P&F Industries Inc (PFIN) 2017 Q3 法說會逐字稿

Good day, and welcome to the Q3 2017 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Richard Goodman, General Counsel. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to the P&F Industries Third Quarter 2017 Conference Call. With us today from management are Richard Horowitz, Chairman, President and Chief Executive Officer; Joseph Molino, Chief Operating Officer and Chief Financial Officer.

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 on the company's historical performance and current plans, estimates and expectations, which are subject to various risks and uncertainties, including but not limited to, exposure to fluctuations in energy prices; debt and debt service requirements; borrowing and compliance with covenants under our credit facility; disruption in the global capital and credit markets; the strength of the retail economy in the United States and abroad; supply chain disruptions; customer concentration; adverse changes in currency exchange rates; impairment of long-lived assets and goodwill; unforeseen inventory adjustments or changes in purchasing patterns; market acceptance of products; competition; price reductions; interest rates; litigation and insurance; retention of key personnel; acquisition of businesses; regulatory environment; the threat of terrorism and related political instability and economic uncertainty; and information technology systems failures and attacks; 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 most recent annual report Form 10-K, our quarterly reports Form 10-Q and our other 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.

Good morning, Richard. Thank you, and good morning, everybody, and thank you all for joining us this morning on our Q3 conference call. I will begin today's call with a brief summary of the company's results from continuing operations for the 3 and 9-month periods this year and how this data compare to last year's same periods. However, I direct you to our release earlier today for more information. The releases this morning present the P&F's balance sheet, statement of operations, per share data, along with most of our management's discussion and analysis.

I also wish to remind you that the purpose of our call this morning is to discuss and review the company's results for the 3 and 9-month periods ended September 30, 2017 only. As such, I kindly request that you to please confine your questions and comments to these topics. I will then ask Joe to briefly review key cash flow information and provide an update on key events affecting the company, after which we will move to our normal Q&A session.

The company's consolidated revenue for the 3 and 9-month periods ended September 30, 2017 was $15,782,000 and $44,357,000, respectively, compared to $14,633,000 and $44,769,000 for the same periods in 2016. Florida Pneumatic's third quarter revenue this year was $12,295,000 compared to $11,702,000 during the third quarter of 2016. The improvement over the year -- prior year's third quarter was due to Jiffy's aerospace revenue plus increased revenue from its industrial product line, partially offset by decline in its retail and automotive revenue. Florida Pneumatic revenue for the 9-month period ended September 30, 2017 was $34,936,000 compared to $35,270,000 for the same 9-month period last year. The primary cause for the decline was the reduction in Sears business, and to a lesser extent the decline in automotive sales, partially offset by Jiffy's revenue. Hy-Tech's revenue for the 3 months ended September 30, 2017 was $3,487,000 compared to $2,931,000 during the same period 2016. For the 9 months ended September 30, 2017, Hy-Tech's revenue was $9,421,000 compared to $9,499,000 in 2016. I am pleased to report that we are again receiving orders from a major customer that have placed little to no orders during the latter portions of 2016 and the beginning of this year. Additionally, as of yesterday, Hy-Tech has open orders relating to its new marketing initiative of $771,000. Lastly, Hy-Tech's total open orders at September 30, 2017 has increased more than 52% compared to the open order level at September 30, 2016.

The company's consolidated gross margin for 3 and 9-month periods ended September 30, 2017 [were] 35.4% and 36%, respectively, compared to 30.8% and 33.6% for the same periods in 2016. Improvement in Hy-Tech's gross margins was the driving force in the improvement. Key factors contributing to the improved quarter-over-quarter gross margins are better product mix in Hy-Tech's third quarter 2017 sales compared to that in 2016, greater overhead absorption, and lastly in the third quarter of 2016, we adjusted Hy-Tech's allowance with slow moving inventory. An increase in Florida Pneumatic's third quarter gross margin was due mostly to product mix.

Our selling and general and administrative expenses for the 3 and 9-month periods ended September 30, 2017 were $5,352,000 and $15,765,000, respectively, compared to $4,915,000 and $15,088,000 for the same 3 and 9-month periods of 2016. The most significant factor, of course, affecting this 3 and 9-month changes was the addition of Jiffy's operations into our numbers, which for the quarter was $575,000 and for the year-to-date $1,025,000.

