P&F Industries Inc (PFIN) 2011 Q4 法說會逐字稿

Good day, everyone. Thank you for holding, and welcome to the quarterly earnings conference call with your host, Richard Goodman, Company General Counsel. Today's conference will begin with a presentation followed by 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, sir.

Thank you, operator. Good morning, and welcome to P&F Industries' 2011 earnings conference call. With us today from management are Richard Horowitz, Chairman, President and CEO; and Joseph Molino, COO 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 Securities and Exchange Commission, including, among others, as described in our annual report on Form 10-K for the fiscal year ended December 31, 2010, 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 statement made by or on behalf of the Company. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update publicly or revise any forward-looking 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.

Thanks so much, and good morning, everybody, and thank you all for joining us on this morning's conference call. I'll begin today's call with a brief summary of the Company's results of operations and earnings per share for the years ended December 31, 2011 and 2010, then I will ask Joe to briefly review our cash flow information and provide an update on key events affecting the Company, and after which we will move to the Q&A session.

P&F's revenue from continuing operations was $54.541 million versus $50.609 million, respectively, for the years 2011 and 2010. Our 2011 income from Continuing Operations before income taxes was $1.998 million compared to $376,000 in 2010. After giving effect to income tax provisions of $89,000 in 2011, and $35,000 in 2010, our 2011 income after taxes was $1.909 million compared to $341,000 in 2010.

Revenue generated at our Tools group during 2011 was $39.849 million compared to $36.478 million in 2010. Revenue generated at our Hardware group, which, of course, today only consists of Nationwide Industries, was $14.692 million compared to $14.131 million for last year.

The Company's consolidated 2011 gross margin for 2011 was 37.1% compared to 34.8% in 2010. Specifically for our Tools group, 2011 gross margins were 36.7% compared to 33.9% last year. And for the Hardware group it was reported 38.2% for 2011 compared to 37.3% last year. Selling, G&A expenses for 2011 were $17.491 million, compared to $16.016 million in 2010. As a percentage of total revenue, our SG&A in 2011 increased slightly to 32.1% compared to 31.6% during the same period in 2010.

When comparing 2011 and 2010, our interest expense declined significantly as we are reporting $756,000 in interest expense last year compared to $1.243 million in 2010. This decline is due primarily to improved cash flows, which in turn generated lower average balance of funds borrowed.

As I reported during our last earnings call, during the three-month period ended September 30, 2011, we received a payment of approximately $702,000 relating to a dispute over the sale of real property in 2006. As a result, for 2011, we are reporting an aftertax income of $646,000 from Discontinued Operations compared to aftertax income from Discontinued Operations of $340,000 reported for the year ended December 31, 2010. In conclusion, our 2011 net income was $2.555 million, compared to $681,000 in 2010.

Basic earnings per share from Continuing Operations for 2011 was $0.53, compared to $0.10 in 2010. Diluted earnings per share from Continuing Operations for 2011 was $0.52 compared to $0.10 last year. Basic earnings per share from Discontinued Operations for 2011 was $0.18 compared to $0.09 in 2010. And lastly, diluted earnings per share from Discontinued Operations for 2011 was $0.17 compared to $0.09 in 2010.

At this time, I'd ask Joe to give you an insight into our cash flow. Joe?

Thanks, Richard. Just a couple of other items. Capital expenditures during 2011 were $598,000, compared to $244,000 in 2010. Significant non-cash items affecting our cash flows from Continuing Operations during 2011 were depreciation and amortization of $1.6 million, amortization of other intangibles of $350,000, and amortization of debt issuance costs of $286,000. Other material components contributing to net cash provided by operating activities of Continuing Operations were increases in accounts payables of approximately $336,000, and reductions of accounts receivable of approximately $658,000.

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

Thank you, Joe. I would like to, of course, acknowledge all of our employees and our management for doing such an outstanding job in 2011 in these turbulent times. All of us always believed in our companies, products, and customers, and with their hard work and perseverance, P&F is getting stronger again.

That's our end of our report today. Now, I'd be happy to answer any questions. But before we do, I would just want to remind everybody that this is an earnings call, talking about the financial results for the quarter and for the year. And it's in our best interest of all our stockholders to limit the questions regarding earnings and the financial results for 2011 or for the last quarter, and we ask that the question and answers be limited to that subject area. Thank you.

(Operator Instructions). Andrew Shapiro, Lawndale Capital Management.

Hi. Thank you. Several questions. I'll back out into the queue, and let others in here as well. But first off, your revenue growth, to what extent do you attribute this revenue growth to an overall market rebound in your segments versus any market share gains?

I think the bulk of it is market share gain. Certainly it is in Tools and I don't see information to the contrary in Hardware. Not to say that the market isn't a little more stable than it was, but our discussions with management at the subs has indicated that they're taking business away from their competitors.

If it is market share gains, do you feel you're gaining any market power to raise prices and is that the motivation or the room you got regarding Hy-Tech's price increase or is that just an annual industry price raise?

