Fidelity Low Duration Bond Factor ETF
Q4 2007 Earnings Call Transcript

Published: 14 Mar 2008

Operator:

Welcome to Flanders Corp Fiscal Year 2007 Conference Call. At this time all participants are in a listen-only mode. Following managements' prepared remarks, we will hold a Q&A session. As a reminder, this conference is being recorded today. With us today are Harry Smith, Chief Operating Officer of Flanders; Cully Bohush, Chief Accounting Officer; Charlie Kwiatkowski, Vice President, Commercial & Industrial Sales; Linda Hermann, Vice President of Retail Sales and Strategic Sourcing; Tom Morris, Director of High Purity; and Kevin Boyd, Vice President of Operations. After reading a short Safe Harbor statement, I will turn the call over to Harry Smith, who'll provide you a review of the business and then a brief overview of the financials. Statements and comments made on this call that are not historical in nature, constitute forward-looking statements within the meaning of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. These statements and comments are based on the current expectations and beliefs of the management of iMergent and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements and from managements' current expectations. For a more detailed discussion of factors that affect Flander's operating results, please refer to its SEC reports, including its most recent Form 10-K. The company undertakes no obligation to update this forward looking information. With that, I will turn the call over to Harry Smith. Harry?
Harry Smith:

Thank you, Matt. Welcome to the second quarter 2007 earnings call. We are going to change this threshold a bit, and if you would bear with me as I am going to let the team that's basically running the corporation in their respective divisions, go through a little bit about where they are going, where they have been and what they are currently working on. And then together we will open the floor to answers and questions, I think it will give you a good flavor for what we have accomplished, what we intend to accomplish and some of the things that we got going on. With that, I'm going to turn the floor over to Kevin Boyd, who is Vice President of Operations and let him discuss some of things if he has got going on from an operational standpoint. Kevin?
Kevin Boyd:

Yes. From an operating standpoint, we've implemented changes and consolidations throughout operations. All these are focused on reducing costs, improving service and efficiency. I will start with the support service groups. For freight logistics, we are doing a much better job of managing our payables as they occur, which saves dollars providing additional freight options for us. This has enabled us to retain trucks, utilize our volume and negotiating better inbound and outbound freight lanes. These actions should result in $815,000 savings for 2008. We, like everyone, are impacted by the increases of fuel costs. In the last year, these surcharges have gone from $0.44 a mile, and (inaudible) in excess of $0.50 weeks to come. Like other suppliers, we intend to pass fuel charges to our customer, where feasible. In addition to negotiated rates, the [north] team was assembled and implemented at Smithfield facility in the third quarter of 2007. At the closure of 2007, a savings $258,000 was recovered. This continues and is a part of the 2008 freight savings. I would like to speak a little bit about inventory. We have substantially revamped the marking of our inventory turns of both the raw and finished goods, working from sales forecast provided by our retail customers. We have [signals] of 11 annual turns. This should result in a better operational savings. Quality assurance; this has been consolidated and it's been narrated out on our Washington high purity facility. This operation works under the regimen of the NQA-1 quality program. This contributes to a headcount reduction by consolidating administration and also carry the same criteria throughout all operations. At December 2007, we implemented dock haulers at all plants to ensure sufficient and accurate loads. In November 2007, we implemented a Compliance Manager based out of the Smithfield facility for large retail accounts. This position works with the operations corporate wide, to assure we comply with all customer requirements, shipping orders within facility to obtain better inventory turns and assures customer satisfaction. Procurement; the direction is now being given out of the Washington facility, reporting to me with the Director of Retail, and the Director of Commercial Industry. Again, this is, in an effort to reduce headcount and consolidate better negotiations in one facility. Next is research and development. As in the past, this too is based on Washington facility. We have added two new positions to this staff, for both the commercial/industrial and retail market. This team's priorities are focus on numerous new products, with monthly meetings with sales. This gives them a proper direction for ensuring we work on needed new products for the market and those with marginal issues. Let me provide you some information on one specific (inaudible) product. This product was a mere freight advantage to the retailer, resulting in a negative market product and high volume for Flanders. This issue began when past management replaced prefilter channel glass product with a backup version with no leverage to increase [motors]. We set up operations in Mexico to reduce our losses. We discussed automation on the last call. This automation was put on hold due to the exhausted efforts to convert this back to a [prefilter] frame product. The content has now been proven and tested and patents are pending. The equipment orders are released from the prototype automation for the peripheral frame (inaudible). Our primary focus for automation has been to eliminate the present burden of the intercompany freight out of (inaudible). This product will roll out mid-third quarter of 2008. Flanders fully intends to once again lead the market in (inaudible). Now I'd like to talk about the operations on the plant size. On high purity division changes, we've closed all high purity manufacturing in the Salt Lake facility as mentioned previously. This facility has been sold and is under a lease until June of 2008. The manufacturing portion has been consolidated within the Washington facility. Salt Lake now has become number one on our distribution center. As we clear out inventory, our intent is to move into a smaller facility better suited for distribution. We also have moved CFC containment from (inaudible) placing all under one roof in the Washington facility in December of 2007. Consolidating quality assurance, procurement, engineering and manufacturing. Phase one of this project is near completion with little expenditure. This has produced a headcount reduction of 45 contributing to the $1,180,000 in annual labor savings. Order consideration will allow us, our selling of the (inaudible) connect property which should increase our savings. Air Filter Houston, Texas known for it's custom air handlers and the (inaudible) will also become the strategic partner with the Washington facility, supporting west coast sales. Air filter is part of phase two and it will also be on the same MRP system manufacturing other products under the Flanders designs. Also I want to mention about carbon media. This has also been previously mentioned that this was to be sold off. Our own intention in that is we have a plant closings scheduled March 31, 2008. As I have mentioned before, the current management has decided to share verticality and focus on what we do best, making filters. Talk about the midrange and the low-end of the retail plant changes. The [Alver PA] is now being converted to a commercial industrial plant and will support the Northeast with commercial industrial products beginning April 2008. The Precisionaire Washington plant will now support the Northeast retail market beginning April 2008. Precisionaire barcode is now manufacturing in one facility and warehousing in two others, bringing it to the footprint equivalent to (inaudible). This is a market which we sold nearly in 2007 as a result of the fire. We are opening bids March the 17th, Monday and all permitting is in for the building for a 265,000 square foot facility on the existing barcode's land. We are targeting completion by January 2009. Precisionaire Dallas is now strictly a distribution center for the Texas commercial industrial market. Terrell, Texas has been a distribution center since the opening of the Matamoros facility. Terrell will close as stock diminishes as Brownsville, Texas facility takes its place. This was opened up in January of 2008 at 65,000 square feet considered for the retail pickup in Brownsville, Texas, located just across the border from Matamoros. This warehouse is now been filled with preparation for the busy season and will begin shipping within the next two weeks. This will take the place at Terrell, Texas. Our current headcount is 2,726 employees with 1,877 in domestic operations and 849 in the metal operations. Our domestic headcounts are down, are an all-time low for the last five years. And I continue to tweak this model based on our sales forecast and our automation and our consolidations. Talking about the equipment that we've got put in place and upcoming, equipment and automations, in the last six months we've added three new automated throwaway glass lines and one custom throwaway line. Our upcoming line, there are two more custom throwaway lines that are to be scheduled for completion in mid-April 2008. Two automated [net] lines are scheduled for completion in May of 2008. One new pits line is scheduled for mid-April 2008. Our current production capacity averaged across all product lines were 69% utilization of our capacity based on our footprint. In closing, from operations, the company has accomplished a massive shakeup in operations during the past six months, shifting equipment as well as hiring, dismissing and shifting people. I am now confident that I have the proper team in place. Employee morale is the best it's been in 10 years, and this is all about the result of seeing the positive changes currently taking place. And at this point, I'm sure the MOX project is going to come in line, and I'll ask Tom Morris to step in here and he's going to discuss it. Tom?
Tom Morris:

