Richard Goodman - General Counsel Richard Horowitz - Chairman, President and EO Joseph Molino - COO and CFO

Andrew Shapiro - Lawndale Capital Management

Good day and welcome to the P&F Industries’ Incorporated 2015 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Richard Goodman, please go ahead, sir.

Thank you, operator. Good morning and welcome to P&F Industries’ fiscal year 2015 earnings conference call. With us today from management are Richard Horowitz, Chairman, President and CEO and Joseph Molino, Chief Operating Officer and CFO. Before we get started, I would 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, 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 markets in which we operate, the impact of competition, product demand, supply chain pricing, our debt and debt service requirements and those other risks and uncertainties described in the reports and statements filed by the company with the SEC, including among others as described in our most recent Annual Report on Form 10-K, our quarterly reports on Form 10-Q and our subsequent filings. These risks could cause the company’s actual results for future periods to differ materially from those expressed in any forward-looking statements made by or on behalf of the company. Forward-looking statements speak only as of the date on which they are made and the company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. With that, I would now like to turn the call over to Rich Horowitz. Good morning, Richard.

Good morning, Rich and good morning everybody else and thank you all for joining us this morning on our 2015 year end conference call. I’ll begin today’s call with the brief summary of the company’s results of operations and earnings for fiscal year 2015 and how were compared to the last year of 2014, at this year’s earnings call proceeds of release of our annual report filed on the Form 10-K I will incorporate some key fourth quarter 2015 financial data and how it compared to the same period in 2014. I will then ask Joe Molino to briefly review the cash flow information and provide an update on key events affecting the company. After which we will have our usual question-and-answer session. However, before I begin I wish to remind all of you that the purpose of this call to discuss and review the company’s fiscal 2015 results. As such I ask and kindly request the questions focus on our 2015 results only, with the exception that since both the sale of Nationwide and our newly announced dividend policy are both extraordinary events. We will entertain limited questions on these two matters. Thank you for your cooperation. The company’s consolidated revenue for the three months period and fiscal year ended December 31, 2015 was $17,638,000 and $81,702,000 respectively compared to $17,903,000 and $75,35,000 for the same periods in 2014. I believe it will be helpful to discuss these changes by segment. With respect to our tools group, revenue during the fourth quarter of 2015 was $13,771,000 compared to $14,365,000 in the fourth quarter of 2014. Approximately one third of this decline was in Florida Pneumatic where it was decided that they would not sell certain lower margin promotional type products this past year. Additionally, our industrial catalog business was lower in 2015 compared to 2014 and that’s due primarily to an ongoing global weakness in oil and gas extraction. These declines were approximately are set by a decrease in our automotive products sector. As with Florida Pneumatic’s industrial catalog weakness Hy-Tech’s fourth quarter 2015 decline in revenue was driven by the oil and gas extraction crisis in the United States as well. For full year 2015 our tools revenue increased to $60,312,000 from $56,114,000 in 2014. And this improvement was driven principally by the three acquisitions being partially offset by declines in our retail and industrial category lines discussed earlier. Revenue for our hardware group, which consisted only of Nationwide industries up until now was for the three month and fiscal year ended December 31, 2015, $3,867,000 and $21,390,000 respectively compared to $3,538,000 and $18,921,000 for the same periods in 2014. Key indicators for Nationwide were new home construction and the renovation and remodeling markets. During 2015 these indicators along with new product releases and expanding sales efforts were among the factors contributing to the improved results. As has been previously announced, in February of this year the company completed the sale of Nationwide to a private investment company for approximately $22.2 million. This transaction was made as part of our strategic long-term strategy, which among other things is to transform P&F into a more focused tools centric organization. The company’s consolidated gross margin for the three month period and fiscal year ended December 31, 2015 were 34.7% and 36.6% respectively compared to 37.5% and 36.5% for the same periods in 2014. Specifically for the tools group, fourth quarter and full year 2015 gross margins were 34.3% and 35.9% compared to 38% and 35.7% for both the three months and full year ended December 31, 2014. While Florida Pneumatic’s gross margin were relatively the same when comparing the three month periods ended December 31, 2015 and 2014. Hy-Tech's 2015 gross margin declined compared to the same period in 2014. This change was due mostly to a very weak oil and gas exploration market, which I discussed earlier combined with lower volume of higher margin drilling motor products and decision to comply with the commitment to manufacture certain very low gross margin products for a major ATSCO customer for future considerations. I might add that this project continues to place a strain on Hy-Tech's gross margins thus far in early 2016 and we are currently reexamining our plans to proceed with the manufacturer of these products afore mentioned. Nationwide’s fourth quarter and full year 2015 gross margins were 36.3% and 38.6% compared to 35.6% and 38.9% respectively for the same periods in 2014. The fourth quarter improvement in Nationwide’s gross margin was due to greater emphasis placed on their higher margin fence and gate hardware products compared to its other product lines. Our selling and general administrative expenses for the three months period and fiscal year ended December 31, 2015 were $5,459,000 and $23,969,000 compared to $5,843,000 and $23,064,000 respectively for the same periods in 2014. Significant factors contributing to the quarter-over-quarter reduction were lower compensation cost and lower warranty and other related selling expenses. The increase in our annual SG&A was driven by higher amortization and depreciation expenses as well as increased compensation both increased due in large part due to three acquisitions in August of 2014. However, lower professional and transactional fees in the fourth quarter and full year of 2015 compared to the same periods in 2014 help to partially offset these increases. Our interest expense during the fourth quarter of 2015 was lower than in the same period a year ago due to lower short-term borrowings during the fourth quarter of 2015 compared to the same period in the prior year and normal loan payments reduced the level of our term loan thus reducing interest expenses. However on a full year basis, interest occurred on our 2015 short-term borrowings increased when compared to 2014. This is primarily the result of our short-term borrowings increasing in August 2014 due to our three acquisitions interest expense on our term loans declined due to normal installment payments. Taking all the above into consideration, our income before taxes for the three and twelve month periods ended December 31, 2015 were $517,000 and $5,370,000 respectively compared to $667,000 and $3,777,000 respectively for the same periods in 2014. Our net income after taxes for the 2015 fiscal fourth quarter was $401,000 compared to $230,000 for the fourth quarter of 2014. And lastly, our fourth quarter 2015 EBITDA was $1,431,000 compared to $1,643,000 for the fourth quarter in 2014 and our full year EBITDA was $9,100,000 compared to the prior year’s $6,586,000. And our basic and diluted earnings per share for the full year of 2015 were $0.98 and $0.94 respectively compared to $0.56 and $0.54 for the full year 2014. At this time, I am going to ask Joe to provide some highlights into our cash flow. Joe?