For Hy-Tech, we generally are followers with respect to pricing. Ingersol Rand and Chicago Pneumatic and the other large players in the market generally set the prices and we tend to follow suit. So I don't think we've got any particular power there. Having said that, to the extent we introduce innovative products which we certainly have been doing really in all of our companies, but most especially Florida Pneumatic, they're new, nobody else has them. We can set the price.

Are they proprietary?

Yes.

Oh, okay. And to what extent are these products now as a percent of your overall mix of these new proprietary unique products in which we have more pricing power?

Andrew, it's continuous. I don't really -- I couldn't give you a specific answer. But we introduce new products every year.

I'd like to reiterate my request made last year on this very call to provide Q4 breakout versus prior year in your press release and I was wondering if you could summarize now for the hope that we could formulate questions here on the fly regarding this most recent quarter versus last year's quarter to find out if the year over year improvement trends of Q2 and Q3 have continued into Q4, because from what we put together it doesn't look like year over year performance in Q4 was all that improved. Can you help us clarify maybe at least with the revenues, the gross profit, the SG&A and operating income numbers?

Well, I can't go into that level of detail but I can give you some sort of general guidance, if you will. Reminding everyone that Q4 is typically our worst quarter, so to the extent we've got costs that are very constant throughout the year like all the costs of our corporate overhead, that will be magnified in Q4. On top of that, in looking at some of the detail, our largest retail account was off fairly significantly in Q4 of 2011 versus Q4 of '10. That certainly had some impact on the bottom line. We also had -- in looking back at last year's Q4 we were somewhat over accrued in accounting fees throughout the year.

We had anticipated some greater fees than ended up coming to fruition. So in Q4 we had to reduce our accrual so we sort of had an artificially low accounting expense for last year in Q4 and this year was more typical. And then lastly, the timing of some of the legal bills just tended to accumulate in Q4 this year, although there was nothing -- they're typical kinds of bills we get. But they just tend to accumulate in Q4. So to answer your first question, we don't believe that this is an interruption in the trend of the business overall and we typically don't -- we don't focus on Q4 as much as we do the full year, when the year ends, unless there's something particularly unusual we identify and we certainly didn't identify anything that's of a negative nature going into --

I hope you understand the nature of this is that in Q1 you report year over year. Q2 you report year over year. Q3 you report year over year and best practices are for other public companies that they provide Q4 year over year along with full year results. I asked for it last year. I'm asking for it again in the future. And I'm going to have to wait a full year hopefully to see it.

It would be nice if you could join the rest of public companies in best practices and provide that information so we could compare things because it looks like and the best way I can do it is take your full year minus nine months and I don't even have the benefit of your 10-K to do it in detail that your revenues year over year reflect, I think you've just mentioned it's primarily Sears being down, offsetting the gains you've made elsewhere and that your gross profit year over year, gross profit dollars were flat year over year as well, and then the SG&A you've kind of explained. I don't see why that can't be provided and I'm registering my angst over that issue again and would hope I disclosure would improve.

Andrew, we'll check on that to see if companies of our size do that as routinely --

Companies your size aren't public.

All right. Andrew, the companies that are our size that are public we will check to see if it's a common practice. If it is, we will certainly do it and my apologies if we didn't do it this quarter.

Okay, well --

Having said that, I mean, you can't draw conclusions on any one particular quarter towards our trends. I think -- and also I think that you would remember -- you would recollect that somewhere in 2010, probably mid-year, was when things started turning way better for P&F, so we had a really good third quarter. We had probably a better fourth quarter than we normally would have.

Guys, I don't mean to be critical of your fourth quarter performance.

No. I understand -- (multiple speakers)

I'm most critical about the disclosures and your approach to this.

I'm with you. I'm with you.

I do want to note and be able to calculate, and know if the year over year improvements I saw in Q1, Q2, Q3 are starting to anniversary and catch up with us and to determine if we've still got acceleration or a trend here. That's all.

So noted and we will definitely take that into consideration, absolutely. But I will say, again, that the year was a very good year. The quarter was down a little bit, over last year's fourth quarter but I don't know if I would draw any conclusions based upon that statement. You know, I don't think that would be a fair thing for the Company. The Company has been rebounding very nicely and I don't know if I would draw any kind of conclusions based upon a slightly down fourth quarter because of the ins and outs that go on in year-end things as I know you're well aware. That's all I can say on that.

Also, your new directors got plenty of public Company experience and Howard Brownstein has got a bunch of experience. I'm sure they'll lend you some insight about what other public companies do in Q4 in terms of improved and comparative disclosures.

So noted. Apologize for --

Okay. So in light of the Q4 and its being flatter year over year than the last few quarters, can you give us a little bit of insight since we are in the very last week of Q1 as to how -- if Q1 versus last year's Q1 is carrying over this kind of flatness of Q4 or is it -- I know it's seasonally going to be improved but I'm talking about versus prior year, or if some improvement year over year growth, et cetera, is back on track?

Well, firstly, as you know, we don't give forward-looking statements like that on the earnings so I would be remiss if we did that and I won't do that. But I will tell you that, again, I don't know what else to say other than we're encouraged and we continue to be encouraged with our business. I hope that answers the question in some way for you. I'm not trying to be cute.