Our interest expense during the third quarter of 2017 and 2016 was $50,000 and $26,000, respectively. The increase was driven by the acquisition of Jiffy in April of this year, which was funded through borrowings from our revolver. When comparing the 9-month periods ended September 30, 2017 and 2016, total interest expense was $124,000, driven by short term interest, and $164,000 in 2016, consisting mostly of amortization of debt issue costs.

Taking all of the above data into consideration, for the third quarter of 2017, we are reporting a pretax income of $171,000 from continuing operations compared to a [pre-loss] from continuing operations of $393,000 for the same period a year ago. And for the 9-month period ended September 30 this year, we are reporting income from taxes -- before taxes, excuse me, from continuing operations of $104,000 compared to a loss before taxes from continuing operations of $8,462,000. On an after-tax basis, for the 3 and 9-month periods ended September 30, 2017, we're reporting net income from operations of $5,000 and net loss of $38,000 compared to net losses of $286,000 and $5,590,000 for the same periods of 2016. Again as a reminder, I refer you to this morning's press release for more additional information.

And last but not least, in August 2017, we paid a $0.05 per common share quarterly dividend. And yesterday, the board met and we announced -- and approved a $0.05 per share common dividend, excuse me, $0.05 per common share dividend, which will be paid November 27 to shareholders of record at the close of business on November 20.

At this time, Joe Molino will discuss our cash flows. Joe?

Thanks, Richard. Capital expenditures during the first 9 months of 2017 were $444,000 compared to $894,000 during the same period in 2016. Significant noncash items affecting our cash flows during the first 9 months of 2017 were depreciation and amortization of $975,000; amortization of other intangible assets of $620,000; amortization of debt issue costs of $42,000; restricted stock-based compensation of $30,000; and deferred income taxes of $142,000.

Other significant components which impacted cash provided by operating activities of continuing operations during the first 9 months of 2017 were increases of $2,252,000 in accounts receivable; decreases of $1,468,000 in inventory; and a decrease of $2,154,000 in prepaid expenses and other current assets.

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

Thank you, Joe. And I would like to close and thank and acknowledge all of our employees and management for doing such an outstanding job during these continuing economic times -- challenging economic times. All of us continue to believe in our companies, products and customers. And with hard work and perseverance, P&F will continue to improve.

That's the end of our report today, and we'll be happy to answer any questions anybody has. Operator?

(Operator Instructions) We'll take our first question from Andrew Shapiro from Lawndale Capital Management.

Thank you for some detail in the script regarding the Sears wind down. I do have a few other questions, just to hopefully fill in some blanks, if you can help on that topic. So during the quarter ended September, the one we just completed, we made our final sales to Sears and you have disclosed that there's no more inventory for Sears. We basically sold it to them and at the end of the quarter was $1.1 million of receivables at September 30. So can you give -- are you comfortable with and can you give us insight as to how much revenue in Q3 was attributable to Sears that we obviously would have indication won't repeat in Q4 and we kind of just know what the bucket is to refill?

I think, we've decided that we're not going to disclose that. We haven't typically broken out customers revenues when there are large fluctuations. So we're just determined not to give that information out at this time.

Okay. And I then assume, in terms of understanding the bucket to be refilled, that would extend down to letting us know what the gross margin or gross profit was?

Yes.

Okay. (technical difficulty) I mean, I just want to get a feel for what was -- what the remaining bucket is. I know it's been winding down and it's not -- wasn't as high, I guess, in Q3 as it was earlier in the year anyway?

Yes. It was dramatically lower all year and was dramatically lower last year than the year before that. I mean, it's a -- without saying [with our voices telling us not to say] but it was a dramatically lower number. So not a significant...

Yes. I mean, the business -- I would state this and I think you probably can fill in this from this press release and the several before that, even apples-to-apples, the 9 months this year for Sears were quite short of the 9 months for the prior year. So as we were winding it down, sales were also dropping. Now I don't know -- we can't know for sure if that's related to them possibly beginning the source from other places, since we didn't have really access to that. It could just be their business is shrinking, which we certainly know if you read the press, it is. But it was dramatically less than it was a year ago.

All right. Well, I mean, my only care anymore about them would just have been what's the hole to fill in particular frankly is the hole to fill on the gross profit line item, because there's always very low margin anyway.

