-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O24WZOf6alABWbnVSeGvKCfaWd0xlYmA/mTQUSt5neI/xgSKnijpmAjZOJI1tNLZ 1ddwx2R2a97dJwhp1RqaMQ== /in/edgar/work/0001005477-00-007725/0001005477-00-007725.txt : 20001114 0001005477-00-007725.hdr.sgml : 20001114 ACCESSION NUMBER: 0001005477-00-007725 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: P&F INDUSTRIES INC CENTRAL INDEX KEY: 0000075340 STANDARD INDUSTRIAL CLASSIFICATION: [3540 ] IRS NUMBER: 221657413 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05332 FILM NUMBER: 759334 BUSINESS ADDRESS: STREET 1: 300 SMITH ST CITY: FARMINGDALE STATE: NY ZIP: 11735 BUSINESS PHONE: 5166941800 FORMER COMPANY: FORMER CONFORMED NAME: PLASTICS & FIBERS INC DATE OF NAME CHANGE: 19671225 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 10-Q --------- |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1 - 5332 P & F INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 22-1657413 (State of incorporation) (I.R.S. Employer Identification Number) 300 SMITH STREET, FARMINGDALE, NEW YORK 11735 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (631) 694-1800 --------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| As of November 7, 2000, there were outstanding 3,608,433 shares of the Registrant's Class A Common Stock, par value $1.00 per share. P & F INDUSTRIES, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 TABLE OF CONTENTS PAGE PART I ---- - ------ Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 1 - 2 Consolidated Statements of Income for the three months and the nine months ended September 30, 2000 and 1999 3 Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2000 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 5 - 6 Notes to Consolidated Financial Statements 7 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of proceeds 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 EXHIBIT INDEX 19 - 20 i PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ======================================= SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ ASSETS ------ CURRENT: Cash $ 767,532 $ 1,305,351 Accounts receivable, less allowance for possible losses of $495,123 in 2000 and $767,456 in 1999 14,223,207 12,086,000 Inventories 26,104,842 20,614,501 Deferred income taxes 532,000 532,000 Prepaid expenses and other 907,293 570,914 ------------ ------------ TOTAL CURRENT ASSETS 42,534,874 35,108,766 ------------ ------------ PROPERTY AND EQUIPMENT: Land 1,182,938 1,182,939 Buildings and improvements 5,968,893 5,942,838 Machinery and equipment 12,026,225 11,078,539 ------------ ------------ 19,178,056 18,204,316 Less accumulated depreciation and amortization 8,267,941 7,200,142 ------------ ------------ NET PROPERTY AND EQUIPMENT 10,910,115 11,004,174 ------------ ------------ GOODWILL, net of accumulated amortization of $1,757,803 in 2000 and $1,514,476 in 1999 7,707,155 7,950,482 OTHER ASSETS 166,588 176,937 ------------ ------------ TOTAL ASSETS $ 61,318,732 $ 54,240,359 ============ ============ 1 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED) ======================================= SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term borrowings $ 10,000,000 $ 6,000,000 Accounts payable 6,375,695 5,592,249 Accruals: Compensation 2,028,259 2,474,519 Other 2,341,617 2,173,516 Current maturities of long-term debt 951,136 947,884 ------------ ------------ TOTAL CURRENT LIABILITIES 21,696,707 17,188,168 LONG-TERM DEBT, less current maturities 6,724,315 7,325,661 DEFERRED INCOME TAXES 702,000 702,000 ------------ ------------ 29,123,022 25,215,829 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred stock - $10 par; authorized - 2,000,000 shares; no shares outstanding -- -- Common stock: Class A - $1 par; authorized - 7,000,000 shares; issued - 3,652,893 shares and 3,504,893 shares 3,652,893 3,504,893 Class B - $1 par; authorized - 2,000,000 shares; no shares issued or outstanding -- -- Additional paid-in capital 8,451,789 8,282,602 Retained earnings 20,782,028 17,735,535 Treasury stock, at cost (69,160 shares and 49,235 shares) (691,000) (498,500) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 32,195,710 29,024,530 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 61,318,732 $ 54,240,359 ============ ============ 2 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) ---------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2000 1999 2000 1999 ------------ ------------ ------------ ------------ REVENUES: Net sales $ 21,645,406 $ 20,219,270 $ 61,035,604 $ 54,983,995 Other 199,351 139,109 569,848 574,809 ------------ ------------ ------------ ------------ 21,844,757 20,358,379 61,605,452 55,558,804 ------------ ------------ ------------ ------------ COSTS AND EXPENSES: Cost of sales 15,639,334 14,027,734 42,717,447 38,232,924 Selling, administrative and general 4,262,709 3,987,012 12,910,501 11,603,179 Interest - net 389,897 371,691 1,067,011 973,328 ------------ ------------ ------------ ------------ 20,291,940 18,386,437 56,694,959 50,809,431 ------------ ------------ ------------ ------------ INCOME BEFORE TAXES ON INCOME 1,552,817 1,971,942 4,910,493 4,749,373 TAXES ON INCOME 593,000 738,000 1,864,000 1,800,000 ------------ ------------ ------------ ------------ NET INCOME $ 959,817 $ 1,233,942 $ 3,046,493 $ 2,949,373 ============ ============ ============ ============ Weighted average common shares outstanding: Basic 3,584,324 3,455,208 3,546,203 3,340,868 Diluted 3,699,113 3,718,914 3,691,470 3,727,195 Earnings per share of common stock: Basic $ .27 $ .35 $ .86 $ .88 Diluted $ .26 $ .33 $ .83 $ .79
3 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) ===============================================
ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK ----------- ----------- ------------ --------- Balance, January 1, 2000 $ 3,504,893 $ 8,282,602 $ 17,735,535 ($ 498,500) Net income for the nine months ended September 30, 2000 -- -- 3,046,493 -- Exercise of stock options, 148,000 shares 148,000 169,187 -- -- Common stock received on exercise of stock options, 19,925 shares -- -- -- (192,500) ----------- ----------- ------------ --------- Balance, September 30, 2000 $ 3,652,893 $ 8,451,789 $ 20,782,028 ($ 691,000) =========== =========== ============ =========
4 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ======================================== NINE MONTHS ENDED SEPTEMBER 30, ------------------ 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,046,493 $ 2,949,373 ------------ ------------ Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 1,067,799 996,394 Amortization 254,520 239,872 (Gain) on disposal of fixed assets (41,193) -- Provision for losses on accounts receivable - net 2,655 4,481 Decrease (increase): Accounts receivable (2,139,862) (5,656,303) Inventories (5,490,341) (9,433,084) Prepaid expenses and other (336,379) (297,015) Other assets (844) 22,721 Increase (decrease): Accounts payable 783,446 3,955,768 Accruals and other (278,159) 250,588 ------------ ------------ Total adjustments (6,178,358) (9,916,578) ------------ ------------ Net cash used in operating activities (3,131,865) (6,967,205) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (973,741) (1,646,470) Proceeds from sale of fixed assets 41,194 -- ------------ ------------ Net cash used in investing activities (932,547) (1,646,470) ------------ ------------ 5 P & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) --------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ------------------ 2000 1999 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term borrowings 7,000,000 10,500,000 Repayments of short-term borrowings (3,000,000) (1,500,000) Proceeds from mortgage refinancing -- 1,800,000 Principal payments on long-term debt (598,094) (3,902,830) Proceeds from exercise of stock options 124,687 29,025 ------------ ------------ Net cash provided by financing activities 3,526,593 6,926,195 ------------ ------------ NET (DECREASE) INCREASE IN CASH (537,819) (1,687,480) CASH AT BEGINNING OF PERIOD 1,305,351 2,280,788 ------------ ------------ CASH AT END OF PERIOD $ 767,532 $ 593,308 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 1,826,470 $ 1,625,300 ============ ============ Interest $ 1,064,695 $ 1,010,770 ============ ============ During the nine months ended September 30, 2000, the Company received 19,925 shares of common stock in connection with the exercise of stock options. The value of these shares was recorded at $192,500. 6 P & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =========================================== NOTE 1 - SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements contained herein include the accounts of P & F Industries, Inc. and its subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The Company conducts its business operations through three wholly-owned subsidiaries. Embassy Industries, Inc. ("Embassy") is engaged in the manufacture and sale of baseboard heating products and the importation and sale of radiant heating systems. Embassy also imports a line of door and window hardware items through its Franklin Manufacturing division. Florida Pneumatic Manufacturing Corporation ("Florida Pneumatic") is engaged in the importation, manufacture and sale of pneumatic hand tools, primarily for the industrial and retail markets, and the importation and sale of compressor air filters. Florida Pneumatic also markets, through its Berkley Tool division, a line of pipe cutting and threading tools, wrenches and replacement electrical components for a widely used brand of pipe cutting and threading machines. Green Manufacturing, Inc. ("Green") is engaged primarily in the manufacture, development and sale of heavy-duty welded custom designed hydraulic cylinders. Green also manufactures a line of access equipment for the petro-chemical industry and a line of post hole digging equipment for the agricultural industry. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, the unaudited consolidated financial statements include all adjustments necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not necessarily indicative of results to be expected for a full year, since the operations of some of the Company's subsidiaries are seasonal in nature. The consolidated balance sheet information for December 31, 1999 was derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. These interim financial statements should be read in conjunction with that Report. 7 P & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED) BASIS OF FINANCIAL STATEMENT PRESENTATION (CONTINUED) In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - INVENTORIES Major classes of inventory were as follows: SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ Finished goods $ 21,354,264 $ 15,673,198 Work in process 1,050,680 812,929 Raw materials and supplies 3,699,898 4,128,374 ------------ ------------ $ 26,104,842 $ 20,614,501 ============ ============ NOTE 3 - CAPITAL STOCK TRANSACTIONS During the nine months ended September 30, 2000, a director of the Company surrendered 13,144 shares of Class A Common Stock, with a fair value of $130,625, in connection with the exercise of options to purchase 50,000 shares of Class A Common Stock. Also during the nine months ended September 30, 2000, an employee of the Company surrendered 6,781 shares of Class A Common Stock, with a fair value of $61,875, in connection with the exercise of options to purchase 35,000 shares of Class A Common Stock. 8 P & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== NOTE 4 - SEGMENTS OF BUSINESS The following tables present financial information by segment for the periods ended September 30, 2000 and 1999. Segment profit excludes general corporate expenses, interest expense and income taxes. There were no intersegment revenues. PNEUMATIC TOOLS AND NINE MONTHS ENDED CON- RELATED HYDRAULIC HEATING SEPTEMBER 30, 2000 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE - ------------------- --------- --------- --------- --------- -------- (In thousands) Revenues from external customers $ 61,605 $ 33,575 $ 16,328 $ 7,285 $ 4,417 ========= ========= ========= ========= ======= Segment profit $ 8,272 $ 6,376 $ 1,052 $ 539 $ 305 ========= ========= ========= ========= ======= PNEUMATIC TOOLS AND NINE MONTHS ENDED CON- RELATED HYDRAULIC HEATING SEPTEMBER 30, 1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE - ------------------- --------- --------- --------- --------- -------- (In thousands) Revenues from external customers $ 55,559 $ 29,016 $ 15,295 $ 6,841 $ 4,407 ========= ========= ========= ========= ======= Segment profit $ 7,982 $ 6,501 $ 729 $ 303 $ 449 ========= ========= ========= ========= ======= PNEUMATIC TOOLS AND THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING SEPTEMBER 30, 2000 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE - ------------------- --------- --------- --------- --------- -------- (In thousands) Revenues from external customers $ 21,844 $ 12,543 $ 4,971 $ 2,895 $ 1,435 ========= ========= ========= ========= ======= Segment profit $ 2,674 $ 2,035 $ 267 $ 298 $ 74 ========= ========= ========= ========= ======= 9 P & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== NOTE 4 - SEGMENTS OF BUSINESS (CONTINUED) PNEUMATIC TOOLS AND THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING SEPTEMBER 30, 1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE - ------------------- --------- --------- --------- --------- -------- (In thousands) Revenues from external customers $ 20,359 $ 10,856 $ 4,980 $ 2,894 $ 1,629 ========= ========= ========= ========= ======= Segment profit $ 3,155 $ 2,652 $ 126 $ 235 $ 142 ========= ========= ========= ========= ======= The reconciliation of combined operating profits for reportable segments to consolidated income before income taxes is as follows: NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2000 1999 ---------- ---------- Total profit for reportable segments $8,272,041 $7,981,890 General corporate expenses (2,294,537) (2,259,189) Interest