I wasn't asking for guidance in terms of expectations as much as January and February in the bag, I'm assuming you're monitoring the business on a more than once a quarter basis --

Yes.

-- internally.

Yes. We can tell you -- I certainly know what our performance has been actually for our first quarter. We would know basically now compared to our budget but I do not have the advantage, I'm sorry, of knowing, of looking at last year's first quarter actual reported earnings to tell -- I know how we're sitting compared to budgets.

Are you hitting your budget? Are you exceeding your budget?

Let me jump in. I want to say this. We do a fair amount of deep diving into the numbers at the end of a quarter and it is typical to have adjustments that could be material that you would not know about because we only report quarterly. So until we're required to report monthly, that's just the way we do things. So I wouldn't even want Richard to throw out any kind of number and tell you that it's going to be better or worse because by the time we're done with things it could be different so I don't think that's fair and I don't think we should go there, in all due respect.

All right, well you did $13.5 million in revenue last year and I'm just wondering if you're on pace to meet it or beat it.

Andrew, again --

Fair enough. I'll back out. I have more questions but let me let others in.

Okay.

(Operator Instructions).

Timothy Stabosz, Private Investor.

I would like to respectfully second Mr. Shapiro's statement. I felt like I was flying blind trying to look at the Q4 Earnings Release because there was no Q4 in the release and then I've got to dig out a nine-month's 10-Q and do some quick calculations and I'm kind of flying blind. It would be nice if that information would be provided. We own 9% of the Company and it would be useful if it were provided. I would definitely second what Mr. Shapiro was talking about in terms of disclosures. In that vein, Joe, could you possibly disclose the -- my calculation shows we were down ever so slightly on revenues for the fourth quarter versus the year-ago quarter. Can we get a sense of maybe what we would be without the retailer, mid-single-digit up or something maybe, some qualitative sense?

Yes. We would have actually been -- we would have been up a little bit, $200,000.

Okay.

It was primarily that.

Could you possibly provide an operating income number for Q4 versus year-ago Q4?

I'm reluctant to do that because I'm looking at something that I just put together this morning and I don't want to say a number that might not be correct. Obviously, you can get it by -- I guess you can't get it. But we're going to fix that going forward.

Okay. Thank you. Now, let's see here. Talk about Sears a bit, if you can. I guess the question I'm wondering is if what's been in the media lately -- are they doing anything different in terms of internally that you're aware of in terms of re-evaluating contracts or anything like that? We've had a long-standing and a close and a strong relationship from everything I'm hearing with Sears but is there any sense that they're digging or drilling down deeper with their five years of same-store sales declines and whatnot. What is our position with them? How would you characterize it?

Well, our position continues to be pretty strong. If you read between the lines on all of the discussion or not even read between the lines but look at some of the detail, they continue to talk about Craftsman being -- doing reasonably well and being the strongest part of that business. And while certainly sales were down a little bit, we're not unhappy with our performance there and our relationship there and maybe you were hinting at whether they're coming after us, trying to beat us up. I'm not sure what you're getting at.

Looking, all their contracts to see if they can squeeze on cost and hire somebody else to do --

Look, they have a lot of power with their vendors especially ones that are smaller than they are, such as us, but we feel that we've got a fair amount of respect inside of that organization and while we certainly do have discussions with them regularly on the pricing of product, there's nothing unusual about what's going on or what has gone on with our relationship there.

Yes. Yes. Now, it seems to me like historically until recently -- I don't know how far back this goes -- P&F has given some type of qualitative guidance. Am I wrong on that? On future -- on the next quarter, about each division or something that expects gross margins in this division to be up or sales. When did we stop doing that? I didn't notice that in this press release and I didn't notice it in the prior one but didn't we used to do that?

It's got to be four, five, six years, at least since we gave any kind of guidance.

Not that long.

Yes.

No, no, not that long. No, no. Well, anyway, we stopped doing it I guess?

Yes, we have stopped doing that.

Tim, I don't know if it's four years but it's certainly been many years. It's been quite a while.

Can you speak generally to -- this deals with I guess earnings in a sense with shareholder value. To the degree that some of the large shareholders like myself hold this Company because we see the assets are, I believe the asset value of the Company is higher than the book-to-value, certainly the current stock price, and if you look at that asset value and think, well you want to get a decent return on equity on that, certainly double-digit, so the Company needs to earn say $1 a share to justify maybe staying public.

Do we have a vision for how the shareholders are going to be rewarded in the intermediate to long term that the returns are going to be there and what type of process is management using to determine whether or not we're going to reward the shareholders through growth in earnings which kind of gets to the heart, I think, of Mr. Shapiro's question about what we're looking at for this year on earnings. Because if we only earn $0.60 this year or $0.50, the return on equity based on a true valuation of the assets is still single digits. Are we looking at that question -- can you speak to the broad shareholder value question I'm asking there, please?

Yes, Tim, we have -- at the Board level we have a strategic planning committee. This is specifically the assignment that they continually have and we have, at every Board meeting we have a report from that committee, and so it's a constant process. I'm not saying -- I'm not going to delude you by saying that we've come to any conclusions. But, it's something that we visit on a very regular basis and they're looking at not just quarterly at the Board meetings, but there's discussions at all times. It's not something that goes unheeded. It's just where we are at this time. But it is something that we definitely look at. I don't know if that answers your question, but it's something that we definitely do.