Yes. That's a good point. The gross margin probably wouldn't even help you very much. As I think we've stated before, the contribution margin of that business is in the low double digits.

Right. Because I don't really care -- I'm not one that says, oh, the revenue level. It's more the contribution profit towards the overhead costs. Okay. So now we have this receivable, which you said is approximately $1.1 million at September 30. Here we are at November 9, I think you mentioned -- I don't know, are they on 90-day terms, 30-day terms? Can you give us an update as to what that number is down to just to give us some more comfort that the risk from them is reducing and it gives us some more confidence in your estimate that the receivable will be 0 at the end of the year?

Yes. So we're not going to give the exact figure, but I will tell you this. We ship Sears every week, some weeks are bigger than others...

Up until September 30.

Up until September 30. And while their normal days outstanding are 60, [there are number at] 75 or 90, some are 90, some are 60, the bulk are 60. So we are probably halfway through really, I would say, the bulk of what the outstanding are in terms of the number of weeks that have elapsed and in terms of number of weeks we expect to get paid. So we're getting paid on time. Nothing's changed. They're working it. It's getting worked out in the ordinary course, and we see no reason that, that will continue ratably between now and middle of December.

Okay. And the last question on the Sears side here was the inventory. You made reference that you sold all of your inventory pretty much to Sears and that the rest you would expect to sell to Stanley Black & Decker. They haven't really been a customer of yours in the past. Is there some form of arrangement that was created here? Are these more standardized products? What gives you comfort that these are going to get sold to Stanley Black & Decker? And is it in the ordinary course or is it just in the next 3 months or might there even be a longer term relationship to be developed supplying them?

All right. There is no contract with Stanley Black & Decker. As soon as they were made aware that we were winding down the Sears relationship, they reached out to make sure that they had no disruption in their supply, because a number of those same SKUs that they were going to be selling were part of the suite of products we sold to Sears. So we agreed to help them out in the transition, make sure there was no issues with them, that product -- most of that product is shipped. Whether there's going to be a continuing relationship with Stanley Black & Decker remains to be seen. It would be great, but there is no formal arrangement with them, and we don't really know what their ultimate plans are.

Okay. So those are my questions on the Sears thing. I think it's a great segue. Let me back out into the queue in case there's others and then obviously, please come back to me, I have plenty of other questions on the other remaining segments.

(Operator Instructions) And we'll take a follow-up from Andrew Shapiro from Lawndale Capital Management.

Okay. I'll be a little more extensive then until the queue fills up. Jiffy. So after owning Jiffy now for several months, and I went up and visited and saw what you got going on there, it's very impressive. One of the things you talked about on the last conference call and now you've owned Jiffy even further for the next 3 months thereafter, was potentially opportunities to in-source and I guess in that sense, reduce costs and expand your margins? Has that thought pattern progressed further to identification, implementation, execution or even the decision that it will make much sense?

That is among the things we continue to monitor. Frankly, we've been very busy with a pretty nice backlog of business and trying to get that out the door and reduce the lead time. So we're really working right now in the short run on removing bottlenecks and increasing capacity. We absolutely will look at all opportunities to reduce costs. Now that Jiffy is part of a larger organization with deeper reach geographically and technologically, that's certainly on the table. But it has been sort of -- I don't want to say back burner, but we've been trying to really increase capacity and we're working pretty hard on that right now, because we've got a fair number of orders -- sizable orders to try to get out.

Right. And following up on that, on the revenue side, which was probably one of the bigger rationale Sear versus some of your other tuck-in acquisitions into existing facilities, was the revenue expansion synergies that you thought? As of last quarter, so 3 months ago, you talked about preliminary conversations with customers regarding additions to the line and designing things that might expand which are offering them and make people happier, one of the things was to put in your muffler or your exhaust, sound suppression systems in that should make the product even more attractive, et cetera. Have you started to make any orders, sales, designs? Where do you stand in the progress of, in a sense, expanding the products you're offering to the existing customers, but also through the cross-pollination of your sales forces selling into and opening doors with new customers?