Thank you, Richard. Capital expenditures during fiscal 2015 were $1,422,000 compared to $1,072,000 in 2014. Significant non-cash items affecting our cash flows during 2015 were depreciation and amortization of $1,720,000, amortization of other intangible assets of $1,295,000, amortization of debt issue cost of $111,000, net deferred income taxes of $382,000 and stock-based compensation of $86,000. Additionally, there was non-cash income of $126,000 in connection with the settlement of a contingent consideration matters with the sellers of UAT. Other significant component which impacted our cash provided by operating activities of $6,573,000 were increases of $991,000 in total accounts payable and accrued expenses, increases in accounts receivable of $215,000 and decreases in inventory, prepaid expenses and other assets of $223,000, $401,000 and $101,000 respectively. As a final note, on April 4th the company will be paying its one-time special dividend of $0.50 per common share, this is approximately $1.8 million. With that I would like to turn the call back over to Richard. Richard?

Thank you Joe. And lastly I would like to acknowledge all of our employees and management as I always do. We’re doing such an outstanding job during these challenging economic times. We continue to believe in our company’s products and customers and with our continued hard work and perseverance P&F will continue to improve. That’s the end of our report today and now we’d be happy to answer any questions anybody may have. Operator?

Thank you. [Operator Instructions] And our first question we’ll hear from Andrew Shapiro with Lawndale Capital Management.

Yes, I have a few questions I’ll ask -- I may have a several questions I’ll ask a few them and jump back out into the queue. Regarding the acquisition I’m sorry the sale of Nationwide it was the wholly owned subsidiary of Countrywide did you keep any Countrywide assets or can you elaborate and what Countrywide assets you kept after the sale that will add value to P&F going forward because I noticed at least one of the exhibits imply that there was a lease. And so we should have rental income and other things still coming in from that business in addition to the proceeds from the sale?