Is that a change from previous procedure?

Yes, we only started that in the last I would say 12 months.

Okay. Okay. I'll get back in queue. Thank you.

(Operator Instructions). Andrew Shapiro, Lawndale Capital Management.

Thank you. A few follow-up questions. With respect to Sears, I had asked you guys about this and you said to hold off until the conference call so hopefully you can answer a few. You said in your press release that the decline in sales to Sears was mitigated through sales of basic items and accessories, versus a reduction in the amount of promotions. Is this -- I just want to confirm that the increased sales of basic items and accessories was to Sears, not to other different customers that you were referring offsetting the decline in Sears promotions?

No. We were referring to Sears.

Okay. And what types of products do you mean to be basic items and accessories versus I guess what would be the otherwise the promotions?

The basic items and accessories are our suite of air tools which I think at Sears, might be off by a couple, something like 15 or 16 tools, and the accessories are non-standard things like we have stools that we make for Sears that say Sears Craftsman on them that are very popular. That's probably the number one item that we sell that's a non-standard item, that's a promotional item that just goes out once a year. There are a few others.

Okay.

Andrew, typically they have Father's Day promotions, they have July 4th promotions, they have various promotions in their own business and sometimes they have tools of ours that go in those promotions and sometimes they don't. I would say last year was one of those years that they didn't have an awful lot of those things and right now there's not an awful lot of them for this year.

Right.

Those tools are not the standard tools. We generally don't take one of our 15 regular SKUs and put it together in a kit and do a special on it. It will typically be a specially-designed tool. It's developed to sell at a promotional price.

Right. Okay. Now, does P&F provide product that finds its way into the Sears Hometown and Sears Outlet business branches that Sears is looking to separately spin off as a separate Company?

Yes, it does.

And do you have insight as to whether or not then you will be in a sense separately selling to this new separate business and it will be a different buying department and arguably evolve into a separate customer?

We can only speculate because we don't know any more about that than you do, but we can say that we do sell tools into that group. It represents about 10% of our revenue. My guess, it will be spun off with its own buying department and own warehousing system and own credit. That would be my guess.

You say 10%. 10% of what you sell to Sears or 10% of total P&F?

Sears, just 10% of Sears.

Okay. 10% of the Sears business. Got it. All right. I'll ask about that in future quarters to get a feel for when and if that's firming up, just to figure out if our relationships with the new buying group at the new customer are stronger, status quo, or weaker than our relationships that we've got going with the long-standing relationship at Sears. All right?

Okay.

Any idea how much product found its way into the Sears -- the 11 Sears store that found their way to being sold to the landlord at General Growth Properties?

It was an immaterial amount.

It's always hard for us to measure, Andrew, that kind of stuff, but it's something that we definitely asked a question about and our people can't always pinpoint. But from what we can glean, it seemed like an immaterial amount in that particular case.

Just so we're clear, we don't really know in-store sales by product. They don't really give us that.

In this instance, these stores are going to be bull dozed or closed or rebranded by general growth such that that's going to be less stores that Sears has to inventory. So just getting a feel for --

Our understanding is that those were very poor performers and per management, they were not aware of any of that group being particularly large buyer of our product.

All right. I would think the Ala Moana Boulevard, Honolulu one, albeit worth a lot more not as a Sears was a good-performing Sears.

Yes. Again, --

-- that was a crown jewel they monetized.

Andrew, honestly, we'd be guessing.

I understand.

They don't share that stuff with us. As much as some retailers do, they don't.

In August it was announced Sears Craftsman would start getting sold via Costco. Has that started to happen and are any of the tools that you provide through the Craftsman label finding its way into the Costco channel?

Not to my knowledge.

Not to our knowledge.

Okay. All right. I'll back out. I have more questions, though, please.

(Operator Instructions). Timothy Stabosz, Private Investor.

Thank you. If I may ask, is management expecting an increase in both revenues and operating income in 2012 over 2011?

Tim, we don't give guidance.

Tim, again, that's something we haven't done in quite a long time at advice of counsel. As much as I would love to answer that question for you, we've been told we can't do that for various reasons that our lawyers tell us. I hope you understand. But I would say that we're happy with -- not happy -- we're feeling good about our business. That's the best I can -- that's the most I can say to you and whatever that means to anybody, I guess it means, but that's the best I can say to you and I hope you understand that we have certain restrictions because we don't give those forward-looking statements.

Okay. Now, the compensation increases of component of cost would be more normalized this year, right? Did we restore everyone, pretty much? The cuts that were made were 5%, I believe. That all came back in 2011 and people are, what, back to where they were. Of course, you're taking a reduction in your salary, at the renewal this year as announced previously. But are we otherwise normalized on increases or do we have more -- I won't use the word excessive increases but more larger than normal increases to pay?

Yes. What we did on January 1 was we reinstated, happily we reinstated our employees. One time, it caught them back up to where they were.

Versus 2011.