I'll answer that in a couple of ways. We certainly are working on products where we're sharing some of the technical expertise that we've got both inside the company and through our partners. That is a -- that lead time is a bit longer than the period of time we've owned the business. So I wouldn't expect -- I don't expect any of that to occur in 2017. Certainly in 2018, we would fully expect the new tools with designs that share some designs of our other products and would be made, developed using access to our other resources. I certainly would expect sales of that in '18. With respect to, what I'll call, channel strategy synergy, as I think we may have mentioned in earlier call, we have a much bigger sales force than Jiffy had, and we are absolutely seeing the benefit of that larger -- I guess, more boots on the ground. And in fact there are orders I can point to that I felt would not have happened without the benefit of a larger organization. So that is in fact happening and the development process is actually happening, it's just that the lead time for these tools is a fair amount longer than just 6 months we would have owned them.

Okay. And what's your retention been like from Jiffy's customers? Have the customers you acquired stayed consistent and meeting your expectations?

Yes. In fact, I would say the customers -- we've added customers, and customers we did have grown. We know no customers that have (technical difficulty).

Okay. Can I -- even though it's not Florida Pneumatic, let me just segue over to the other and more recent but also aerospace acquisition. I guess a few things. Why did this aerospace kind of aerospace tool acquisition go over into a high-tech rather than it go with Florida Pneumatic? There must be some differences with the business and the strategy here. So I'm trying to understand that. And then a few other follow-ups on pneumatics.

Sure. It's a pretty simple answer. First of all, just to be clear, we really just bought -- we've bought the technology. There wasn't a very large business to acquire although there were some -- certainly some revenue. The main reason it fits better in Hy-Tech is that it is a U.S. manufactured product that's quite a bit similar to a product we have been making for some period of time for an OEM. So it was just a natural fit in Hy-Tech and in also the location of the company that we've (inaudible). Location of the principals in relation to Hy-Tech was fairly -- was a drivable distance. So there were just a lot of reasons to do that. Having said that, certainly it isn't lost on us that we've got an aerospace tool sitting in one and an aerospace business sitting in another subsidiary, and those conversations will take place regarding how to best take advantage of the multiple opportunities we've got in aerospace.

Okay. And what sort of integration will be required for the acquisition? When should we expect it all to be completed and fully reflected, I guess, in your earnings? And are there any cost synergies that you would expect?

Are you talking about pneumatics?

Yes, this is on pneumatics.

Yes. There is really 0 integration, frankly. And we've loaded the drawings in our system, started building parts right away, minimal costs of transition frankly, and we're up and running shipping product and calling on customers.

To answer to your question, Andrew. If you're asking when it's going to mean to be anything substantial -- relatively substantial, it will be next year, will be in the first half of next year. That really we're working on a few things now that the prior owner really did not have access to. So we're working on M&A. They are a long lead time process -- not a long lead time but lead time process to get to the engineering and get to lab testing and all that. It's an engineered product, highly engineered product.

And I would add to that, that many of the customers are one-time in nature or had been. So wasn't like we picked up a lot of backlog. So we're -- and let's say from starting from scratch, but given we're sort of repositioning the business and kind of going after the customer base in a slightly different way, it's going to take us a few months to get that off the ground, but again we didn't spend a lot of money for this. And we expect, after a little bit of seasoning, we'll -- we should see -- have something to talk about there in terms of dollars next year.

Okay. So it doesn't sound like there's a lot of cross-selling opportunity putting P&F and Jiffy tools into the same customer base then, or is there?

I'm sorry. Say that one more time.

From what you describe in terms of the kind of how the customer relationship is and what -- it's a special riveting tool. Are there a lot of cross-selling opportunities with your legacy P&F aerospace, in your other Jiffy aerospace tools to go to the same pneumatics customers?

Yes, I would say it's really the other way around. It's Jiffy that has the deep customer base, that is the potential home for the pneumatics tool, not the pneumatic customer base, which is again somewhat sporadic.

And this is a patented -- this is all patented actually?

Oh, yes.

And that's all we really bought. So again, we didn't really buy a business, we bought a technology.

And with these 2 aerospace acquisitions in the past year, are there any more actions you feel the company needs to take to expand its aerospace business? Or is it sufficient to now it's about growing your current businesses?