expense (1,067,011) (973,328) ---------- ---------- Income before income taxes $4,910,493 $4,749,373 ========== ========== THREE MONTHS ENDED SEPTEMBER 30, ----------------------- 2000 1999 ---------- ---------- Total profit for reportable segments $2,673,930 $3,154,893 General corporate expenses (731,216) (811,260) Interest expense (389,897) (371,691) ---------- ---------- Income before income taxes $1,552,817 $1,971,942 ========== ========== 10 P & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ========================================== NOTE 5 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per common share:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Numerator: Numerator for basic and diluted earnings per common share - income available to common shareholders $ 959,817 $ 1,233,942 $ 3,046,493 $ 2,949,373 =========== =========== =========== =========== Denominator: Denominator for basic earnings per share - weighted average common shares outstanding 3,584,324 3,455,208 3,546,203 3,340,868 Effect of dilutive securities: Common stock options 114,789 263,706 145,267 386,327 ----------- ----------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted average common shares and assumed conversions 3,699,113 3,718,914 3,691,470 3,727,195 =========== =========== =========== =========== Earnings per common share: Basic $ .27 $ .35 $ .86 $ .88 ===== ===== ===== ===== Diluted $ .26 $ .33 $ .83 $ .79 ===== ===== ===== =====
11 P & F INDUSTRIES, INC. AND SUBSIDIARIES ======================================= ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER ENDED SEPTEMBER 30, 2000 COMPARED WITH THIRD QUARTER ENDED SEPTEMBER 30, 1999 Consolidated revenues increased 7.3%, from $20,358,379 to $21,844,757. Revenues from pneumatic tools and related equipment increased 15.5%, from $10,856,349 to $12,543,705, due primarily to the addition of a significant new account obtained in the fourth quarter of 1999. Selling prices of pneumatic tools and related equipment were unchanged from the prior year. Revenues from hydraulic cylinders and other equipment were essentially flat, going from $4,979,176 to $4,970,459. Selling prices of hydraulic cylinders and other equipment were unchanged from the prior year. Revenues from heating equipment were virtually unchanged, going from $2,894,313 to $2,895,530. Selling prices of heating equipment were unchanged from the prior year. Revenues from hardware decreased 11.9%, from $1,628,541 to 1,435,063, due primarily to the loss of two significant customers and a decrease in sales to a third customer. Selling prices of hardware products were unchanged from the prior year. Consolidated gross profit, as a percentage of revenues, decreased from 31.1% to 28.4%. Gross margins from pneumatic tools and related equipment decreased from 40.4% to 31.9%, due primarily to decreases in the value of the U.S. dollar as compared to both the Japanese yen and the New Taiwan dollar, which raised the cost of imported product. This decrease was partially offset by a more profitable product mix. Gross margins in the third quarter of 1999 were also higher because of significantly greater production activity in one-time preparation for a major product launch, which resulted in less fixed overhead being associated with each unit produced. Gross margins from hydraulic cylinders and other equipment increased from 11.5% to 15.9%, due primarily to increased productivity of direct labor. Gross margins from heating equipment increased from 34.1% to 35.4%, due primarily to an increase in the value of the U.S. dollar as compared to the Euro, which lowered the cost of imported product. Gross margins from hardware increased from 23.9% to 26.9%, due primarily to the discontinuance of initial order discounts to a significant customer opening new stores. Consolidated selling, administrative and general expenses increased 6.9%, from $3,987,012 to $4,262,709, consistent with the increase in revenues for the period. Interest expense increased 4.9%, from $371,691 to $389,897, due primarily to higher average interest rates. The effective tax rates for the quarters ended September 30, 2000 and 1999 were 38.2% and 37.4%, respectively. 