Yes countrywide two assets, two main assets were Nationwide and the building which Nationwide occupied. The building was not sold so you are right Andrew we now have rental income, monthly rental income under a new lease that was put in place with the acquirer.

So for accounting or presentation you guys listed what is corporate income or where will that kind of…?

No it will still show up as Countrywide income, because countrywide still exist.

Okay. And how integrated was Nationwide with the rest of the business and corporate headquarters and what has been done to carve Nationwide from P&L for what is left to do in the transparence for the sale or it’s all done?

It’s all done, it operated autonomously we certainly worked on the consolidation and all the issues surrounding putting together a public company set of financial data, but there really wasn’t much to do about separating it out, it had its own financial team that went with the sale and those numbers were just reported up to us periodically.

Okay. And last question on the divestiture and no I’ll back out into the queue, where you or will you be able to eliminate some corporate overhead costs as a result of no longer holding Nationwide sufficiently to maintain your kind of corporate overhead absorption at the presale levels or there will be some diseconomies of scale?

Yes there will be diseconomies of scale. The overhead we have here is primarily to deal with being public and again some consolidated insurance matters and then lastly M&A activity. So the being public part isn’t going anywhere. There is really not much difference in consolidating three companies versus consolidating three, for that matter consolidating six wouldn’t require us to add much staff if any. And the M&A activity and we’ll get back into this maybe later on in the discussions, that work continues. We have no desire to stop looking for companies to acquire and now we’re even more interested in acquiring companies in the tool space. So we need the people here at corporate for that work.

Right and yeah you were correct I will get to those questions when you next come back to me I’ll back out now but thank you please come back to me.

[Operator Instructions] Next we’ll hear from Brian Wagnon [ph] a Private Investor.

Hello so I guess sort of [Technical Difficulty].

I’m sorry Brian. We had trouble hearing you could you repeat the question?

Now…?

No, we can’t hear you.

All right I’m sorry I guess I’ll just try calling back then.

You try one more time. We may -- the signal seems a little better.

Okay sure. So as you just touched on this a little bit in terms of like targeting tools companies and things like that and acquisitions going forward. So I mean, I guess you have narrowed the operational focus a bit more and perhaps clean up the balance sheet a bit. Could you give any color in terms of I mean just broadly speaking what you guys might be targeting in terms of size maybe applications or end-market exposures things like that?

Sure. The sizes would range from very small bolt-on acquisitions that might be a small as a $1 million in revenue to if we found something that was an appropriate opportunity and fit. It could be as large as the business we just sold. So I think there is a wide range of sizes, it’s more about how the product line we would be purchasing complimented the product lines we have either is it an opportunity to broaden our line, put us in a geography we’re not in or in a channel we’re not in, but would like to be in. So those sorts of things are what we’re looking for and that hasn’t really changed it’s just at this point we’re now only looking for acquisitions that would fit with two out of three companies that we owned. We’re no longer looking for anything in the hardware business.

Yeah definitely. I mean jump around a bit onto another topic. So in terms of the new product development as well as product perception having to deal with the exhaust technology that you guys were doing how is that coming along and is that sort of an ongoing thing that you guys are going to be able to chip away after a couple of quarters so there is most of it already out in the market?

We continue developing products for the AIRCAT brand. I’m sure we’ll have additional AIRCAT models coming on-stream in 2016. We continue to use some of that technology in trying to incorporate it into other designs that’s ongoing. And we’re even looking at just selling the AIRCAT models where it make sense in our industrial channel under certain applications and make sense just to sell the AIRCAT version as oppose to trying to develop a separate universal tool version. So yeah that’s ongoing and we’ll continue.

Alight sure. And then jumping over to ATP, you guys stated that the performance is obviously sort of tough to predict right now in the press release you said unless we can rise back to historic levels of exploration activity and those sorts of things. So could you just maybe provide some color on maybe like specific actions that you guys are taking and trying to shift more of the Hy-Tech revenue and or resources left in that area?