It's a little both. We're going to grow our businesses, of course, internally and we are still very actively looking at 2 businesses, aerospace, automotive, industrial, anything in the tool -- in the air tool, pneumatic tool, business or ancillary products, et cetera that go in that area. But we're not going to go back out and buy a stair company. If you -- you have enough history to know...

Don't scare me like that.

I know. I know.

Andrew, I'd also add to that, that the pneumatic technology has been sold to other industries, most notably some automotive industry -- automotive businesses, and there are other applications. So the big hit has been aerospace, but we see a number of other applications for this tool or variations of it.

Okay. A few questions, I guess some color on the corporate level. I think in your Q2 press release, you said you anticipated the receipt in August of approximately $2.1 million that would been held in escrow in connection with the sale of Nationwide. Is that money coming and was that the reduction in the prepaid and other asset line item on your balance sheet for the quarter?

Yes to both questions.

Yes.

Awesome. And then can you update us on the timing of the implementation of the 10b5 buyback plan and how many shares to date have been acquired so far and the average price paid? I wouldn't assume it's a lot of shares, but I'm wondering if it's been any shares.

Yes. it's somewhere between 10,000 and 20,000 shares, it'll be in the Q. We've had a nice daily pickup of shares, almost daily. It was a little heavier in the beginning and I think we got some of the low hanging fruit, so to speak. So now I think people are aware that we're out there. We're still getting shares, if not every day, every other day. And we're I think reasonably happy with how it's gone. I can't really -- I frankly couldn't even answer the average purchase price other than to say we're pretty happy with the broker we're using and they don't seem to be going out there and having to really pay off to get the stock.

No, I mean, I'm actually impressed you gathered as many as you did, but I'm most pleased to hear that you are implementing it in?

Well, as you know Andrew, there are limitations on how much you can buy today. So there are some day -- without much volume sometimes it's not really...

No, but to have the 10b5 allows you without having -- losing some days with the restricted window. So we're happy about that.

Right.

Yes.

Can you update us on the status and focus, as well say, of the company's acquisition process as you describe pneumatics, it doesn't seem like that's a big swallow, and even Jiffy was less of one than the prior ones, because you aren't moving plants and integrating. And your debt, you paid down very nicely with the Nationwide, et cetera. Is there an active pipeline of small niche opportunities that you guys are actively considering?

It ebb and flows, we've -- sometimes it rains, sometimes it pours, but we've had a, I would say, not as rapid a possible opportunities, but we've looked at several and I would just -- we continue that, that's a really -- for Joe and I, that's a main focus here. So we're going to continue doing that. We're not satisfied staying where we are. That's the answer to your -- if you're asking that question.

Well, it's more that your perception of capacity in bandwidth and from management, I don't even need to ask about your financial capacity right now. Your debt levels are low again and -- but even if they were low, and you guys are still busy integrating, that would put you a little bit on hiatus. But I just wanted to know, it sounds like you are active (technical difficulty) is there any particular focus or it's again still kind of bolt-ons and/or well, call it product line expansion within your sectors?

Yes. As I said just a minute ago, we're only looking to stay in our sweet spot, pneumatic tools, pneumatic accessories, specialty tools like pneumatics, but again all in that same area.

And there's an argument for looking at companies that share a channel or share a customer base, but there's also an argument for customers that make -- excuse me, targets that make pneumatic tools that are in an area we don't serve. So I mean, I don't want to say it has to be somebody selling to aerospace, there has to be somebody selling to automotive. If it's a product line that's similar enough to what we do, whether it's part of air system or a whole tool, we'll take a look at it.

Yes, it's more about the product as opposed to the market.

Okay. Maybe that will take me over to Hy-Tech, but before I do, let me back out. I have more questions, but...

Stay on this.

Currently there's nobody else.

Okay. So regarding Hy-Tech, your development efforts to open up new industry markets, industrial maintenance, food production and transport and these channels, you -- now you've called out on the release last quarter, and now here 3 months later this quarter what you called open orders. What does that mean definitionally? It's not really yet or is that backlog and what is the timeline when an open order kind of becomes revenue? Or is it just a request for you to design a product and it's a long pipeline?

No, this is an actual order with a specific delivery date or range of delivery dates for a very specific product. So -- and it's -- so it's backlog.

Okay. And this last quarter, it was across all your new market, your new industrial -- your new industry markets. Is it similarly kind of spread out? Or is it more smaller one customer concentration?