12 NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1999 Consolidated revenues increased 10.9%, from $55,558,804 to $61,605,452. Revenues from pneumatic tools and related equipment increased 15.7%, from $29,016,350 to $33,575,538, due primarily to the addition of a significant new account obtained in the fourth quarter of 1999, which was partially offset by the non-renewal of a large promotion that was run during the fourth quarter of 1999. Selling prices of pneumatic tools and related equipment were unchanged from the prior year. Revenues from hydraulic cylinders and other equipment increased 6.8%, from $15,294,416 to $16,327,893, due primarily to an increase in sales to the wrecker and refuse markets, which was partially offset by a decrease in sales to the aerial lift market. Selling prices of hydraulic cylinders and other equipment were unchanged from the prior year. Revenues from heating equipment increased 6.5%, from $6,841,390 to $7,285,172, due primarily to sales to a new customer in the western territory, higher sales in the radiant area and an increase in sales of commercial products. Selling prices of heating equipment were unchanged from the prior year. Revenues from hardware were virtually unchanged, going from $4,406,648 to $4,416,849. Selling prices of hardware products were unchanged from the prior year. Consolidated gross profit, as a percentage of revenues, decreased from 31.2% to 30.7%. Gross margins from pneumatic tools and related equipment decreased from 40.3% to 37.4%, due primarily to decreases in the value of the U.S. dollar as compared to both the Japanese yen and the New Taiwan dollar, which raised the cost of imported product. Gross margins from hydraulic cylinders and other equipment increased from 13.7% to 15.7%, due to increased productivity of direct labor. Gross margins from heating equipment increased from 34.5% to 34.8%, due to a more profitable product mix and an increase in the value of the U.S. dollar as compared to the Euro, which lowered the cost of imported product. Gross margins from hardware increased from 26.3% to 27.9%, due to a more favorable product mix and the discontinuance of initial order discounts to a significant customer opening new stores. Consolidated selling, administrative and general expenses increased 11.3% from $11,603,179 to $12,910,501, consistent with the increase in revenues for the period. Interest expense increased 9.6%, from $973,328 to $1,067,011, due primarily to higher average interest rates. The effective tax rates for the quarters ended September 30, 2000 and 1999 were 38.0% and 37.9%, respectively. 13 LIQUIDITY AND CAPITAL RESOURCES The Company gauges its liquidity and financial stability by the measurements shown in the following table (dollar amounts in thousands): SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 2000 1999 1999 ------------- ------------ -------------- Working Capital $ 20,838 $ 17,921 $ 16,062 Current Ratio 1.96 to 1 2.04 to 1 1.60 to 1 Shareholders' Equity $ 32,196 $ 29,025 $ 27,428 During the nine months ended September 30, 2000, gross accounts receivable increased by approximately $2,140,000 and inventories increased by approximately $5,490,000. An increase of approximately $1,325,000 in accounts receivable at Florida Pneumatic was the result of increased sales to a significant customer with extended terms, and the timing of cash receipts. An increase of approximately $700,000 in accounts receivable at Embassy Industries was the result of greater sales volume at the end of the third quarter of 2000 than at the end of the fourth quarter of 1999. Florida Pneumatic's inventory increased by approximately $4,200,000, primarily because sales to two significant customers for the last six months were well short of forecasts. Green's inventory increased by approximately $800,000, the result of two factors. First, year-end inventories are generally reduced in preparation for the taking of a physical inventory. Second, inventories have increased due to longer production runs that were initiated to improve profit margins on recurring orders. Short-term borrowings and accounts payable, combined, increased approximately $4,800,000 as a result of the increase in inventories discussed above. Management believes that the inventory is fully saleable. On July 26, 2000, the Company renewed its Credit Agreement, which provides the Company with various credit facilities, including revolving credit loans, term loans for acquisitions and a foreign exchange line. The revolving credit loan facility provides a total of $12,000,000, with various sublimits, for direct borrowings, letters of credit, bankers' acceptances and equipment loans. At September 30, 2000, there was $10,000,000 outstanding against the revolving credit loan facility. There was also a commitment of approximately $42,000 at September 30, 2000 for open letters of credit. The term loan facility provides a commitment of $15,000,000 to finance acquisitions subject to the lending bank's approval. In September 1998, $10,000,000 of the term loan facility was used to help finance the acquisition of Green and there was $3,333,333 still outstanding against this facility at September 30, 2000. This 7-year term loan bears interest at LIBOR (London Interbank Offered Rates) plus 1.75%. The Company made payments of interest only through October 1999, at which time payments of both principal and interest became due. There was also a standby letter of credit totalling approximately $821,000 outstanding against this facility at September 30, 2000. This standby letter of credit was used to secure the Economic Development Revenue Bond assumed as part of the acquisition of Green. 