Sure as I said, as I think we said we have development efforts going on to try to move into additional channels of sales that we’re not currently in, and those activities are going on full force. But I can tell you it’s going to take a few quarters to get meaningful results from those activities, because they are new markets to us where we don’t have a name. Having said that we are optimistic about the direction we’re going in, ultimately believe it’s going to bear some fruit. And we’re assuming for right now that we don’t have the oil and gas development business that we had. I mean there is a trickle of it, but we are going under the assumption that for the perceivable future that’s not part of our business in any meaningful way and we need to find other things. And we’re also looking for acquisitions that can be folded into Hy-Tech as well.

Okay sure. And then just one last question if you guys provide even some brief inside on us…

We lost you again sorry Brian.

Sorry is it any better now?

Yeah.

Alright so I was happy and other investors obviously were happy to see the introduction of a dividend so good job there. But on that topic, if you could maybe just a little more inside pertaining to I know you guys have talked about in the past sort of maybe being more active in terms of investor relations and telling the company story. I mean it just seems like potentially like relatively low cost high potential rewards. I just like to hear more of your opinion on that.

Well our experience has been and I don’t know how long you’ve been a shareholder. But for many years, we had a very active investor relations program, we had a consultants that we paid monthly to help us with that and frankly we just saw no benefit outside of simply, when we had good results, we seem to have good activity and movement in the stock price and when we didn’t have a good results, we didn’t. So, we thought it was in the best interest to company to use that money and apply to development and marketing activity. So, I wouldn’t say that those opportunities are never going to be engaging again, but we’re reluctant to go down that road because we’ve done it and frankly did not see the result much of the benefit.

Sure, that probably is all my questions. Thanks, guys.

You're welcome.

And next, we’ll take a follow-up question from Andrew Shapiro with Lawndale Capital Management.

Hi, thank you. A few questions to fill in some blanks or holes what Brian had asked about. So, obviously given our past request we’re happy with your dividend decisions, but could you share some of your inside about the thought process of management and the Board behind declaring both the special dividend and initiating a small sustainable dividends so that it might get a little feel for the factors that might fuel a repeat of a special dividend and the factors that might fuel when or if an increase in the sustainable dividend would take place?

Andrew, as we’ve mentioned in many of the earnings call in the past, we’ve been contemplating our dividend for quite a while goes back several years, wherever it started it doesn’t really matter, but we’ve been talking about it for a while we didn’t feel it was appropriate until such time that we had a little bit of a clear picture as to the future and where we were and all that stuff. So, when we sold Nationwide, we felt that it was an extraordinary event and so the Board spent a lot of time talking about how to return to the shareholders because we felt it was the proper time to do that. And so we gave a special one-time dividend because it was a one-time special event. And but that we didn’t want to do that in a vacuum because we felt that we have plenty of what I guess I would call dry powder plenty of funds left to continue with sustained dividend and our feeling was that we would do both at this time. And if things improve -- right now of course we have a smaller company that we’re going to be rebuilding in a as I mentioned earlier tool centric manner and that’s a company that’s going to be in transition until we get that project going. So if and when the time comes that we feel we can we will either increase that dividend that quarterly dividend or if there is an extraordinary event or sometime very good happening within the business then we would consider special dividend again. But I think for now, with the optics that we have at this time, I would say that we did the one-time dividend and we’re going to continue with the quarterly dividend for the foreseeable future and the first thing will most likely be I mean, I am speaking strictly as one Board member I would think that the bigger emphasis would be if the time is right, we would look at the quarterly dividend going forward, but anything can happen. Really it’s going to depend on how things roll-out in the next 12 to 18 months kind of the time.

No I appreciate it and seems reasonable on it. And thank you for instituting and doing both. I guess with the closure on the sale of Nationwide, the payout of the special dividend and the initiation of the small sustainable dividend used to have a substantial amount of proceeds that came in that more than offset I think, the company’s entire debt facility. Has the company had an opportunity, is there an opportunity to either because you have these cash balances or you paid down the debt of fully or partially that the interest margin is an opportunity for additional cost savings on whatever debt remains and that you now have I guess shopping power to make acquisitions. What are some of the other takeaways here from the sale?