No, it's many customers across different applications.

Right. And these are like new applications. Do you see some of these applications to be, call it, one-off product orders, or something that has the opportunity and the expectation that they will end up being kind of a continuous -- in a continual line of new -- of that product being more recurring?

It's essentially continuing business.

Yes. I would answer in 2 ways. It's continuing with that customer. In almost every case, it will be repeat business. But what we don't know necessarily is, if now having a little bit of expertise in whatever that application is or where that market. If there aren't other customers that could also benefit from our capabilities. We don't -- I don't think we've -- we're addressing a lot of different markets broadly, but not deeply, if you follow what I'm say. And that's entirely possible, we just don't know enough yet.

Okay. And then this is what Richard referred to, because you didn't have the name handy at the time [with the divisional people, where you're] engineering solutions program. This is what falls kind of within the network or is that -- was that something different, and are there other additional progress points being -- milestones being made in that program?

I think -- well, let me answer your first question, at least what I thought your first question was. Yes, this is the engineered solutions business that we're now describing. It could be as simple as an air motor, a specialized air motor that goes inside of the system, it could be part of a whole tool, it could be part of an even larger system where our machining expertise can come into play. I'm not sure I followed the last part of your question.

Well, I guess I was looking for if there was any more color, anything in particular that is a new initiative or a new opportunity worthy of a call out.

Like a specific application or industry or something like that?

Yes.

Yes. I think it's a little early to say, but I think as we solidify some of these relationships and get a better handle on their ultimate potential, we might start calling out a little -- things a little more specifically in terms of application or market.

But now that we've broken into some of these customers, there are other products that they have also that we can get into as well.

I think it's just going to come down the magnitude. If it's a $100,000 or $200,000 business, even though we're very happy to have it, might not be that interesting if we're talking about $0.5 million, $1 million accounts in an industry that might warrant us discussing it a little bit further. Let's not forget that we have our regular business as well, of course, (inaudible).

Yes. And speaking to that regular business, as of last quarter, with the oil and gas side, because you have more of a -- your tools are more in the offshore, the rig count there while maybe stabilized, does not -- it rebounded just like the rig count has on the tight oil shale on-shore markets. Your new business and everything else there you described had already moved you up where you were in multiple shift or over time situations. Has that continued or even further expanded in terms of overhead absorption? And you guys have, I guess, maybe even had a higher new personnel. You're bursting at the scenes at the facility, are you?

No, we have hired a number of people. We are hopeful to able to start a second shift at some point. We have begun to relieve the overtime burden. So we have ways to go in terms of filling up that facility.

Okay. So overtime burden is down, because you've been hiring some people, but you're not yet doing the second shift, and is this a business and a facility and operation that could -- ultimately, it's capacity could be doing 3 shifts?

Three shifts are a little tough, because of set up issues. So I would say, I don't know that whether this is really a 3-shift facility. But frankly, I'm not the best person to answer that question.

But you (inaudible) 2 and you haven't done 2 yet?

Yes, correct.

All right. In the past, you commented about an excess of inventory of tools and spare parts in the distribution channels. What's your updated view on the distribution channels now? Is it still excess, has it become worse, has it improved?

I think you're talking about Florida Pneumatic?

I actually had my question here in the Hy-Tech side. But if that's where you referenced it last time and then why don't you just comment about each side?

Yes. I think you're referring to in the automotive sector, we had some very large distributors pull back. I think frankly they over ordered in '16 and then it had some internal changes. So between the excess inventory, I think some internal mandate for a good chunk of 2017 have been down quite a bit from last year. I would say, what we're seeing is it seems like they're coming out of that and we don't think it's going to roll over into an '18 issue. So we think it'll be -- those issues will be winding down this quarter end. That's what it looks like right.

And have you seen incremental improvement, albeit slow on the oil and gas side yet in the Hy-Tech side?

It's hard to say. I want to say no, I want to say it's been fairly even for the last couple of quarters on the oil and gas business. And that thing got a little compounded by the hurricane down in Houston, which really pushed back some of the typical, what we call, shutdown turnaround work at these facilities that happens in the fall and the spring. All that work got delayed. And to my knowledge, hasn't even started.