Whatever the cut was that we did two years ago we reinstated it one time. I think it was 5%.

January 1, 2011, right?

Yes, 2011 and then we had a regular normal increase in Q1 for all of our employees and we're trying to reward people for having business as usual so we had a regular normal, nothing abnormal, across the board, basically Company-wide, increases, a little bit in March and some of it is again mid-year. It depends on the anniversaries of each Company.

Okay. Okay. So --

it will be normalcy. Won't be anything unusual, if that's what you --

The point I'm getting to, as far as earnings go is that to some degree some of the earnings improvement was quote, unquote, masked by the restoration of --

Yes. That is true.

Yes.

And we will have as a bit of a backwind, wind at our backs this year, right?

Again, I don't know, but that's a fair conclusion you could make.

Well, I mean, I don't know if it's going to be wind at our backs because we're going to have people getting regular increases, obviously it won't be the all across the board, January 1, 12 months of impact but it will be more normal year where people typically get raises.

If you recall from the press release, I think it was if my memory serves me it was $1.3 million adjustment for the Company-wide reimbursement of their pay cut and I think whatever the normal raises are going forward, they'll be in the normal course of business and not all in one quarter, so it's -- because each Company has different anniversaries.

Was there a double pay increase then in 2011, a restoration of the old and a regularized increase too or no?

No, just a restoration.

Okay. And then finally, I hope I can ask this question. I appreciate your indulgence, Richard, it's a material question that I think shareholders want to know. The Company has announced the stepping down of Mr. Kalick from the Board and a new director is being appointed, suggested by the Board, I guess. Can you reassure the -- I appreciate your indulgence here -- the shareholders publicly here that this new director is not in any way personally tethered to you and that he was sourced, maybe tell us how he was sourced and that he's not connected to you in any way?

Again, I don't -- I appreciate the question. I don't know why it always comes down to those kind of questions but since you asked the question I'll tell you --

Thank you.

I never met Mr. Randall, never heard his name until such time that he was nominated, suggested to us by our Board members and our nominating committee and I met him subsequent to that.

Thank you for answering. No offense.

We plan to make all required disclosures in our proxy. Of course, he's not a director yet. He's running for office. He has to be elected. But I've only met Mr. Randall twice at this point I would say. And both in the last 45 days, I guess.

Okay. Thank you.

Hope that answers your question.

Thank you for providing information. Thank you. That's all from me.

(Operator Instructions).

Andrew Shapiro, Lawndale Capital Management.

Thanks. Actually I appreciate your answer to that last question about Mr. Randall and as a result I would probably expect our 10% to vote for him. The next questions I have is can you talk about how did or how does typically seasonality of Q4 impact revenues, gross margins, your SG&A and other costs?

Well, Andrew, as I said before, we've got a certain amount of fixed costs here, as you know and have talked about many times, it's not a small number. So as revenue falls, those costs -- SG&A as a percentage of revenue is going to go up. Gross margins are generally going to go down. And Hy-Tech specifically has a tremendous infrastructure to support, so they're very much driven by operational leverage. I can't give you specific percentages.

No, no, no. I understand that. What I'm talking about is can you qualitatively describe the seasonality of Q4, what occurs in Q4 that impacts revenues?

Okay sure. Absolutely, I apologize. By company, I'll start with the most significant gyration would be at Nationwide. Nationwide's business is primarily driven by its fencing business which is a business whereby which people are installing these fences. They don't install fences in frozen ground. So as you start to get into the fall and the weather is colder, there are certain parts of the country, they're not installing fences probably in November, other parts December, then January.

Other parts of the country they do it more often. Obviously you can install a fence in Florida year-round. But we have a national business, all 50 states, so that's a very simple explanation. That's what's going on there. So we are putting most of our revenue in the season where the ground isn't frozen.

Okay.

-- which, we'll call it eight months, nine months total but really it probably is even shorter than that, the season. So that's Nationwide. At Hy-Tech, they generally experience a slowdown for the holidays. And, again, people doing the buying, there's just less of them around in November and December. We have employees that take a lot of vacations in that period of time and to some extent our sales are driven by availability of our own labor, even if we had orders, if they get above a certain level we just would not be able to have -- to ramp up the labor to derive those sales. That's the story at Hy-Tech. Florida Pneumatic, a lot of Sears business is shipped in Q3 and Sears tends to weaken orders in Q4 as it doesn't want to have too much inventory going into any new year. So that's are your basic explanation on --

Okay. (multiple speakers) Is there in terms of pricing for margin or just overhead absorption for margin impact and with respect to SG&A, any particular fixed SG&A cost that hit inordinately or weaker in Q4?

I would say generally, no, there isn't any particular -- we try to -- we don't move things around, the bills come in when the bills come. What can happen in Q4 is we take -- we do at the end of every quarter, but obviously at the end of the year as well, is take a look at all of our reserves and to the extent you have to make an adjustment there, you've got an adjustment in Q4 that theoretically belongs somewhere else.

That could go either way, though.

Absolutely. It could.

All right. Let's move on, then. CapEx. You mentioned specifically about an increase in the line of credit for some CapEx plans. Can you describe your major projects or major equipment plans for the coming year and the timing of when you'll be spending this money?