Well I’ll let Joe fill in some of the blanks, but I’ll just tell you at 40,000 feet, we essentially have no bank debt or within the next month or so we will have essentially no bank debt. And going forward certainly there is no bank debt. So that is one good thing. On the other side of it though however we have a credit line and we want to use that plus whatever money as we have within our cash flow and our retained earnings to make acquisitions. So I think we want to get up our arms around in a better way assent as to what we’re doing. We don’t want to be in a position that we can’t afford to buy a company that’s going to help P&F and its stockholders going forward. So I think we really have to look at everything as the picture gets little more sharply focused, which is going to take a little bit of time obviously how long it took us to buy what we did couple of years ago. And how they happens so quickly three in a row. So it’s just not always the timing that you look for but we got to just see how the picture goes. I don’t know that’s the answer to question, but maybe Joe maybe you have anything to add?

I’ll just add a couple of things. We had actually negotiated down the interest levels in the fall I believe in anticipation of some of this and really just getting in front of the bank and requesting it due to our -- what I think is our very strong position with them. We also view this current bank facility as at least I do is somewhat temporary. We fully intend to be out there looking for acquisitions either multiple acquisitions or one acquisition that would require us to borrow more than we’ve got in terms of the line. We’ve designed the current facility such that with relatively little work we can get back to the facility we won’t had. We can re-borrow against the buildings those conversations have taken place with the bank and we’re all pretty much on the same page on how that would go about. So while we do have this formal facility in place in the document as things evolve that facility will be modified. And as I said, if I had -- if we had an acquisition tomorrow of an appropriate tool company that was the same size as Nationwide we’d be able to go out and do it and morph the facility in a way to make that happen.

Okay. And in terms of the timing of pursuing future accretive acquisitions, I would assume now no debt the sales done that’s cleared you guys are ready evaluating the opportunities as they come in yes?

Yes we never. I don’t know that we ever really stopped, maybe for a month or two there when we were really busy at the end we didn’t. But now we’re back out there we’re evaluating things at the same pace we were a year ago or nine months ago. And I can’t predict when and if and what size something will be, but I’m sure it will happen and it will happen multiple times, it’s just we just don’t know when. But we’re absolutely 100% active.

Is designing the company’s and management’s core competencies and what you may be looking for and now I’m getting into like the sub-areas of focus within the tools side okay. Would you guys -- have you in the Board kind of defined like for example, would you be looking right now for companies that are suffering because they are focused on and they serve the oil and gas sector. Or would you be focusing on companies and tools that are intended to reduce your concentration into the Florida Pneumatic avenues of the Home Depot and the Sears, where do you feel your core competencies are within the tool side and if you’re turn around types of if you are looking at being more hands off and wanting a tools team that is focused on a growing area. Do you understand the nature of my question, and can you give some inside to answering that?

I don’t know if I understand that Andrew, but I’ll answer the way I think I understand it and if it doesn’t please tell us and we will go further. We might rather double look at everything that’s in the tool area. Our [indiscernible] I would think would be to be less, built [ph] in an area less in the oil and get less in the areas that we are in presently. So we would be looking more favorably in tools, in companies that pick other initiatives in that sector, in that business sector rather than doubling down in oil and gas or doubling down in retail. Having said that, if it was a company that complemented us in some way and that was a big part of their marketing strategy we wouldn’t rule it out, but given the choice if we had it, choice A and a choice B we would be picking the choice that is less giving us more horizontal integration as oppose to vertical integration. I don’t know if that answers your question.

Yeah it does somewhat. So you’ve already made acquisitions into automotive, you’re heavy in retail because of serious Home Depot concentration and that’s come down with your automotive acquisitions. You’ve now said for example you wouldn’t go into oil and gas because it’s an area either you have a lot of concentration in or because it’s an area that has lot of headwinds and the suffering. What are other sub-segments within the tool industry that exist that we might find you were looking at?