14 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The foreign exchange line provides for the availability of up to $10,000,000 in foreign currency forward contracts. These contracts fix the exchange rate on future purchases of Japanese yen needed for payments to foreign suppliers. The total amount of foreign currency forward contracts outstanding at September 30, 2000 was approximately $2,622,000. The Company's Credit Agreement is subject to annual review by the lending bank. Under the Credit Agreement, the Company is required to adhere to certain financial covenants. At September 30, 2000, and for the nine months then ended, the Company satisfied all of these covenants. Capital spending for the nine months ended September 30, 2000 was approximately $974,000. The total amount was provided from working capital. Capital expenditures for the rest of 2000 are expected to total approximately $460,000, some of which may be financed under the Company's Credit Agreement. Included in the expected total for the rest of 2000 are capital expenditures relating to new products, expansion of existing product lines and replacement of old equipment. The Company, through Florida Pneumatic, imports a significant amount of its purchases from Japan and Taiwan, with payments due in Japanese yen and New Taiwan dollars, respectively. As a result, the Company is subject to the effects of foreign currency exchange fluctuations. The Company uses a variety of techniques to mitigate any adverse effects from these fluctuations, including increasing its selling prices, obtaining price reductions from its overseas suppliers, using alternative supplier sources and entering into foreign currency forward contracts for the purchase of yen. See "Item 3, Quantitative and Qualitative Disclosures About Market Risk." The Company believes that cash on hand, cash generated by future operations and cash available through its credit facilities will be sufficient to allow the Company to support its capital expenditure program and to meet its general working capital needs. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for transactions entered into after January 1, 2001 and requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of the hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will be recognized in earnings. The Company is in the process of reviewing SFAS 133 to determine what impact, if any, the adoption of SFAS 133 will have on its results of operations and its financial position. Based on current market conditions, the Company does not believe that the impact will be material. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks, which include changes in U.S. and international exchange rates, the prices of certain commodities and currency rates as measured against the U.S. dollar and each other. The Company attempts to reduce the risks related to foreign currency fluctuation by utilizing financial instruments. The value of the U.S. dollar affects the Company's financial results. Changes in exchange rates may positively or negatively affect the Company's gross margins and operating expenses. The Company engages in hedging programs aimed at limiting, in part, the impact of currency fluctuations. Using primarily forward exchange contracts, the Company hedges some of those transactions that, when remeasured according to generally accepted accounting principles, impact the income statement. Factors that could impact the effectiveness of the Company's programs include volatility of the currency markets and availability of hedging instruments. All currency contracts that are entered into by the Company are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure, not for speculation. The Company does not buy or sell financial instruments for trading purposes. Although the Company maintains these programs to reduce the impact of changes in currency exchange rates, when the U.S. dollar sustains a weakening exchange rate against currencies in which the Company incurs costs, the Company's costs are adversely affected. At September 30, 2000, the Company held open hedge forward contracts to deliver approximately $2,622,000 of Japanese Yen. The potential loss in value of the Company's net investment in these foreign currency forward contracts resulting from a hypothetical 10 percent adverse change in yen exchange rates at September 30, 2000 is approximately $291,000. 