We have two major pieces of equipment that were planned for 2012 at one of our subsidiaries. One is already in-house, and happily to report, reporting operating and working well and doing exactly what we -- actually, more than what we had hoped it would do. And the other one is due in somewhere around mid-year, July or something like that. So that's the bulk of our CapEx because that's our real one manufacturing Company. But having said that, there are other things like displays and whatever normal course of business.

I meant major.

Major things are the two I mentioned to you which represents the greatest portion of that CapEx for the year.

And what's --

It's a very good thing for us because it will accommodate us and make us be able to run a second shift without people around and running them and it's state-of-the-art stuff where some of our equipment is older and a little more suspect to breakdowns, et cetera.

Timothy Stabosz, Private Investor.

Just one other question. Joe, put on your thinking cap. I've got an interesting one for you here. Do we have any sense, even if you can ballpark this if you consider it, of our pro forma consolidated peak revenues for the current business? We reported $54.5 million for the year ended December 2011. Do we have any sense of what the previous peak consolidated was for all our businesses combined? Was it $100 million? I know we don't have the staircase parts division anymore. I'm trying to get a --

Since I've been here?

Yes. (multiple speakers)

Again, are you asking me to take out stair business or just --

We don't have it anymore, so yes.

I can tell you it's $110 million but that includes everything. I can't sit here in my head and extract stairs.

Tim, I think the question you're asking is, without the stair business, with the three companies that we have presently what is our total that we did in our best time.

It would be higher than this.

It would be higher than this.

Nationwide peaked at higher than this. Hy-Tech, I don't remember, but I believe '08 was higher than this. I could be wrong. And Florida Pneumatic used to have a couple of other retail accounts and their revenue number used to be a fair amount higher than it is. So we're not at our peak if that answers your question.

If you recall, we had another retail account. I don't know if t it predates you or not. We had another retail account four years ago and we had another one which was probably 10 years ago, maybe 12 years ago, that we did probably $5 million worth in those days. They've been gone a long, long time.

Sears used to be a lot bigger.

Sears was a lot bigger -- (multiple speakers) I'm sorry?

I'm sorry, Richard. I guess what I'm getting at is the economy's been growing for two or three years now and we've been coming back. But, one of the things we say qualitatively, you guys say call qualitatively in our financial releases is that, sluggish economy, sluggish economy. Yes, I guess it's sluggish but it's growing. But the implication seems to be that when the economy gets better we have the possibility of ramping it up so-to-speak and have a considerable amount to make up potentially. Is that the case?

One thing for sure, as you know, the Nationwide business is very much affected by housing starts and housing starts have not budged. We're still at -- I don't know what the number is, 400,000 starts, 450,000? We peaked at 2 million.

Okay.

So I would say we're still in the doldrums there.

30% of revenue. (multiple speakers)

Absolutely. The other two businesses are more driven by, I would say Florida maybe partially general economic trends and then partially manufacturing, and then Hy-Tech, almost all manufacturing and also oil and gas business which is up and down.

I think the people that I speak to and I speak to a wide array of people in all sorts of industries, I don't think anybody is saying that the -- neither are we -- that the economy is robust. I think that they're all saying that it's kind of like catching its breath a little bit and it's starting to move but I don't think we would think here that the economy in the last two years has been doing better. I would say in the last six months or so it's starting to gradually get up but it's not doing anything in like heroic numbers but I think we're ahead of the curve. That's the best -- you know, in that regard, I think we're ahead of the curve.

Nobody asked about -- I don't want to belabor this. No one asked about a dividend or stock buyback as far as enhancing value; there's earnings growth but there's also other means. Any comments on that, Richard?

We talked about a stock buyback at our last Board meeting, Tim. Not the last Board meeting, the meeting before that. And the collective wisdom was we want to grow the business so we want to save our money, save our reserves to make an acquisition to grow the business again to warrant being public and to grow the business. So I think right now our qualitative decision is to not buy back stock, even though we have a stock buyback -- no, we don't have a stock buyback program right now. But right now we decided not to. That doesn't mean we won't revisit it even after our annual meeting and look at it again but I think our emphasis and our interest would be to grow the business.

Okay. So therefore, not a dividend pay then either probably, for the time.

No.

No, sir, not right now. No.

Okay. Thank you very much.

Okay.

Andrew Shapiro, Lawndale Capital Management.

You answered the first part of my question on CapEx. My second part of my question, on your CapEx, I had asked about, was in which subsidiaries these two bigger pieces of equipment were going into and what was your payback or return expectations on these expenditures that it sounds like you're hitting.

Both of them would be Hy-Tech and I don't have them in front of me, but our typical requirement is something north of a 30% return on our investment.

Great.

Having said that, though, also a little piece of thinking behind these pieces of equipment, we're replacing things that were from the year of the flood and we were concerned that they were going to break and we would have disruption in manufacturing, et cetera, so a little bit of that was also --

We have to factor that in as well.

It's preventative, okay. New product development anything in particular or big that you guys are working on or just rolled out?