Okay. And then on Hy-Tech, you also talked about developing -- and this was again 3 months ago, so hopefully it's been developed and implemented. Was new marketing strategy intended to reenergize your gear and hydraulics stopper business? Where does that stand? Can you give more color on its success or failure, timing of rollout?

I would say it's a success. We're seeing a nice increase in orders in both of those areas. We have aligned ourselves with a fairly well connected group in the stopper business. It's been doing well. And we, I think, re-energized the gear facility both through some changes in management and aligning ourselves with other gear deployers that can help us do things we can't do. So we have more of a complete line. And also we've gone out to the market pretty dramatically pushing our capability. So I would say successfully so far. But it is all part of the business.

Okay. You talked about in prior -- last quarter a balance of low margin tools for a certain customer that you thought would be shipped sometime during this year, but you didn't know exactly when it -- they would request completion of the order, which would then have the little bit of margin mix for us. Did any of that occur in Q3? (technical difficulty) or is it going to be Q4?

It's gone.

It all went through Q3 and it was -- went out at negative margins. So it's...

Off the books?

It's off the books.

Yes. And despite that [you saw a marginal] increase of Hy-Tech.

Yes. No, I saw that. And...

We were happy to get rid of it.

Now, that customer -- is that certain customer then still a customer with other products or they...

It's a major customer with a very strong -- we have a very strong relationship with. And frankly, that's how we are able to move the product.

Right. And they appreciated you eating the loss and being supportive?

We worked with each other. They certainly were a big part of getting it done. Certainly, they are taking on some risk as well, because they've now got to sell it and it's a fairly substantial amount of material. So we work together and we have a great relationship with them.

That's good. Before I move on to Florida Pneumatic, back into the queue in case you have anyone.

I don't believe so. You can continue.

Okay. And for pneumatic, you -- we rolled out or you were talking about a suite of tools targeted towards bodywork, which was kind of different in the automotive maintenance side and maybe not as big of a market as automotive maintenance, but incremental nonetheless. Do you have -- and you didn't have much feedback, because you just launch it? Do you have further observations in progress and expectations for that new line of tools or that new sub-market?

We still have strong expectations, but I do know for a fact that I was looking at some of the inventory numbers a week or so ago, and some of them still have just gotten in. So I think we're really a quarter away from really able to -- being able to talk about it with any kind of...

All right. Well, if you don't put it in the release next quarter, we'll ask about it. Okay?

Yes, okay. Fair enough.

If I'm able to make the call. And then in Universal last quarter, it had some weakness attributable to currency; and on a local currency basis, it had -- it was stable or plugging along. This quarter, you had some movement, seems maybe reversal, wanted to get a feel for to what extent that would be currency versus the movement in local currency?

Hold on one second, Andrew. Yes. So I was just confirming. I would say these numbers are very rough. In Q2, the exchange rate was something -- this is dollars to pounds, something like [$1.2 to GBP 1]. And I would say, in Q3, it was closer to [$1.3 and changed to GBP 1]. So you can do the math on that impact. But I would say the underlying business is probably been very steady.

Okay. And have you made -- I check on this each quarter and I'm just trying to get a feel, have you made any headway in either 2 areas? Last quarter you had finally talked about you got some distributors, I think, Austria and Germany. Have you made headway within those distributors as well as have you added any other incremental distributors or countries now?

I would say, we have not added any other. Frankly, we're pretty disappointed with the distribution right now in Austria and Germany. Having said that, those were more driven towards the automotive market. Now that we're getting our hands around Jiffy and obviously there is a sizable aerospace company over in Europe you may have heard of, we're going to sort of go at Europe more at the -- on the aerospace angle. In addition to that, we're looking at other ways of distributing into Europe not through the traditional distribution channels. So right now, I'd say it's disappointed with what we've got going on in Austria and Germany, but we have some other things that we're going to be trying.

And we just started selling Amazon Europe. Just getting started, but we're in there. So we expect hopefully good things out of that as well.

Do you do Amazon U.S. as well or that just...

Absolutely.

Amazon U.S. is a very big customer. Go on and see our products.

Yes, you can go on to Amazon and look for plenty of our tools there.

What product, what...

I think you could find Universal tools, but I think you're going find -- AIRCAT will be the dominant tools you'll see there.

There's a lot of Florida Pneumatic also.

Yes, absolutely.