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Registrant is not a party to any litigation that is expected to have a material adverse effect on its business. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See "Exhibit Index" immediately following the signature page. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended September 30, 2000. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. P & F INDUSTRIES, INC. (Registrant) By /s/ Joseph A. Molino, Jr. ------------------------------------- Joseph A. Molino, Jr. Vice President Dated: November 7, 2000 (Principal Financial Officer) 18 EXHIBIT INDEX EXHIBIT NO. 2.1 Asset Purchase Agreement, dated as of September 16, 1998, by and between Green Manufacturing, Inc., an Ohio corporation, and the Registrant (Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated September 16, 1998). Pursuant to Item 601(b)(2) of Regulation S-K, the Registrant agrees to furnish supplementally a copy of any exhibit or schedule omitted from the Asset Purchase Agreement to the Commission upon request. 3.1 Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). 3.2 Amended By-laws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 4.1 Rights Agreement, dated as of August 23, 1994, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A dated August 24, 1994). 4.2 Amendment to Rights Agreement, dated as of April 11, 1997, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated April 11, 1997). 4.3 Credit Agreement, dated as of July 23, 1998, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998). 4.4 Amendment No. 1 to Credit Agreement, dated as of September 16, 1998, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing, Inc., a Delaware corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.4 to the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998). 19 EXHIBIT INDEX (CONTINUED) EXHIBIT NO. 4.5 Amendment No. 2 to Credit Agreement, dated as of July 28, 1999, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing, Inc., a Delaware corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 4.6 Amendment No. 3 to Credit Agreement, dated as of July 26, 2000, by and among the Registrant, Florida Pneumatic Manufacturing Corporation, a Florida corporation, Embassy Industries, Inc., a New York corporation, Green Manufacturing, Inc., a Delaware corporation, and European American Bank, a New York banking corporation (Incorporated by reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.7 Certain instruments defining the rights of holders of the long-term debt securities of the Registrant are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to furnish supplementally copies of these instruments to the Commission upon request. 10.1 Amended and Restated Employment Agreement, dated as of February 28, 1997, between the Registrant and Richard A. Horowitz (Incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998). 10.2 Consulting Agreement, effective as of November 1, 1998, between the Registrant and Sidney Horowitz (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998). 10.3 Consulting Agreement, effective as of November 1, 2000, between the Registrant and Sidney Horowitz. 10.4 1992 Incentive Stock Option Plan of the Registrant, as amended and restated as of March 13, 1997 (Incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998). 27 Financial Data Schedules (submitted to the Securities and Exchange Commission in electronic format). 20 EX-10.3 2 0002.txt CONSULTING AGREEMENT P & F INDUSTRIES, INC. EXHIBIT 10.3 CONSULTING AGREEMENT AGREEMENT, effective as of November 1, 2000, between P & F INDUSTRIES, INC., a Delaware corporation (the "Company") having its principal place of business at 300 Smith Street, Farmingdale, New York 11735, and SIDNEY HOROWITZ, residing at 20596 Links Circle, Boca Raton, Florida 33434 (the "Consultant"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company recognizes the value of the experience, training and background of the Consultant; WHEREAS, the Company wishes to utilize the Consultant's expertise and background regarding the Company; and WHEREAS, the Company and the Consultant wish to replace the Consulting Agreement, dated as of November 1, 1998, between the parties hereto, with this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, it is agreed by and between the parties hereto as follows: 1. Term of Service The term of the Consultant's service pursuant to this Agreement will commence on the effective date hereof and will terminate on October 31, 2003 (the "Consulting Term"). 