

Andrew, I am just going to -- you had asked earlier about a couple of numbers. I have them available. For the quarter, depreciation was $396,000, amortization of intangibles was $88,000, and amortization of financing costs was $68,000, all for Q4.

Timothy Stabos.

Interesting line of discussion there. I'm somewhat disappointed in your reaction to Andrew, Richard, personally, as a 7.5% shareholder. I do need to emphasize the point, and I hope the Board can understand it with regard to buying back stock for their own accounts. I think the question is -- the issue is this. This is a natural question that outside shareholders ask that generates fear, and for me personally generates potential mistrust. It's really why don't these people have faith in P&F as an investment, or view it as an investment for themselves? That notion, for an outsider, can be, frankly, flabbergasting, and at times, when one is thinking about it, it can generate resentment. The reason that it can generate resentment is because there is a fear, and I do not mean this antagonistically or offensively, I'm telling you it's a fear. The fear is that the answer that comes to mind is that we all know that the lion's share of the dollars are set aside for Richard. That is the concern, and that is the fear. Why aren't they buying stock? It's selling at half of book value. The stock was $15 five years ago; now it's $3.50. You're turning the Company around. You've got a bank agreement. You're back to profitability. You're optimistic. If they don't buy stock, there is something, forgive my language, there is something rotten in Denmark. So please understand the perspective. Please understand the perspective.

Tim, I understand what you're saying; I understand what Andrew is saying. But again, I can't speak for the Board members, but I do understand what you're saying. I'm not a fool; I understand what you're saying. But again, I think there are other things -- all I'm trying to say to you and to Andrew is I think there are other values that the Board members have, and I don't think we want to minimize that aspect. I'm not saying that I wouldn't be happier if they bought stock. Yes, I would be happier. But again, I cannot tell them where to go and what to do. We've said it so many times to them, and they have to be their own governor in that regard. But I would like it, and I don't think it speaks to any lack of confidence or anything like that. I just think it has to do with their own personal things. But hopefully they will be buying some stock in the near future. I hope they do.

I appreciate that. There's been a fair amount of destruction of shareholder value, the acquisitions and whatnot, and I guess the hope is that there is a discussion about compensation arrangements. I didn't think Andrew was being unreasonable in his bringing up this issue. It's important to shareholders, and especially important to outside shareholders. You own 30%-something of the Company. I own 7.5%. You get $950,000 a year as a base. I don't get anything. If we have $0.50 a share dividends instead of making acquisitions, you could be compensated that way and I could be compensated that way. $0.50 a share times your $1.2 million or whatever shares is $600,000 for you, and whatever it is for me and the rest of the shareholders. So maybe instead of acquisitions, it's time to start giving back to everyone. I don't want to say not just you. I don't mean that antagonistically. But I hope the Board will look at it that way. I guess maybe it's time to -- again, I don't mean it antagonistically. It may sound antagonistic. I'm trying to -- but maybe it's time to kick you upstairs to a ceremonial role and pay a larger dividend and let the compensation to all be that way, and let's look at these things.

Again, I appreciate what you're saying. You're not being inflammatory at all. You're making good, fair comments and I appreciate them all of the time, not just today. But I think we're turning this into a town hall meeting now, and that's really not the point of a P&F results call. So I would just suggest that we not go further on that. Having said that, I hear what you say and everybody else does as well. If you have a specific question you want to ask one of the Board members or any of the Board members about why they are not buying stock, come to the annual meeting, which maybe you'll be at anyway, and ask the question. Then I won't have to be speaking for them; they'll speak for themselves. I don't want to be the one speaking for them. But look, if I could buy more stock, I would buy more stock too. Clearly, I would. If I can, I will. But I'm not up to that. We're not talking about me; we're talking about them.

But let's keep this to the results call, if you don't mind, with respect to what you said. But let's -- you've said it and I appreciate that. We've all heard it. But I'd like to talk to you any other questions you have about the results or Andrew or anybody else on this call, we're more than happy to answer those questions.

I certainly appreciate that. It's just important to note that we are at a salary negotiation point here for renewal of you, and we are at an uncertain point where the Company could be significantly larger in terms of total revenues and theoretically profits a year or two from now, or it could be marginally increased in revenues and marginally increased in profits. That's pretty material to what the Company is worth and in theory I suppose what you as our CEO should be paid. So there's a lot of fear out here and concern certainly with this shareholder that, this time around, the Board is going to be, in my opinion, more mindful of proper allocation of the share of the value of this Company to all its shareholders. I hope that is done this time. I hope that's done this time. That's all I have. Thank you.

Thank you Tim. (multiple speakers)

Sam Rebotsky.

Hi gentlemen. So I sort of feel that it's a good windowdressing. Besides windowdressing, I feel it's a direction to see members of the Board add -- buy shares and have a decent vested interest, even though they may contribute. In addition to that, as far as where the Company is going, presumably you haven't been prepared to tell the Street, other than on these conference calls, what you're doing as far as you feel that P&F is an attractive investment for people to get involved in, and that would also (inaudible) a feel that Board members may want to also add to their share if you're prepared to tell your story. So number two -- are you prepared to tell your story on the Street, number one? I just will add, just say that I think even though people contribute, they should, in addition to that, have some equity ownership that, when the stock does appreciate, which is the objective, they're going to benefit from them with some risk capital. Thank you.

Thank you Sam.

I have no further questions in queue.

Okay. Thank you all for your time. We will be back on the conference call for the Q1 in the middle of May. Thank you all for your time.

That does conclude today's conference. Thank you for your participation. Everybody may now disconnect.