Thanks, Kevin. I want to give a very brief update on the MOX project. There was a RFQ that was issued by MOX services on December 21. That RFQ is for the manufacturer of two glove boxes for the MOX project. Once that RFQ come out, we assembled a task force that consisted of quality assurance, technical sales, our engineering, purchasing and manufacturing teams, to review the drawings and specifications and requirements that were related to the project. We divided the project into subsections with each manager responsible for reviewing his applicable sections in detail and outside consultants were used where appropriate. This really allowed us to utilize our experience and our expertise of our core staff that would ultimately be responsible for the manufacture of the glove boxes if our bid is successful. The review process continued over a six-week period, and we submitted the final bid package on February 11, 2008 to MOX services. I'd like to stress that our approach in quoting this project was drastically different than previous approaches, and the fact that the core team was established, based on areas of core competence and expertise and the entire team was involved in the review of the quoting process. And the result was a level of thoroughness and detail that's never existed in quoting large projects. Ultimately, it allowed us to identify our requirements and often "fall through the cracks" and result as unidentified expenses that show up at the end of a project. We're taking that model, that team-based approach and we're using that to quote large and complex projects in our core business and we're continuing to refine that process. At this time, the team is focused on our core business and continue to focus on our core business and our internal initiatives. Our understanding of the project is that all bid packages are being reviewed by MOX services and award will be made after the review is complete.
Harry Smith:

Okay. Let me make a comment, guys, before I pass to Charlie Kwiatkowski, just on the high purity piece that Tom just went over. The consolidation has been a major undertaking. Salt Lake City was an incredibly inefficient operation, and was a major gross margin dollar drain, as prior management worked to try to get a high purity operation on the West Coast. It's actually a fairly cyclical piece. It's not a Precisionaire type piece. And once the team was able to put it all back under one roof and we made the consolidation, the numbers have showed up very nicely. One thing to add, I think our booking on high purity is actually up about 35% so far through the year. So Charlie is going to cover that. With that, I will pass the call the Charlie Kwiatkowski, who is Vice President of C&I sales.
Charlie Kwiatkowski:

Good afternoon. I want to discuss the changes the company has made and the accomplishments we have made for commercial and industrial sales division of Flanders Corporation. The C&I division, which is short for commercial and industrial, consists of the following business segment; Flanders Filters, Inc., which represents high efficiency HEPA and cleaning products; Charcoal Service Corporation, which represents Bag-In/Bag-Out housing, portable clean rooms, glove boxes and isolators; Air Seal, custom air handlers, filter sales and service, asset product sales to independent distributors, ARW asset sales to wholesaler. Since August, we have accomplished four major objectives in order to streamline operations and to create shareholder value. These objectives are as follows. The first objective was to get all sales people working as a cohesive team. We started with our best course of action to accomplish this objective with the build-a-team concept and regards to relationship between regional managers, inside sales people and customer services desk. Our second objective was to eliminate or restructure divisions, divisions which do not fit in our core business, for example, Complete Service Division, which was disbanded. We also made the decision to restructure our Service Finishing Division. Our third objective was to close factory-owned branches which did not fit into our core business philosophy. Today, we have closed a total of six offices. Our fourth objective was to revitalize our marketing efforts. For the first time in several years, we were able to update marketing material and in turn distribute it to our sales force and customers, and I will elaborate a little bit more on this later on. 2008 accomplishments, the following is a list of accomplishments which we expect to make major positive impact on our sales efforts. One, one of the shining stars in 2008 has been Flanders Filters Inc. As of today, FFI sales are up over 30% over last year sales. For the first time in 15 years, we have reinstated our executive rep council meeting. The executive rep council meeting represents the top distributors and representative for Flanders Corporation. The ERC sets the goals and objectives we need to work on throughout the year. Custom air handlers, isolators and glove boxes, we have opened up this product line to all Flanders distributors and representatives to sell. By opening up these products through our extensive sales force, we have announced little increase in sales. We have restructured our freight policy for our filter sales and service division, along with our ARW accounts. Also in 2008, a more comprehensive and user friendly price book will be introduced through our sales force. Marketing points; point A; we have restructured the appearance in the look of our catalogs, by going back to the traditional teal and white color. This is important for visually pleasing and it stands out when positioned on the customer book shelves. Point B, we have reintroduced our Leading The Way video. This is a 10 minute overview video on what Flanders Corporation is, and it is readily available requested from our marketing department. Point C, website. On April the 1st, a new and improved Flanders Corporation website will be introduced. What makes this website different is that it covers all divisions, from retail to commercial and industrial sales. Point D, we also introduced a new Flanders logo, which will incorporate all divisions again. You will see this new logo on our letterhead and tradeshow banners. Point E, newsletters. We have a quarterly newsletter that is distributed to all employees as well as our customers. Point F, we have introduced several new trade shows of late. They are readily available for our distributor to use. And the last marketing point is we have streamlined our literature foray allowing catalogs to be mailed out in 24 hours of being ordered. Going forward, in 2008, you will see the commercial and industrial division making a greater presence at design engineering firms, end users, including with our reps and distributors. Also, you will see a greater presence of Flanders personnel, our numerous trade organizations and technical seminars.
Harry Smith:

Okay Charlie great. I do want to (inaudible) Charles and his team. He has done an incredible job. So you know much better than I do when I was running it and has got lot of great things going on. With that I am going to pass it to Linda Hermann, who is VP of Retail Sales and Strategic Solution, and then we will kind of wrap it up and go to Q&A session. Linda?
Linda Hermann:

Well I am excited. The company is excited and I can see and feel this as I travel about. The retail division is forecasted to exceed last year and revenue and profitability. In the last few months, each retail account has been annualized, planned and addressed relative its role in our company and its profitability. We've implemented a number of actions that include price increases, product mix, changes and changes in the terms of doing business. Retailers require 60 to 90 days with notice of any type of change in the structure of the business relationship and we have done that. They also require documentation when we make claims relative to cost increases, and we supply the retailers with volumes of letters or copies of letters from suppliers on material cost increases, minimum wage changes, federally and at the state level. 40% of retail revenue customers have had their plans for improvement of those accounts implemented and are in effect. 95% of current retail revenue customers will be fully implemented by June 1st. We are pursuing expanding business with our existing customer base via new products or additional geographies. We're pursuing additional and new accounts and new channels. We have hired professional business analysts and their value has been quickly realized, examples doing data mining and database creation, so we can provide our customers with what they want, and what they want is information on how to grow their business. Another example is forecasting or planning, demands planning. Retail sales is providing operations and the financial growth 52-week forecast by items, by ship point and this is updated and redistributed monthly. This is developed from the retailers POS and then translated and converted to shipping forecast. This is since the company planning, everything from production planning to capacity planning and long-term resource planning. We are also consistently retrieving vendor performance scorecards and distributing those that need to know. And it shows, because what gets measured gets done and we have seen and know the confidence in finding that our customers’ perspective of us is good. In the last few months our performance has been excellent. Our metrics are above 98% in delivering still rates. Marketing has been an area that has been an overlooked opportunity in the past. We are exploiting that to increase the effectiveness and efficiency of communicating to consumers, customers, prospects and suppliers. The foundation for the marketing is educating or communicating who we really are and why that benefits the target audience. To give you an example, Flanders provided filtrations to nuclear power plants, pharmaceutical laboratories, equipment used in outer space, American Embassies and more. Trust, we provide the best for you. This theme has subthemes associated with energy savings, application considerations and value. Our involvement in relationship with the ARM & HAMMER brand is strong, we are receiving excellent co-operation and support from Church & Dwight. ARM & HAMMER has 97% brand recognition among consumers. The non-personal presentation and promotion of our marketing message is going on in a variety of media. Print, journals, magazines and newspapers, some of you may have seen the full page ad in the Home Improvement Executive, that's the news network for industry leaders; the issue was published in mid December. Then there is the rep advertising that is going on. We have over a 100 billboards strategically placed in five states. We're also passing into the broadcast media. We've secured contracts with two major sports marketing companies, and we'll be seen on National TV as a result of that. And our analysts are mining our customer POS data to measure the effectiveness of our advertising campaign, and we are seeing positive consumer response. In addition, we see the responsibility we have to our world. We've joined with the Make-A-Wish Foundation and entered contracts with a sporting event. A child will have the opportunity at one of the major Atlanta Braves games to throw the first pitch on National Fox TV along with the child's family and friends. Innovation-wise, we have a new natural layer of product line that's superior to comparable price points. It's not a need to, it's not a follower; it's a leading product. We have a new Arm & Hammer line of products that's been developed. We developed the bridge product between commodity brands at entry-level place that is not a commodity. We are committed to sustainability in the environment with developing innovative packaging methods in the period. In summary, the future is incredibly bright. We can and will satisfy our customers. We are satisfying our customers and we will run a profitable business. 2008 will be good, 2009 will be even greater.
Harry Smith:

Thank you, Linda. I can't say how great it's been to have learned about guys (inaudible) profitable are most profitable time. Linda was actually running retail and she left the company, we were able to get her back. Let me go through a few points, guys, and then we will open up for Q&A, because I think I can answer a lot of questions you got in your mind. One of the things that I was very steadfast on, again, they will remain steadfast is we're not going to be a sales versus profit organization. I'm not going to chase a bunch of topline sales all over the map with plant and people on equivalent of that, not to make any money and/or lose money. Part of that has been the sharing of the verticality, especially the direct [dialysis] that we lose topline sales and then delineate direct dialysis. We lost the topline sales under delineation of the consolidation of Superior Die-Cut, and we will continue to make good business figure that impact the bottomline and not the topline, and that means being a $200 million company this year versus a $250 million company. Then I am okay with that and I think you guys are too as long as the profitability goes up, and it has shown up. Talk a little bit about verticality, we have delineated six direct dialysis and put them in people's hand and run them a quicker, better, smart, faster than us. They (inaudible) as we go out, do our marketing, do our R&D and engineered and become great partners to them. We currently have two of the direct dialysis in the negotiation stage that we're going to put in people's hand that we trust, that we have relationships with and will make us great partners. We did completely sale the expanded metal product line. We are able to see the result for that really in January and the result were staggering on buying the metal versus procuring the metal. In 2007, we spent over $10 million just buying the metal to make expanded metal before we had the lighter maintenance in that [peaker] equipment. We do have a signed letter of intent on the court to media operation with a person that we're currently partner with and has many years in history in that business, and the completion date on that should be March 31. We did sell Salt Lake facility. We have a short-term lease in that and operation is currently in the market looking for a small building that better suits the corporation in a DC-type manner. Insurance, we received an additional $3 million in insurance this week, and we are very close to settling the claim in totality for another $11.5 million, which should be accomplished in the next 45 to 50 days. Retail, as was written by an analyst that we were making an exit from the retail, I think via recent announcement and Linda's presence on the call today, our intention is to be a very large retail player, but a profitable retail player. So, we're currently looking at our channels, looking at our price points and understand what it takes to make a true profit in this industry. Just to talk about the model a little bit, the differentiation, I think the number this year from a data standpoint is going to be 335 to 345.I haven't drilled down to the final number yet, but I feel good about that. We still don't understand how the current economy is going to impact the retail piece and we are working through that at this point. But our numbers are going to be somewhere between 335 and 345, and if that changes, then I will move the number accordingly. Just about the model, what are the differentiation pieces we have versus a lot of our competitors? We do have a lot of different divisions that operate independently of one another and it really protects us against cyclicity. If you were to use round numbers, if we did $245 million this year, $100 million being retail, $145 million being commercial and industrial, and that commercial and industry piece is broken into a lot of different pieces. We've been very successful in seeing our pieces here as we rebuild the retail piece, which has come along very nicely. Kevin and some of the other people will share with you some of the issues we know and understand we got. But most of the issue is and has been a major drain on the organization that we are very close to having fixed. And I feel confident that you will see that grow out over the next 60 days with the [peripheral frame] product and the impact of that number is quite staggering. We are continuing to define and work on logistics. We have gone out and been able to increase our logistics pros with a lot of national players. When this management team took over, we are probably using three or four freight carriers, and I bet that they were probably using 40. So we feel good about that. With that, I'm going to open it up to questions and answers at this time.
Operator:

(Operator Instructions) Our first question comes from [Rick Tortell] with Columbia Management.
Rick Tortell:

Good afternoon.
Harry Smith:

Hi, Rick.
Rick Tortell:

On the last call in December, I think actually there was a conversation, but to follow-up on the last call, there was a focus on what you hope to produce in cash at around the $50 million and that included assets sales, insurance proceeds and operations. If you could bring us up-to-date on that and what the various contributing elements would be to that?
Harry Smith:

We're right on track for that number, Rick. That $11.5 million will put us very close to accomplishing that goal. Some of the verticality we ended up taking notes on. We currently have notes payable to the company. But, we'll be very close to achieving that goal between the cash inflows from the notes payable direct to the company.
Rick Tortell:

So, I guess that means Salt Lake, you did get about $5 million on that on a net basis?
Harry Smith:

Yes, sir.
Rick Tortell:

And insurance, I guess, between the $3 million and $11.5, $14.5, was there anything received in the Q4 or not?
Harry Smith:

Yeah, I think we received about $6 million in Q4 in insurance money.
Rick Tortell:

Okay. And then, I guess, are you at the point that you're comfortable saying that we're now we've crossed the line to profitability or we are not quite there yet?
Harry Smith:

You know, it’s a great question. In fact, I've missed taking responsibility for the gregarious statement I made on that third quarter earnings call, when I said I'd make an operation margin in the fourth quarter. You know it was way too gregarious of a statement and I was way too short on the job to understand exactly what we were dealing with. I can tell you, we've closed in on January, sales were not what we would like, though they were very healthy and we were profitable in January. We are working to close down February at this time.
Rick Tortell:

Okay. Should we be marching forward or there are probably some steps backwards along the way?
Harry Smith:

You know, it is funny we have still got plenty of challenges, Rick. I feel good about the model. I mean, basically what we've had to do is re-invent the model. I mean, the model has been totally revamped in the last five or six months. I feel real good about 2008. I think Kevin Boyd says it to me all the time, 2009 is going to be incredible. Some of the steps we are working on, from product development and R&D and engineering and procurement, all great things, traffic, logistics, basically what we are doing is put the structure into the organization. We had a good January. We still have some delineation of (inaudible) which is going to help our profitability. That will play out in the second quarter, and Linda's process increases come into effect really until the second quarter. The fixing of the nested issue will happen until 60 days. Third quarter, Rick, is a big-big number. So that's going to come in to third quarter. Charlie has changed his credit policies which should show up in April.
Rick Tortell:

Yeah.
Harry Smith:

So, we've made a lot of moves. What we are doing is taking the P&L and making real world decisions on how to run this company from a profitability standpoint, not a sales standpoint. I'm not giving guidance to the bottom line. I intend to do that on the second quarter earnings call, after I get to the first quarter. But we had a profitable January. We're closing on February and we'll see how February works. We don’t have the numbers yet. If I had them, I'd be willing to discuss them in an open format. I don’t have them yet.
Rick Tortell:

Again, on that last call, you talked about use of proceeds of the $50 million you hope to generate half to pay down debt, half to repurchase stock. May be you can bring us up-to-date on both of those?
Harry Smith:

Yes, that's correct. I have slightly repurchased close to 300,000 shares since the new management team has taken in place. It's not 3 million shares, but it's close to $2 million I have spent buying stock back. I've been in a co-op here, so I have been blocked out. You know, that strategy hasn't changed. What I would rather do, instead of getting them rocking and slugging it out, or just have people contact maybe Angela or Louise in the corporate office, I think most of you all know Angela. And if you are looking to move a position, give us an opportunity to do it in that manner and we'll do and work very hard to be able to accomplish that. So, from a debt structure standpoint, we have paid down a lot of debt. Our vendors are very happy, we've got great relationships from the freight arena at this point and I'm sitting on more availability to-date than I have been since I took over the company.
Rick Tortell:

Okay. But is the thought still roughly 50-50 on that or?
Harry Smith:

Yeah. I mean we are going to continue with that strategy and as the company becomes profitable, that will be a core focus for us, Rick. But, gee, I mean our intent is to continue to take the share count down.
Rick Tortell:

Okay. Thanks. I will let others ask.
Harry Smith:

Thank you, Rick.
Operator:

Thank you. Your next question comes from Martin Schubert with European Interamerican.
Harry Smith:

Hi Martin.
Martin Schubert:

Hi, how are you?
Harry Smith:

Good.
Martin Schubert:

Okay. You got a heck of a job on hand.
Harry Smith:

Yeah.
Martin Schubert:

I have several questions.
Harry Smith:

All right.
Martin Schubert:

Firstly, what is the status of your bank lines? During this difficult bank liquidity period, have you lost aid of your bank commitments?
Harry Smith:

No, not at all. In fact, we've got just great relationship with Banc of America. I gave them a lot of credit on the last call, and I give them a lot of credit again. So I feel real good about that. We have close and constant communication with them and they are just great. We are in really good relationship with the bank and from an availability standpoint, we are in really good shape today.
Martin Schubert:

Very good. Could I ask you what the name of your other bank lenders are?
Harry Smith:

Well, our primary bank is Banc of America. I mean, we've got some real small term debt on facilities. But our main relationship is with BOA.
Martin Schubert:

Very good. What is your situation with Home Depot today? There have been indiscriminate statements, as I mention to you from time-to-time, made on check boxes that you are out of many of the HD stores. (inaudible)?
Harry Smith:

I think Linda can probably answer that question better. But the fact is, when I took over this company, our service level was terrible, Martin.
Martin Schubert:

Okay.
Harry Smith:

So what we did was, in fact Robert was with me and we both went, basically told them that we'd give the service and be in prior commitments that were being made. And, we asked them to move some of that business, which they did. What we have done, and Kevin's group has done, is focused on the service level in the last 60 to 90 days, we have been at 98.5% and 99% service level now. We will continue to stay there and that will take care of a lot of problems, but Linda, you are welcome to speak up on that, well that covered that for a moment.
Linda Hermann:

We have not lost stores. There were some stores that were double sourced with another supplier. And Mark, and in our stores, there was a division of Home Depot that has been with another provider for many, many years. But we have not lost more from that. Our performance with them is better than 99%, in still rate and delivery from their scorecard on us, received as recently as yesterday.
Harry Smith:

And Mark, I don't know what the number is when the management team took over. But it was probably in the 60s before Kevin made the changes he has made. And Kevin is basically saying, we are healthy after the 31st. And that was the requirement that HD put on us. So, Kevin accomplished that and his team is due a lot of credit for accomplishing that. So, Mark, in the retail world, there is only a few players that are really in the game. You have got some bottom players with low liquidity and there is only a few players that can truly run in the retail world, we’re one of them. Obviously, [3M] is one of them, American Air is one of them. They are all great competitors. These guys have more than two plants, with low liquidity, low product offering. They are running and really honestly where they can't run. The difference between us and the other players is, is we have other divisions. We use that retail force and prove that we are making it profitable. But the fact is, if you want to really get to it, there is only a few people that can run in that arena. And there is some good ones we run against. We compete with (inaudible) and direct people. The Little small ankle biters who have one and two plants, who are trying to get in that gain, I have no faith at all, they would be [lenis] or continuity in that model they are developing at all. The difference is, we've cleaned our model up. I've got $150 million outside of retail, that is profitable, and we will continue to tweak our models, be successful in our markets profitably. We are pretty (inaudible) cleaned, and it's pretty clean.
Martin Schubert:

I see, one more before I go. The MOX program, and I am fairly close to the inner workings of that. Could you clarify the status of the bid that you made and the contracts that have been laid out by the government and when you expect that will be awarded, also how much is involved and how was the South Carolina plant going?
Harry Smith:

Tom answered that question, but I had no plans to put a plant in South Carolina. I've got a plant, that's a hour forty five minutes, two hours, two and half hours away whatever with all kinds of equipment and people and capacity.
Martin Schubert:

That's right.
Harry Smith:

I will never duplicate that effort, but Tom; you can answer specifically on.
Tom Morris:

Okay. When we submitted the bid, we were told bottom MOX services, [Shaw Lever] Group that we expected war was going to be at the end of March.
Martin Schubert:

Right.
Harry Smith:

But there was no firm commitment on their part. At this time, all we know and we called there on a regular basis to try to determine what the status is. At this time, all we know is that the bids are under review.
Martin Schubert:

Right.
Harry Smith:

We're really not able to get any more information at this time on it.
Martin Schubert:

I see. Okay. I'll pass and leave it to the next person.
Harry Smith:

That will be icing on the cake. I don't have any anything in the numbers forward, and if that happens that will be great, if it doesn't, then so be it.
Martin Schubert:

Well, just one comment. The talks that I have had with people from the next administration say that this will move ahead regardless of who is in power.
Harry Smith:

We feel great about it, but I'm not putting anything in the numbers, that's been over hyped.
Martin Schubert:

All right. Exactly. Okay, thank you very much.
Harry Smith:

Thank you, Martin.
Martin Schubert:

All right.
Operator:

Your next question comes from Andrew Schiff with Zirkin-Cutler Investments.
Andrew Schiff:

Hi guys, how you are doing?
Harry Smith:

Good Andrew, how are you doing?
Andrew Schiff:

Pretty good. Thank you. Have any MOX contracts already been let that you answered RFQs for that you didn't get?
Harry Smith:

This RFQ that came out in December was the first RFQ related to any type of glove box or contained work.
Andrew Schiff:

Okay.
Harry Smith:

Our other construction contracts have been let, but not related to our business.
Andrew Schiff:

Okay. And then second question. Obviously you had a lot of work to do when you guys took over. But when you look toward the end of the day, taking into account your nesting location consolidation inventory work of and all efficiencies, what is your goal for net margins?
Harry Smith:

It's a great question. Now you are trying to pin me down a little bit?
Andrew Schiff:

Of course I am trying to pin you down. I am sorry.
Harry Smith:

I understand. Here is what I think the company can do based on what we have seen so far. I think that realistic numbers in this industry, if you use $245 million in those most models cleaned up, Kevin fixed a massive issue we continue to make retail healthy. I think we can, we would be in somewhere in the 9%, 10% range.
Andrew Schiff:

Okay.
Harry Smith:

Yeah. And I feel good about that number. I don't know if water tankers all here and I say the conversation is about people selling a lot of stuff, not making any money in this industry and I am telling you for those rotten egg category, but you can bet your bottom I will stay in that category. I don't intend to run this company. We are just kind of really not making that profit and that should have never happened. And we should have never been where we are at. There is nothing I can do about 2007, all the thing I can do is impact 2008 Andrew. And I actually intend on doing that and the difference is that I am not able to turn it, then I will step aside and allow somebody else to turn this company right. I feel good about the team I put in place, I feel good about the things they are doing, I feel like 2008 will be a transition year, I feel like 2009 will be a great year. We had a great net margin in January. I don't know what's going to happen in February, yeah, but you are just starting to see some of the clean up. But I feel real good about the model that we are developing and what we are doing in the market to be a success. And I can't tell you how great I feel about the people I've go around.
Andrew Schiff:

You said you had a great January from a net margin perspective, greater than 9%, 10%?
Harry Smith:

I'm not going to give that much guidance on that Andrew, we had a good January.
Andrew Schiff:

Okay.
Harry Smith:

We need some more sales through the plant which typically starts turning in April, May and June. We are still trying to understand if we're going to have an impact at the big box level and we haven't made the combination yet, our market presence with our customers is very strong. In fact, Linda has done a phenomenal job, and she has got some products that she has developed that are incredible. I mean we are not going to be known as the low price guy and just deplete and throw away world. We're going to give it a high end piece, since she has got some stuff that looks really good, but we got to close out February, and we haven't got it closed out yet. I'll be in a position to give some bottom line guidance in the next earnings call.
Andrew Schiff:

Okay. And then just one quick question about the buyback. You said you spent about $2 million roughly?
Harry Smith:

Close to 300,000 share since we've taken over.
Andrew Schiff:

1.6 million, Harry.
Harry Smith:

How many?
Cully Bohush:

About 1.6 million so far.
Harry Smith:

1.6 million.
Andrew Schiff:

Okay. And do you have a time frame for the rest?
Harry Smith:

(inaudible)
Andrew Schiff:

Sure.
Harry Smith:

You know something, that's the challenge we got, I have got to make the operation really profitable, and we've got some good availability, Banc of America has worked really well and we own it. I was probably a little bit gregarious. I'm learning too, Andrew. You know that $11.5 million comes in 45 days, it changes everything about the currently operation becoming profitable, we'll be aggressive with it.
Andrew Schiff:

Appreciate your time. Thank you.
Harry Smith:

Thanks, Andrew.
Operator:

Your next question comes from Walter Schenker with Titan Capital.
Harry Smith:

Hi, Walter.
Walter Schenker:

(inaudible) is on the call. Hi, Harry. We have not really gotten into at all the announcement of past week about your new retail customer. I want to hear you say and I know what the answer is going to be. But the prior management was constantly adding business and not making any money. From a pricing standpoint, how you are able to get lows from whoever was previously selling it?
Harry Smith:

Well, if you take a look at it again, Walter there is only a few people who can play this game nationally. And we've got everything that we've got right now, priced profitably and we understand the model and Linda has done an incredible job. I don't want to delineate a whole of information because I got all my competitors on this phone call. But once our profit increases go into a [phase], which I think we will hit in April because it's 69 a day process, all of our retail accounts will be profitable. I am not going to feel, I can't make money on it, Walter. I heard you loud and clear, I appreciate your advice. I know you thought it, I know you know the industry very well. I do think our model was set up to run like hell and not make any money. I am not going to do that. I told you I weren't going to do that. I am running it bottom numbers. I will continue to run it bottom numbers. We will make changes whether it's in fixed and variable overhead and or whether it is on sale price. I don't mind being a $200 million company. I'd love to be a $300 million company. I am not going to sit here and spend the resources, time, energy and effort (inaudible) not to make any money. I am just not going to do it. Now, the model is coming together very nicely. And I think '08 is going to continue to be a transition year for us. It's been a hell of a job, Walter. And I think you fully understand it, but we're getting there.
Walter Schenker:

Just to make sure I understand because I don’t. So, what you go and try make me understand. Last year, you did $245 million revenues. I know we're getting out of some things. The statement on the tape was that retail this year should do $110 million with the addition of your new customer, which is up significantly from last year, which means that something else was going down because we are overall looking for relatively flat sales. What is what -- where are we losing sales? I'm not saying we shouldn't be, because there is a bunch of stuff they shouldn’t have been doing, but what's the offset to the incremental revenue in retail?
Harry Smith:

Well, I'm going to let Linda answer part of that and I'm going to answer part of that. Walter, part of your sales loss is delineation of verticality. When you sell at direct office, you lose the mark up, okay? Now we're just selling filters, we don't have that mark up, okay, in that process. So, as I had delineated direct office, I have impacted sales. The other part of that was, we were getting some sales pick up from the consolidation of superior backups, which we no longer consolidate. So, a part that, we have impacted in that arena and Linda feels good about our number. I still think it's a little early to tell, I think the number is 335 or 345, we'll see what happens. I think we'll have a good flavor for it when the hot weather hits and see if people hit the big box stores.
Walter Schenker:

Okay. Just two more questions.
Harry Smith:

Sure.
Walter Schenker:

The company is going to rebuild a significant sized facility in Florida, the capital needed for that will not detract from your ability to pay down debt and by stock?
Harry Smith:

No, sir.
Walter Schenker:

Okay. So this is being financed off your balance sheet?
Harry Smith:

Yes, sir.
Walter Schenker:

Okay. And the last question, and again, because a number of people have asked on it and it is an important question, you would expect that by June, you would have received the vast majority of -- assuming the insurance comes in the way, you expect it to come in, of cash and notes toward that $50 million?
Harry Smith:

Correct. I got $3 million in to be picked on [Wednesday]. Yesterday I came in what they would have figured in [Walter] and we're fairly close to negotiating just another flat $11.5 million, which should be paid out in the next 45 days. We've got considerable notes payable to the company and basically what you got is, driving tickets and spend a lot of time in there for the [Cary's] operation. We put in people's hand that we trust in that run them and focus specifically on the realm of business and have notes payable to the company. That's worked very well thus far.
Walter Schenker:

Okay. Thanks for lot.
Harry Smith:

Thank you, Walter.
Operator:

Your next question comes from Frank Magdlen with The Robins Group.
Frank Magdlen:

Good afternoon, Harry.
Harry Smith:

Hi Frank, how are you doing?
Frank Magdlen:

I am fine. Sounds like you're turning the corner here. But I did want to clarify, when you say net margin, are you referring to after-tax margin?
Harry Smith:

Yes.
Frank Magdlen:

That is after-tax; that is helpful, very helpful on that. And so I'll just go through for some of the small things in life like how many shares are really outstanding now on a fully diluted basis?
Harry Smith.:

Frank, if I listen to everybody that calls me, we get about a 100 million of share flow, because everybody that calls has got a million shares, but I think in reality it's about 25 million in the -- Cully.
Cully Bohush:

25.7.
Frank Magdlen:

25.7, okay and that would be a number the years before any repurchases for the coming year?
Harry Smith:

Correct.
Frank Magdlen:

Okay. And then the CapEx for this coming year?
Harry Smith:

CapEx is going to be strictly driven around automation and I think that number is going to about $4 million, if I did remember, Kevin. $4 million strictly automation. What we're trying to do is drive headcount down, Frank, and replace that with automated product and Kevin is doing a phenomenal job on that. We thought it was a really smart people and our goal is to drive headcount and I had obviously high hopes to get a lot of that done in '08 but I think you'll see a tremendous reduction in headcount in 2009 as we continue to automate and streamline. Our cost effect in this which will again will give us a competitive advantage on lot of our competitors. You can't do this stuff by hand and be competitive anymore.
Frank Magdlen:

Okay, I can believe that. How about a little help on what depreciation and amortization is going to look like going forward?
Harry Smith:

Cully?
Cully Bohush:

Depreciation and amortization is currently around about $7.5 million for the year. Obviously you can figure it out, we have now $4 million amortized and depreciated over typical 10 year, or 10 or 15 years for equipment.
Frank Magdlen:

But you sold a lot of stuff too, so that's why the 7.5 of the last year should be a little bit misleading?
Harry Smith:

Yeah, and of all the thing you lose in depreciation on all those expanders, we haven't gotten the important deal done yet, though it's supposed to close on March 31. So we're still continuing that depreciation on that equipment.
Frank Magdlen:

Okay. So I guess it's in the ballpark then going forward?
Harry Smith:

Pretty close.
Frank Magdlen:

And pardon me?
Harry Smith:

You are pretty close there.
Frank Magdlen:

And then how about little help on what you think your interest expense is going to be or your average borrowings going forward?
Harry Smith:

That's going to change when we get that $11.5 million, Frank. I don't really have a good number on that right now.
Frank Magdlen:

Okay. And is that the last of the insurance then?
Harry Smith:

Yes, sir. That is it.
Frank Magdlen:

Yeah, and then how about, are you going to give us backlog numbers going forward?
Harry Smith:

I think. Yeah, sure, we cleaned up that report, I think it's about $30 million today.
Frank Magdlen:

Today?
Harry Smith:

Yeah.
Frank Magdlen:

Okay. All right. I think that takes care of the little things, and I thank you you've tried to help us with the net margin or asset tax margin, and then I guess that we can figure that, put the rest of the balls together or pieces together and that so, we are waiting forward to the progress. Thank you very much.
Harry Smith:

Thank you, Frank.
Operator:

Your next question comes from Al Kaschalk with Wedbush Morgan
Harry Smith:

Hi, Al.
Al Kaschalk:

Good afternoon, Harry. Just sort of a real quick question on the cleaning up. In terms of Q1 '08 have you recorded or identified charges to further clean up what may have been there carry through from 2007?
Harry Smith:

No, sir. I can comfortably tell you, I cleaned it all up in the fourth quarter.
Al Kaschalk:

Okay. So arguably when 30 days or 35 days from now we should be looking back here and getting hopefully breakeven or better or some type of better visibility on the operating results standalone?
Harry Smith:

Yeah I think the first quarter I mean, we had a good grip around it now, Al, and what we're doing is taking the P&Ls and making real decisions to run this company like a company. You feel good about January, don't want to take it as a trend, obviously out there where it shakes out, but I think, we're I'd say breakeven is a very safe bet. And I think when some of the stuff play out that we've got, that we have identified and we fully understand economic impact to the company, it's just going to take time. There's nobody that would love to fix it anymore than I can, but I just can't fix any quicker than I am.
Al Kaschalk:

Okay. I think we'll all be remised if we didn't ask you, so let's take the shot. What do you think will be a logical response by Home Depot to the announcement from Lowe's given the exclusive that we were -- at least that you had historically with that company?
Harry Smith:

Well, that's a great question. We're working through that now obviously, we understood and know where we stand in relation to that and we're building our model the best works front line Precisionaire. We have got a really good relationship with those guys and we're working through all the issues we've got. I'll leave it to that at that point in time. But I think, we are going to get some.
Al Kaschalk:

Okay, thank you.
Harry Smith:

Thank you, Al.
Operator:

Your next question comes from Bill Nasgovitz with Heartland Funds.
Harry Smith:

Hey Bill.
Bill Nasgovitz:

Yes, good afternoon. Hey, what's your revolver limit and where are you on it?
Harry Smith:

Cully?
Cully Bohush:

We have a total line of $36 million and at the end of the year, we are about $9.5 million. Today, after depending on one area, as our $3 million cash injection hits, we are a little bit, slightly less than that.
Bill Nasgovitz:

Okay.
Harry Smith:

We have got some availability, Bill.
Bill Nasgovitz:

All right. So do you think, MOX, well, before I go to MOX, two questions. Number one, in terms of this turnaround, one to 10, where do you think you are in being there?
Harry Smith:

Well I'm tired, but I'd say about five. To probably guide, as we understand where the other five is, or just pleased on getting there. I feel, we are about half way through. WE have still got some big stuff to accomplish. I think, there is going to be a transition. If we were to guess, a great company with an incredible model in this industry that can make good money, just got to clean it up and run better.
Bill Nasgovitz:

All right. Okay. That's fair enough.
Harry Smith:

I think we are about half way through.
Bill Nasgovitz:

And then did you say, MOX, they could, you never know what the government here. But you thought that they might let this sometime in late March?
Cully Bohush:

Yeah, the initial indication by MOX services was -- let me clarify. There is multiple glove boxes on this project and the whole project will not be [wrapped] at once. The one thing we want to do is, a safe approach. For the first [RFUs] for two glove boxes, and the expected let on those two glove boxes was the end of March.
Bill Nasgovitz:

Okay. And what is the potential size of this market? I know that over a multiyear period, how big could this be in total and I realize and what might be your expectations for your share?
Harry Smith:

On MOX.
Bill Nasgovitz:

Yeah.
Cully Bohush:

Kind of what's been put up in the public arena is that over 20-year period, the whole project is going to be worth anywhere from $1 billion to $2 billion. And obviously, we expect to get a piece of that, whether it's $500 million or $300 million, I don't really know the answer to that.
Harry Smith:

(Inaudible) as a price, is a kind of a pop. I didn't put it in the numbers intentionally, the hampers that we'll have three years of really big sales and they will get back at our core business, which we've got good plans forward. But that's how kind of one would approach. We feel good about it, there is another people that can build on the size. And there is everybody trying about. I mean, we do a lot of business with them, we do them now. We have got the NQA program we feel good about. We have got a great team in place and I think based on the size of the projects, yes, we will be very successful there.
Bill Nasgovitz:

Okay. Well congratulations on some meaningful progress and we look forward to the second half?
Harry Smith:

Yeah, absolutely. We'll give it another five. Hopefully the same, Bill.
Bill Nasgovitz:

Thank you.
Operator:

Your next question comes from Don Barr with Buckingham Capital.
Don Barr:

Yes. I wondered if you could just go through the balance sheet and the income statement for this quarter with us, a little bit?
Harry Smith:

Don, I'm glad to do that. I mean, it's out there for you. I'm not going to spend a whole lot of time talking about 2007, there is nothing I can do about it. It is what it is. I would really prefer not to spend a whole lot of time spinning wheels on 2007, I think we've explained it. Most people that follow the company understand it and for some specifics, we can answer for you, and that's great. But I'm not going to spend a whole lot of time talking about 2007.
Don Barr:

Sure. Can you just maybe run through what are receivables, what are inventories right now?
Harry Smith:

Yeah, that's a great question, Cully?
Cully Bohush:

Receivables were $49.1 million, inventory about $47.2 million.
Don Barr:

Okay. And how about payables?
Cully Bohush:

Payables was $30 million.
Don Barr:

Okay. And then, long-term debt in current portion?
Cully Bohush:

Yeah. The current portion is about $2.7. Out of total long-term debt of $42.8 -- sorry, sorry, $32.3.
Don Barr:

Okay. And then just on the income statement, gross margin for the quarter, looks like it's about 8%, did I read that right?
Cully Bohush:

Yes.
Don Barr:

Okay.
Harry Smith:

We've got a nice bump in that number, Don, in January, and I think, well I know it's all relative to shedding of the verticality. We'll see if that holds up in February.
Don Barr:

Do you think we get back into double-digits here in first quarter?
Harry Smith:

We were double-digits in January. That's not a trend in my eyes. I'm still feeling a lot of the heat. We'll see how February and March work out. We need some more sales to our plans. I mean that has been our biggest issue so far and I'd say, the first quarter is relative to retail. Linda is doing a great job of rebuilding it, but we need some more sales. We feel good about it, we'll see what happens.
Don Barr:

Operating expenses looked like they had an uptick this quarter. Is there some onetime or charges in there?
Harry Smith:

Just bear with me for one second. Answer is yes. I'll let Cully get through it.
Cully Bohush:

Yeah. A large portion was -- some of the work we did in the third quarter, which was to increase some of our reserves, our AR reserves, about $7.5 million higher than last year. Additionally we had some advertising and marketing expenses mainly related to probably our royalty agreements. We had a settlement with Reckitt-Benckiser.
Don Barr:

And this will all be in the Q?
Cully Bohush:

Yes. And of course the freight costs were up.
Don Barr:

Okay. Looks like it was up, I mean, total expenses $3 million sequentially. So about $14 million spent. $3 million more over the run rate, not counting last quarter?
Cully Bohush:

You're talking about quarter-to-date operating expenses?
Don Barr:

I'm talking about fourth quarter operating expenses.
Cully Bohush:

Yeah. It's about $4 million higher.
Don Barr:

Okay. And should we expect it to be at this level for next year?
Cully Bohush:

No.
Don Barr:

Okay, all right. And one last question, maybe this is for Linda. On the ARM & HAMMER product, where do you stand with that in the stores in the retail side now? And what are the thoughts on it for the year?
Linda Hermann:

We have ARM & HAMMER in the grocer segment. We have ARM & HAMMER in mass merchant. We have Arm & Hammer in the Big-Box, home improvement.
Don Barr:

So you've got pretty good availability on the shelves?
Linda Hermann:

Yes, I mean you go in there, you'll see it there, yeah.
Don Barr:

Okay. And we should stay that way through the year or sounds like this might be an area where you focus more on the higher price product?
Linda Hermann:

We're developing a new line of ARM & HAMMER products just as we had developed a new line for air products. And combined, the excellent filters that they are to lead in the retail and combine that with the ARM & HAMMER name, which is incredibly strong and the added feature that no else has recognized odor control of baking soda, I think it's powerful.
Harry Smith:

Don, most of that fourth quarter just so you know, and only to wrap this thing up before it goes too long, there was a lot of delineation of verticality and streamline accompanied by the core competence. So we are in good shape there, if I can, I may become a bump along, I've got some other people's pending query.
Operator:

Thank you. Your next question is coming from [Brandon Austin with Venator].
Harry Smith:

Hey Brandon.
Brandon Austin:

Hi, guys. Just I'm relatively new to the story here. I just wanted some of the numbers you were talking about with that, gentlemen that came on last there. So, your gross profit margin, I guess ran 8% in the quarter, but its factored (inaudible). What do you think the proper run rates -- I mean you guys have sort of been at 20, then you went down to 15. Is the goal to get back to 20, or things like fuel and commodity costs made that really challenging now?
Harry Smith:

We've have got some challenges there. What we are doing is run it by the numbers and passing a lot of that either from a fuel surcharge standpoint or a pricing standpoint. All our customers understand, if I'm not profitable, okay, in shipping products, we've been very upfront about that. We are not trying to look and kill, we're just trying to make enough money to continue to invest and give our shareholders a return. But I'm not going to put that guidance out here, Brandon. You need to let me run for the first quarter and get my feet wet, before I make another good guesstimate, like I did in the third quarter.
Brandon Austin:

Okay. On the operating expense side, I guess you guys suggested you are sort of $14 million, $15 million. In Q4, is that like a quarterly run rate, are there were specific marketing type of activities that had happened and that we can expect your operating expenses maybe a drop back to the $11 million to $12 million you're at coming out of Q2.
Harry Smith:

Brandon, in that fourth quarter, we dealt with a lot of shedding of verticality in cleaning things up to get back the core competence. I mean, we incurred a lot of calls to try to get in to January and get the company back. Focus on the core competence. I would love to have closer than two or three more correct [answers], but it didn't happen. But that's where a lot of the expenses incurred. So, no, we will not continue to carry the current expense.
Brandon Austin:

Okay. And what did you mean, when you said an increase in your accounts receivable reserves?
Harry Smith:

Brandon, all that history is out there, we just stepped up our reserve based on manager's opinion on that.
Brandon Austin:

Well, how much did you step up again, did you say it was like $3 million?
Cully Bohush:

No, it was more like around 7.5.
Brandon Austin:

Is that referring more to say returns or is that like smaller home improvement places going under?
Harry Smith:

No. It's just our judgment on what we consider the collectible versus non-collectible versus challenging accounts. So with that Brandon, I need to move on, because I am going to cut this call off here very shortly.
Operator:

Your next question is coming from Gerry Heffernan with Lord Abbett.
Harry Smith:

Hey Gerry.
Gerry Heffernan:

Hi guys. How are you doing?
Harry Smith:

Good.
Gerry Heffernan:

I understand that you are trying to move this along. I will try to catch up with you guys on a one-on-one basis.
Harry Smith:

Okay. Thank you, Gerry.
Gerry Heffernan:

Take care.
Operator:

Your next question is coming from [Tom Leech] with (inaudible).
Harry Smith:

Hi Tom.
Unidentified Analyst:

Yes, good afternoon gentlemen. I've got a question on strategy here. Earlier in the call you said, you'd run this company at $200 million profitable versus $250 million unprofitable. Then later on in the call, you tell us that capacity is running around 69%. You just went through and you chopped a lot of stuff. I mean, should we assume that if things don't work out, we are going to go down to $200 million in revenue and we're going to have to cut more plants? I mean, if our goal was to get small and more profitable, why not cut it now?
Harry Smith:

We haven't made the determination yet. I mean, we are trying to see how things play out. And we are still young in the game and I have a lot of faith in Charlie and Linda to fill our plans that were profitable businesses, and we've changed our model. I think we'll exhaust those resources before a kneejerk and just shrink the model. So we just need a little bit more time. What we are trying to do reaching this far, is give our sales and marketing team an opportunity to go out and get solid profitable business, bud operations get our cost in line, so we are very competitive, so they can do that. And that just doesn't happen overnight.
Unidentified Analyst:

And just so we understand that when we look at your gross margin, what percentage of your gross margins are fixed costs?
Harry Smith:

Cully, do you have those numbers readily available?
Cully Bohush:

What was the question again?
Unidentified Analyst:

Well, the question is, is how big should the plant be to a profitable company. So I am trying to ask of your gross margin or your gross cost, what percent are fixed and what percent are variable?
Cully Bohush:

I don’t have all that information in front of me, Tom, unfortunately I apologize.
Harry Smith:

Each one of one our plans are, sort of, different, Tom, based on commercial, industrial, retail, we're blending them together, but a lot of those members we are understanding are sales.
Unidentified Analyst:

Well, just give me a quick hint, is 50% of your costs variable or you don’t think? I don’t even any clue, I am just trying to get first level of assumption?
Harry Smith:

Tom, I got a lot of competitors on the phone call. I am not going to delineate anything in the market in that manner, so I am going to go ahead and move to next caller.
Operator:

You next question is coming from Jim Davin with Davin Capital Corporation.
Harry Smith:

Hey, Jim, how are you doing?
Jim Davin:

I'm fine Harry, thank you. I'm real simple.
Harry Smith:

Thank you.
Jim Davin:

We want to make money, inflation is going up, driven by energy costs, last time I filled my tank in my suburban, and my question is, are you getting price increases from your three principle retail customers, Home Depot, Wal-Mart and now Lowe's?
Harry Smith:

Linda?
Linda Hermann:

Well, of course we are not getting a price increase from Lowe's because we just priced them.
Jim Davin:

I understand. Yes.
Linda Hermann:

Okay. Yes, Wal-Mart received a sizeable price increase and Home Depot we've been working with them on product mix.
Jim Davin:

Okay. So is that a yes or no, ma'am?
Harry Smith:

It’s kind of 50/50. We've took in some new products that are very profitable for us.
Jim Davin:

So you had to go down over there with a baseball bat, and hit them over the head.
Harry Smith:

We don’t take baseball bat to Atlanta.
Jim Davin:

Okay. Second thing is, have you guys received a informal or a formal offer of acquisition from anyone for the purchase of this corporation?
Harry Smith:

Well, that is a rumor that has definitely been flying and my phone is ringing off the hook on that. Jim, we had several people that have a very high level of interest in acquiring the company and that is something right now that we are just not entertaining. We are still working for the turnaround.
Jim Davin:

Okay, thanks. As I said I was simple. Raise prices, make money and sell the company. Thank you.
Harry Smith:

Okay.
Operator:

Thank you. Your final question is coming from Jamie Wilen with Wilen Management.
Harry Smith:

Hi Jamie, how are you doing?
Jamie Wilen:

Very good. Real quickly, did you say your objective inventory was 11 turns?
Harry Smith:

We didn’t say that. And Kevin, if you got a number you can give Jamie on inventory turns.
Kevin Boyd:

I spoke about it.
Harry Smith:

Oh he did. Yes he said 11 turns, Jamie.
Jamie Wilen:

11 turns, that means the $200 million your inventory would have to be significantly lower than it is today. Are you going to be taking $20 million out of inventory over time?
Harry Smith:

Our goal is to manage our inventory a lot better than we had. We brought [Darrel Wilson] back, he is our Chief Information Officer. Kevin has got a lot of models in place including those who are playing differently on raw materials and yeah, I think that is his goal.
Jamie Wilen:

Okay.
Harry Smith:

We will keep our eye on it.
Jamie Wilen:

Okay. And then at 69% of capacity you have got, that's at the current level without Bartow being rebuilt?
Harry Smith:

We've got three facilities in Bartow, Miami. Bartow, we're just streamlining, we haven't got as much duplication of effort. I mean we are going to streamline that automation. That operation is going to be fully automated. So, it will be a lot more profitable when we get it under one roof. Right now it is really creating us a drag. We're just having to deal with it because Kevin is operating now at three different facilities, three different sets of raw materials, three different sets of people upfront, going on it all alone, but that's a big market for us. It is an important market for us. That will be another part of getting into a [T] and as Bill said I am going to fire now and that just takes time, Jamie.
Jamie Wilen:

Got you. And lastly with Lowe’s, could you tell me what product lines are actually going in there and who you indeed are replacing?
Harry Smith:

Got glass and plate product going in there? I rather not say who we are replacing.
Jamie Wilen:

Okay. Good luck on the turn around, let's watch you go from 5 to 10, it will be fun.
Harry Smith:

Thank you Jamie, I appreciate your support.
Jamie Wilen:

Thank you.
Harry Smith:

Thanks everybody. With that I'm going to wrap up the fourth quarter earnings call. I'm going to look forward to the first quarter earnings call and I appreciate your support.
Operator:

This concludes today's Flanders Corp. conference call. You may now disconnect.

Other Fidelity Low Duration Bond Factor ETF earnings call transcripts:

Q4 (2008) FLDR earnings call transcript

Fidelity Low Duration Bond Factor ETF Q4 2007 Earnings Call Transcript

Other Fidelity Low Duration Bond Factor ETF earnings call transcripts:

Fidelity Low Duration Bond Factor ETF
Q4 2007 Earnings Call Transcript