2. Consulting Arrangements 2.1. The Consultant's services hereunder shall be rendered at such place or places and times, on such subjects and in such manner as shall be satisfactory to him. The Company shall pay the Consultant during the Consulting Term a consulting fee, on a monthly basis in advance, at the rate of $75,000 per annum. 1 2.2. During the Consulting Term, the Consultant shall be entitled to all benefits and service credit for benefits under medical insurance, life insurance and other employee benefit plans, programs and arrangements of the Company as if he were still employed during such period under this Agreement, to the extent that such benefits and service credit are available to consultants to the Company generally under the terms thereof. 3. Events of Termination In the event of the Consultant's death, this Agreement will terminate and the Consultant shall receive his full consulting fee through the date of death. 4. Protection of Information 4.1. In view of the fact that the Consultant's work with the Company will bring him into close contact with many confidential affairs of the Company, including matters of a business nature such as information about costs, profits, markets, sales, plans for future development and other information not readily available to the public, the Consultant will: 4.1.1. keep secret all confidential information relating to the Company and not disclose such information to anyone outside of the Company either during or after his service with the Company, except with the Company's prior written consent; and 4.1.2. deliver promptly to the Company on termination of his services hereunder, or at any time the Company may so request, all memoranda, notes, records, lists, reports and other documents (and all copies thereof) relating to the business of the Company, which he may then possess or have under his control. 5. Miscellaneous 5.1. If any provision contained in this Agreement is hereafter construed to be invalid or unenforceable, such event will not affect the remainder of this Agreement, which will be given full effect, without regard to the invalid portions. 2 5.2. If any covenant contained in Article 4, or any part thereof, is held to be unenforceable because of the duration or scope of such provision or the area covered thereby, the parties agree that the court making such determination will have the power to reduce the duration, scope and/or area of such provision and, in its reduced form, such provision will then be enforceable. 5.3. This Agreement has been negotiated and executed in the State of New York, and will be construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely in New York. 5.4. All notices, requests, consents and other communications required or permitted to be given hereunder will be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first class, postage prepaid, by registered or certified mail (if possible), addressed to either party at the address set forth in the preamble to this Agreement (or to such other address as either party shall designate by notice in writing to the other in accordance herewith). 5.5. The article headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 5.6. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes and will supersede all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof between the Consultant and the Company. 3 5.6.1. This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived only by a written instrument executed by each of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof will in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, will be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement this 12th day of October effective as of the date first above written. P & F INDUSTRIES, INC. By: ----------------------------------- Name: Richard Horowitz Title: President By: ----------------------------------- Name: Sidney Horowitz 4 EX-27 3 0003.txt EXHIBIT 27 FOR 9-30-00 10-Q
5 This financial data schedule contains summary financial information extracted from the consolidated financial statements included in P & F Industries, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 2000 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-2000 SEP-30-2000 767,532 0 14,223,207 0 26,104,842 42,534,874 19,178,056 8,267,941 61,318,732 21,696,707 7,675,451 3,652,893 0 0 28,542,817 61,318,732 61,035,604 61,605,452 42,717,447 42,717,447 0 0 1,067,011 4,910,493 1,864,000 3,046,493 0 0 0 3,046,493 .86 .83 ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE
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