Well firstly I didn’t say that we would not go into the oil and gas, I said that wouldn’t be I think our first choice, but we would consider it. But I mean there are many companies that make tools for I mean as example hobbyist, wood working kind of tools, other size of it could be related products in the tool business, perhaps tool chest, grinders, other things in the gear business that just we were light in the gear business right now we may look further into the gear business. There are multiple opportunities in other areas and ones that you’re picking are the big headliners. And I would say that we would go further into the automotive business. We’ve had very good success in the automotive with the AIRCAT acquisition and I think we’re riding a good wave with AIRCAT and how it complements our automotive business. So we would even go further in there. Having said that the automotive business is generally historically a low margin business. So it would have to be a focused area in that automotive area. Joe you want to add anything?

I would just add a couple of things we perhaps could go into an accessory that goes along with one of our tools, hoses, tool chest, attachments things like that it’s also possible that we could make an acquisition in another geography that we’re not in I mean that’s probably a little bit more of a stretch, but we bought a company in the United Kingdom, couple of years back. I’m not saying I’m targeting a company in another country right now, but that certainly as the right opportunity presented itself. We would look at that too.

Okay. I’ll ask another one here and then back out again, but I do have more questions on the individual tool sub-segments. But regarding your new quarterly dividend, I think this would open, it opens up the company now to a number of institutional investors that may have a mandate that requires them to only invest in dividend paying stocks and you’re about to make that first dividend so maybe early in the evaluation, but have you already heard from or had any discussions with these type of dividend focused investors and as a sense of new found interest in P&F?

No not at this time.

We haven’t heard from anybody.

Again it’s relatively new.

You had to kind of declare and pay it, so it’s probably little early on that.

Yes probably a little early.

I’ll back out in the queue please come back to me.

No there is no need to back out Andrew you’re the only guy on the line. So please continue.

Okay. So questions inside of the tool segment if I could, so regarding the hy-Tech year-over-year revenue decline in Q4 when did the acquisition anniversary and is this decline apples-to-apples now an organic decline for Q4?

The anniversary of the ATSCO acquisition was in August I believe of 2015. And what was the other part of the question?

Well you answered it by saying if it anniversaried before the start of the Q4 this is all apples-to-apples organic decline now.

Yes it is, yes.

And to what extend when you’ve done that I don’t know if it is easy to determine. But I was trying to understand whether or not ATSCO itself was had a year-over-year decline in Q4 because you kind of like brought over the equipment and all that it may not be discernable. But to what extend did the acquired business add to or reduce the company’s exposure to oil and gas?

I would say overall it reduced it, having said that there is some and I want to make these numbers up. Let’s say that we were exposed to oil and gas with a third of our business in Hy-Tech before ATSCO, but ATSCO maybe has 5% or 10% of their business exposed to oil and gas maybe indirectly. So if on average it lowered our total exposure, but it actually increased our exposure on an absolute basis a little bit.

Okay. And are you able to tell whether or not the ATSCO itself the acquired business was down year-over-year for the Q4 for its first full ownership in both periods by P&F?

So what was the question are we down?

So you owned ATSCO now for a full year, so you had it for the full fourth quarter last year and the full fourth quarter this year. So I was asking if were you able and internally has there been an evaluation to just to note is ATSCO itself which you acquired down year-over-year or is it so fully integrated it can’t tell?

It’s a little difficult to tell, I mean I would say that my guidance that it’s probably, I don’t know we were going crazy trying to get product out of the door in the fourth quarter of ‘14 and shipped a lot of stuff that was on back order. So it kind of clouds things a bit.

I will say this that our biggest customers in ATSCO have increased their business with us in orders and stuff like that up until recently, up until last couple of months when the oil and gas start to take in a bigger dive. And so we haven’t lost any customers actually we’ve gotten a few others. And our customers are like more engaged with us since we are now shipping them where the old business it was not even shipped for six months after they got orders as hard as to believe and kept the customers. And now we are kind of caught up with the backlog and we are shipping. So now we’re more current. Having said that we’re more current, but the order pace has slowed down now fairly dramatically because of our biggest customer is very tied into oil and gas. So again I don’t know if I’m answering your question there...

No you have, you have given enough color on it, thank you. You quickly read from your script that evaluation of certain products of Hy-Tech, perhaps it was some or all of those required with that ATSCO it wasn’t clear. Was being considered for elimination or offshore manufacturing and import and it wasn’t clear if that evaluation was been done by the customer or by P&F. So could you just kind of hopefully I’ve given you enough info about what portion of your script I’m referring to. Could you kind of please repeat that information more slowly or clearly and then elaborate a little bit on what’s going on?