No, I don't think there's anything. They're all incremental, certainly we're going to have newer items this year but nothing -- I can't tell you that there's going to be any single roll-out that's going to be hundreds of thousands or dollars or anything like that.

We have a very robust new product mission in each of our companies but each one of them are not dramatic. Cumulative, they become more meaningful but none of them are game-changing so-to-speak, but we do have a very robust in each of our companies, and we have schedules and we discuss it every month at our monthly reviews, every single month.

Any nonrecurring costs that were built into this current quarter ended December?

Not to my knowledge. Joe?

Nothing jumps out at me. There's things that were timing related but I can't think of nonrecurring.

You had huge unabsorbed overhead as of the prior quarters. Are you still at around 50% operating capacity?

Yes.

Okay. Your NOLs were sizable. You had a year of profits. What's left and what about those NOLs here at the end of the year and your now sustainable profitability resulting in the booking of the deferred tax asset. It didn't look like it made the balance sheet this year.

We did not change the valuation allowance.

Okay. And what is left on the NOLs?

We're going to check.

While you're checking that, when do your credit lines come due and what are your refinancing plans toward longer term capital.

Would be October of '13 and I don't know that there's anything to be done about it at the moment. We've got tremendous capacity and the bank is thrilled with us and we're thrilled with them and right now we're not doing a whole lot about it other than keeping them informed about our business. Should we have a need for additional financing in our plans, we would speak to them well ahead of time. I'm not sure if that answers your question.

Well, if it's October '13 it's due that means in October of '12 only six months from now it's going to become current maturity long-term debt. Are you going to be able to focus on getting the duration extended ahead of time so it doesn't have to mess up our working capital reporting?

I'm not sure what you mean by messing up our working capital reporting.

You take your debt instrument that's currently long-term debt and you reclassify it as current maturities long-term debt in size, that's not usually -- doesn't look good in one's calculations of balance sheet liquidity.

Well, I don't know that I would begin negotiation with the bank 14 months ahead of time so we could record something in long-term versus short-term. To me, that's just window dressing it. We will have those negotiations when they matter and we may have them long even before that if something warrants it and if I felt that there was any issue about getting it renewed or extended regardless of the financial statement presentation, we would be dealing with that sooner rather than later but I don't know that I would specifically start discussions early just so we could record something differently. That doesn't make any --

Joe, I've been a member of the Board of Directors and I don't mean to simplify it as a classification issue. But you're dealing with a loan and line of credit right now that is supported and collateralized by the underlying real estate and as you know from the enormous amount of time and expense this Company went through in its most recent financial precipice, that it takes a long time to do the paperwork. If you were to switch lenders and if you put yourself and this Company into a position where it cannot easily and cost-effectively switch its lenders, you can imagine the negotiating position we have vis-a-vis our current lenders and you may be on good terms, but at the end of the day they're still lenders and their goal is to squeeze and get the highest amount of money out of our hide that they can. So I'm not talking about just classification. I'm talking about preserving the Company's negotiating options.

Andrew, let me answer your question this way. I continue discussions with multiple vendors regularly.

Good.

Almost monthly. I have lunch with them. We talk about the numbers. We talk about our business. We talk about their opportunities. They are beating down our doors now trying to get our business which is exactly what I expected to happen when this turned around.

Yes.

So it's all about our financial situation. It's been my experience, been here 15 years, that when things are going well I've got a dozen lenders that want to lend me money. When things aren't going well I've got nobody. And I can't do anything about the supply.

Okay.

I can run the business. We can run the business and that's what we're doing.

Joe, that means in the next six months I think we all expect the Company's going to be doing well. But a year from now which would be six months before expiration, that's a little bit further out. You guys might not be as comfortable in projecting where we might be. So it would be best to get one's financing on an intermediate term pinned down, locked down, while things are good and everyone's banging down your doors rather than having to seek to refinance this debt with our current lenders when things might be tougher.

I hear you.

That's all you have to say.

And I too understand your point, Andrew. Last year on our anniversary which was in October we had a discussion with them. We changed the terms of some of the things in our agreement and I would imagine if things continue in the way that they have been we will have another discussion with them this October and maybe discussions at that time will be perhaps extending the length of the agreement, renewing at that time. Who knows. We're not waiting until the 11th hour if that's what you're asking.

Yes.

No, we have no intention of doing -- maybe I misled you in that. We have no intention of waiting until near the expiration. Whether it's 14 months ahead or not we can have an argument about.

My interest wasn't just the classification interest then.

I get that. I get that.

When do you expect to file the 10-K?

Friday.

Okay. The director and employee stock purchase window opens in the near future. Have my concerns about insider ownership outside of Richard resonated at all? I only notice that the shareholder ownership of our past nominee, Howard Brownstein is the only one who has increased. No other director seems to be ponying up or bringing money to the table to buy stock while the window's open and things are cheap. Am I mistaken and I've missed someone else's purchases at all?