Okay. And speaking of that very large European airframe maker out there. Has Jiffy had relationships and sold into them in the past?

No, they have not. Very little.

Okay. So -- and might there be an opportunity in light of their new joint venture with the Canadian Bombardier?

Bombardier?

Bombardier. Thank you. Because of the new proposed joint venture activity and U.S. manufacturing to be U.S. tools, might Jiffy as a U.S. tool manufacturer make some inroads there as well?

Absolutely, yes. There's no reason that's not on the table.

100%

Okay, good. And Home Depot, they're going to be -- well, they already are, but they're very big retail customer. I know you talked on the last call about their purchasing pattern was very different than Sears, far less seasonal, little more steady in doing things. But can you give at least an update on either expansion opportunities, contraction of certain product lines? I think you mentioned last quarter they shrunk down some of the product lines. Are there any other new plans? Can you give us a little color since it is such a substantial customer?

Well, it has shrunk a little bit, (inaudible) few products, but not -- and not in any significant manner as a draft business. They're still a very, very large customer for us.

It's steady business. I think it's been difficult to try to add anything outside of the suite of products we've got. Certainly we take a look at that periodically.

And they ask us to do that, to quote on certain things that we do, but at the end of the day we're their tool manufacturer and supplier. And that's kind of where they look at us basically. (inaudible).

Would you say the relationship has strengthened and firmed up? You had -- you were in with them before. There was a period when you were out with them, and then you've come back and been with them for a while. Sears, of course, was the other -- was 30-some-odd years without disrupting.

We have a very good relationship with Home Depot. But that's not to say -- I mean we know we're very friendly with all the people, we're good with the people. They like us as a supplier. But there's a 10,000 times gorilla. So everything is always -- it's always a constant effort on our part, but we have a very good relationship with them, for a while now. I think we're probably with them, I'm guessing, 5, 7 years or something like that, something on those lines.

And as a big gorilla relative to you, I know Sears in the past have been pretty -- they wasn't all that profitable because of various terms and on working capital demands. Is Home Depot as similarly tough in that manner? Or are they more longer term focused and want to have strong suppliers?

I think it's a little above, they want strong suppliers and they want to pay for it. It's not -- it's nowhere near the margins that we're used to seeing in our industrial business or even our automotive business. It's a different [analysis] as I'm sure you can all imagine.

Yes. But it is still gross profit and contribution margins, so.

Absolutely, without a question.

Everyone in Florida likes that.

And New York too.

Yes. Can you remind me of our own facilities, which ones have mortgages on them and which ones are -- have no incumbrances and are hard assets without debt?

We have essentially no mortgage, we have a small balance on a line, but we essentially have no mortgage...

Let me just add a little flavor to that. The current arrangement with Capital One is a single mortgage among the 3 properties.

They're all mortgaged.

Okay, they're all mortgaged. As a single facility, any borrowing is really against all 3 is probably the better way to say that. And we have about $100,000 outstanding, which is there for a reason. It just allows us to...

You know, we do the mortgage paperwork.

Correct.

Paperwork and there are some taxes involved. So it just sort of sits there as a placeholder.

So we essentially have no mortgage.

Okay. No mortgage debt but you have a facility ready before that?

Yes.

Yes.

Can you just quickly go down the 3 or was -- it sounded like you mentioned 3 but the properties that are own that are subject to that, that support that collateral?

It's the 3 manufacturing -- warehouse manufacturing facilities, so Florida Pneumatic in Jupiter; Hy-Tech in Cranberry, Pennsylvania; and Jiffy in Carson City, Nevada.

Okay. Well, Jiffy you just bought. So I'm assuming it's got a pretty fair market value on that one. But Florida you've had for how long?

1980 something.

Yes, for a long time. And even Cranberry is how long now?

10 years.

10 years.

Was it before '08 or after '08?

February 2007.

All right. Great. I think that's all I have.

Okay.

Thank you for your time. Operator, any other questions?

There are no further questions at this time. So I would like to turn the conference back over to our speakers for any additional or closing remarks.

Okay. Thank you all for joining us today on the call. And I wish you all a happy holiday. And we'll see you on our year-end number call. Thank you all. Have a good day.

And again that will conclude today's conference. We do thank you for your participation. You may now disconnect.