Yeah we had a major customer of Hy-Tech's who I think we had mentioned in a prior release or this release as well that we believe that they were going to begin sourcing part of the product we had provided them for the years. They were going to either purchase that internally or from somebody else. We still have no reason to believe that that isn’t going to happen, all indications are that that product line will no longer be purchased from us beginning in the second quarter.

Okay, beginning in the second quarter of this year. And was this a profitable product line where you may’ve make mention of some other product lines?

Yeah this was a profitable part of our original Hy-Tech business. The product lines I was referring to in my comments earlier Andrew were ATSCO products that we kind of acquired with that and knowing what we did, but we acquired them when we bought ATSCO. And so we chose to honor for customer relations going forward, we chose to honor keeping those, honoring those commitments and purchase orders even thought they were extremely lower margins, but we did it with our eyes wide open hopefully to get paid back with those customers going forward.

And what’s the status of that?

The evaluation continues, we’re not just sitting on our hands, we’re actively working on developing a lower cost solution there for that customer. That customer also was a customer of Hy-Tech prior to the acquisition that’s why we feel little bit more of an obligation to do our best there and give it a real try, trying to get those margins inline before we just say that the customer, we can’t do it. And it’s fairly complicated and it’s requiring a fair amount of engineering resources, but it is an important customer to us. So we’re going to really give it our best effort.

Yeah. So having said that in the next couple of months if we don’t see a light at the end of the tunnel in the foreseeable -- in the very close future like next two quarters at most we’ll be most likely abandoning that because we’re in business to make money and if we’re not going to do it -- it’s giving back a little bit now was not going to help us get more in the future than there is not point to us to continuing to do that. As I am sure you understand.

What’s your current experience and visibility with respect to Sears given their continued struggles?

I’ll let Joe comment on that also, but we’ve had quite a lengthy with the Board a couple of weeks ago about Sears and there is nothing in there for us that we see to indicate any reason for not selling them. As you know because you’ve been a long time holder and I mentioned in my comments earlier, we ended up pulling out of a certain end of the product line with them in 2015 and the reason we did that was to reduce our exposure if got a bit that was an event of some kind with them. And so we reduced our exposure with the manageable AR, we have good payment terms they are paying us on schedule, they’ve actually increased given us some new products that we are willing to be introducing minor in a relative sense, but certainly new products that they are looking forward and that we’ve seen nothing to indicate that they are going in the -- of course going in a wrong direction, but we see nothing to make us feel like we should pull out and none of our people in our department at Sears have pulled out not even one. Joe, I know you want to say something further.

No. I would also just add that certainly on the soft goods side where there is no brand really things are more dire with the brands that exist in Crafts and DieHard and Kenmore it’s really a bit of a different story and as we’ve mentioned before that part of Sears is run autonomously from the rest, certainly it’s all part of the same risk. But we have every belief said that that asset is quite valuable and we’ll continue in some form. What we also know is that with each passing year more of the sales of what we felt of Sears are ultimately not even being sold to the ultimate entity that is the Sears Holdings entity. There are other outlets that these products are ending up in and while they still flow through that entity, the demand is coming from other places.

It may like the Sears spin-offs?

Yeah. Like Sears Canada for example is not even part of that business and a lot of our tools end up in Sears Canada.

And Sears put the Craftsman line into other of their customers, names don’t, I mean come from my mind right now, but I mean Orchard is one of them on the West Coast and Ace Hardware. So they filled they are Craftsman line into those branches. So we’re selling all line of Craftsman Tool into those other avenues, which is a good thing and I think that’s a strategy of this even I can’t speak for them. I think that’s something that they’ve shown that they are doing.

But that’s sales into Sears and then Sears is like the buyer…

Yeah. Right now yes, that’s correct. I am not sure that will always be the case, but for right now it is. But having said that, we still have a risk to manage, we reduced the big bubble in AR that occurred once the year with that one product line that we got out of. Our terms now are better than they were a year or so ago. And we monitor the AR and the inventory situation weekly. And I, George Aronson, VP of Finance and myself read all the available data out there about Sears and their financial situation regularly. So we feel we’re on top of it as we can be. And we know we don’t plan on changing course.