I believe one other director purchased stock or -- yes, I believe one other director did purchase stock and I know of one other one who has expressed an interest to me that he wants to. But again, I know your position on this and I may agree with you but having said that I'm not telling people how to spend their money. You say it. I reiterate it. But we can't force people to do -- (multiple speakers)

Technically the Board could choose to. Actually, the Board could adopt a policy of an expected level of share ownership of its directors and its senior officers and maybe the Board's governance committee ought to consider a viable targeted share ownership amount rather than just a ton of 10 year excessively long duration options but to have people have real vested money in here because then the balance between issuing a dividend, buying back stock versus accumulating cash to make some acquisition and the decision on how to make a good acquisition would all resonate a little bit more since everyone's pocketbooks might be involved. So it's a governance committee -- pass this along, the idea of maybe adopting a share ownership type of policy for both directors and senior officers. You obviously qualify, Richard. Okay.

Yes. I got you, Andrew.

Property escrow litigation, you were pursuing $200,000 of, you felt, interest compounding that had not been awarded. What has been the result of this appeal or can you update on the time frames and status of the appeal, please?

I'll let Rich Goodman handle that. Rich?

Andrew, as everyone knows, we were awarded and paid about $702,000 in connection with that and we're in the process seeking appeal of an additional $225,000. The appeal's under way but there's nothing really material to report on that yet. Once there's something to report, we will let you know. There's nothing to update you on yet.

Well, has the appeal been argued orally yet?

No, it has not. I would rather not get into these small iterative updates. They'll be stale when we're done speaking. It's an ongoing process.

We cleared the first hurdle, but you knew that already, I guess. (multiple speakers)

Which was finally in the appeal.

No, it's in the hand of the Court of Appeals.

It's in the hand of the Court of Appeals now.

Yes. You filed the appeal. Oral arguments are not yet scheduled?

I'm not sure of the date of the scheduling of it but, again, it's ongoing and there's nothing really more to add to it at this point.

What is the name of the case and what Court of Appeals is it in? Would you e-mail that to us?

I'd be happy to.

Okay. So we have increased profits year over year. You paid down debt quite a bit. In fact, from my look of it, as you know, I've been in here for well more than a decade, almost two decades, this Company has paid down debt to the point where I believe our debt-to-capital and our debt-to-equity ratios are probably amongst the lowest they've been. They're certainly the lowest they've been in maybe a decade. You've mentioned the Board considered a buyback and it considered its small size and fixed costs and thus the benefits to be gained by growing the Company through an acquisition and all. Can you give a little bit of focus to us or guidance as to the areas that the strategic planning committee or the Board has identified or tasked management to look for these acquisitions, if there's some focus on this, and what you're finding out there?

Right now we've been focusing in the tool area. Is that the question you're asking us?

I'm asking for this kind of information, yes.

We've been on a search for the last four months, I guess, five months, and our first focus is in that area. We've had a few candidates, we pursued a few. We're still in the midst of doing a few right now but that's the area that we first want to go at, in the tool area.

Okay. When you talk about tools, are there pneumatic players that are out there or it would be beyond pneumatics?

It would be in pneumatics for the most part.

In pneumatics. Okay.

Yes. We want to stay in our area of expertise.

So it then would be smaller acquisitions because you're a small Company already. And are you finding a lot of opportunities to even consider and the issue is valuation multiples? What are the hindrances of finding the right one at the right price?

I would say it's not a matter of price. There's just not that many opportunities, to be honest.

But we're looking. There are a few that are still breathing heavy. It's an ongoing thing. But they're breathing heavy, but they're still breathing.

Yes. Right. Okay. I don't have any other questions at this time. Thank you for your answers.

Thank you, Andrew.

Thank you.

(Operator Instructions).

Timothy Stabosz, Private Investor.

Hi, just one final thought or comment. I did want to second what Mr. Shapiro had to say about the purchase of stock by insiders. It's been very disheartening to me as a large holder of the Company that long-standing legacy directors haven't bought stock. We were as low as $1 a share. It's an expression of faith by long-standing directors. Some people have been here 10 or 15 years, upwards of 20 years.

Some of them have almost no position to speak of their faith in one, frankly you Richard as a manager and the Company itself and its strategy and what it's doing. We asked for this before. I support what he's talking about, Andrew, in the conference call which is mandatory ownership requirements and I'd like to see directors especially long-standing directors have a vested interest in acquisitions and that the right thing is done and to note they're aligned with me as a large holder. It's one of the reasons I asked to be put on the Board a couple years ago, by the way is that my interests are aligned because I'm a large holder. Please consider that.

I'm happy to consider it. Last count I have, I think I have five directors that own stock in the Company.

Yes, but --

Counting myself, of course. But of course we'll bring it up. As we said to Andrew, we'll bring it up again.

The long-standing directors have immaterial positions, some of them, except for Mr. Utay and Mr. --

What's immaterial to you may not be immaterial to them. I'm not judge and jury of that. Dubofsky has 20,000 some-odd shares. I know Brownstein and Scheriff have stock now. Whatever. I understand what you're saying. I understand what Andrew's saying. So noted.

Thank you.

And we have no further questions in the queue.

Okay. So I'd like to thank you all for taking the time today, for your patience on the call. We look forward to speaking to you at our Q1 call. Thank you so much.

That concludes today's conference. Thank you for your participation. You may now disconnect.