Okay. And what’s your current experience and visibility with respect to growing the SKUs and product opportunities inside of Home Depot?

I know we’ve got some product launches scheduled for this year with Home Depot. And we launched Home Depot Canada I think earlier in the year or possibly fourth quarter. And you have to remember that even if it sounds really big but Canada has only got the 10% of the population in the United States. But still we’re starting off, we’re excited about how things have started there. And we think that our offering is quite superior to what they did have. And the early indications are that it’s selling much better than their previous suppliers product did.

Right. And that’s under the Husky label, right?

Correct, that's correct?

You discussed a new aerospace tool that you rolled out in the last quarter or two maybe. And it was received well on the rollout. Is it continuing to perform as expected and is it something that is going to become a bigger and more important product line for you?

I would say this, I would think it’s going to grow a little bit. It’s a highly specialized add on while the growth of that itself might not be that dramatic. It’s one more SKU in our line that is required to really be considered a full line supplier to the aerospace customers. There are more to go there are more SKUs required to complete that if you’re ever really complete. And those development programs are ongoing and they’re fairly significant and we’ve got plans for more introductions.

Great. You spoke of the intent to expand universal air tool to other euro countries beyond the UK and Ireland. Can you expand on when and how you plan to do that? Can you prepare us with inside as to any extra cost that might be involved in this activity? What is that entail to rollout, is it all of Europe with the initial products and then expanding the products or is it you’ll first go to France, you’ll first go to Germany. How will do you think it will work?

I can’t go into it a whole lot; because we’ve got certain partners we’re working with in trying to get this done. And we can talk more about it maybe a little bit after the fact. But we do have an active program of establishing additional distributorships throughout Europe. Right now we’ve got distributors in addition to United Kingdom and Ireland which we inherited. We have Portugal, Finland and Sweden. So we have tall holes there, but we are actively in search of and talking to other possible distributors throughout Europe. And but I don’t expect you’re going to see -- I don’t know that it’s going to be particularly material in 2016, I think ‘17 would be different. But we have big plans and fairly large expectations for ultimately where we can get that business. We’ve got a brand in universal air tool that’s the number one brand in automotive air tools in United Kingdom. So while it is extremely competitive throughout Europe and each country kind of has their own special competitive circumstances and even different brands the number one brand in Italy maybe not be the number one brand in Germany, which may not be the number one brand in France. So each market is quite a bit different and we’re really in the process of determining where the rightist fruit is and we’re very, very actively looking at it on several fronts. I just can’t say a whole lot more and I can’t give you a prediction. But I’m confident we’ll open up several distributions in Europe in 2016 and certainly more in ‘17.

Okay. And the last question guys is on the sale of Nationwide for the price that you’re selling it for. Since it wasn’t the sale of Countrywide but the sale of that major segment of the assets. So considered an asset sale in anywhere where there is a removal of and some of the assets coming off would be the intangible assets such as goodwill?

Yeah all of the intangible assets related to Nationwide went with the transaction they will come off -- it was the stock deal that will come off the balance sheet.

And can you generalize as to about how much goodwill is associated or intangibles will be coming off?

I don’t have it in front of me, but somebody it going to take a quick peak and see if we can get to any answer.

Okay. And then in general are you able to say whether the sale will involve non-recurring gain on sale, breakeven or non-recurring losses...

Yeah let me address that, let me start over. About $1.9 million in intangibles will come off the balance sheet. In terms of how we’re recording the transaction for GAAP purposes there will be a sizable gain recorded, I don’t have the number in front of me and I’m not going to get into that. For tax purposes there will be minimal taxes paid as a result of the sale.

Okay. By any luck was there any operations in Virginia that uses up some of your in the tax loss?

I wish there were.

Okay, thanks.

If you know of a company to buy in Virginia please call.

Okay well. Maybe we’ll look for tools in Virginia out there.

Okay.

Thank you.

Alright thank you Andrew.

And there are no further questions at this time.

Okay thank you everybody for being on the call today. And we will be speaking to you shortly in May with the Q1 numbers. Thank you all for your time today.

And that will conclude today’s call. Thank you for your participation.