<PAGE>
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 JUNE 30, 1996
[ ] 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: (516) 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 August 1, 1996, there were outstanding 2,928,867 shares of the
Registrant's Class A Common Stock, par value $1.00 per share.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
---------------------------------------
---------------------------------------
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
------
CURRENT:
Cash $ 779,667 $ 1,224,603
Accounts receivable, less allowance
for possible losses of $388,890
in 1996 and $350,684 in 1995 6,358,734 9,163,246
Inventories 14,944,854 14,903,561
Note receivable from officer 40,000 65,000
Deferred income taxes 423,000 423,000
Prepaid expenses and other assets 251,226 367,988
------------ ------------
TOTAL CURRENT ASSETS 22,797,481 26,147,398
------------ ------------
PROPERTY AND EQUIPMENT:
Land 993,020 993,020
Buildings and improvements 4,505,889 4,505,889
Machinery and equipment 5,516,985 5,394,134
------------ ------------
11,015,894 10,893,043
Less accumulated depreciation
and amortization 5,082,420 4,760,074
------------ ------------
NET PROPERTY AND EQUIPMENT 5,933,474 6,132,969
------------ ------------
GOODWILL, net of accumulated
amortization of $878,140 in
1996 and $828,946 in 1995 2,935,627 2,984,821
OTHER ASSETS, net of accumulated
amortization of $526,661 in 1996
and $518,663 in 1995 132,686 150,484
------------ ------------
TOTAL ASSETS $ 31,799,268 $ 35,415,672
------------ ------------
------------ ------------
1
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
---------------------------------------
---------------------------------------
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 2,527,546 $ 4,233,753
Accounts payable 2,307,405 3,499,174
Accruals and other liabilities 1,205,623 2,222,870
Current maturities of long-term debt 265,411 353,874
------------ ------------
TOTAL CURRENT LIABILITIES 6,305,985 10,309,671
LONG-TERM DEBT, less current maturities 5,857,847 6,044,981
SUBORDINATED DEBENTURES 1,369,200 1,369,200
------------ ------------
13,533,032 17,723,852
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $10 par, cumulative;
shares authorized 2,000,000;
outstanding 263,345 2,633,450 2,633,450
Common stock:
Class A - $1 par; shares authorized
7,000,000; outstanding 2,928,867;
reserved for options 1,632,200
shares; reserved for warrants
70,000 shares 2,928,867 2,928,867
Class B - $1 par; shares authorized
2,000,000 -- --
Additional paid-in capital 7,607,614 7,607,614
Retained earnings 5,096,305 4,521,889
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 18,266,236 17,691,820
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 31,799,268 $ 35,415,672
------------ ------------
------------ ------------
2
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 9,593,600 $ 10,696,735 $ 18,927,735 $ 20,301,270
Other 97,610 101,873 139,900 126,527
------------ ------------ ------------ ------------
9,691,210 10,798,608 19,067,635 20,427,797
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 6,329,359 7,427,931 12,472,364 13,814,353
Selling, administrative and general 2,443,414 2,436,948 4,716,751 4,863,894
Interest - net 201,369 285,012 432,885 518,624
Depreciation 135,272 163,171 303,546 310,893
------------ ------------ ------------ ------------
9,109,414 10,313,062 17,925,546 19,507,764
------------ ------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME 581,796 485,546 1,142,089 920,033
TAXES ON INCOME 226,000 187,000 436,000 349,000
------------ ------------ ------------ ------------
NET INCOME $ 355,796 $ 298,546 $ 706,089 $ 571,033
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Preferred dividends $ 65,837 $ 65,837 $ 131,673 $ 131,673
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income attributable
to common stock $ 289,959 $ 232,709 $ 574,416 $ 439,360
--------- --------- --------- ---------
--------- --------- --------- ---------
Average number of common shares
and common share equivalents
- primary 3,215,884 3,355,918 3,188,124 3,355,918
--------- --------- --------- ---------
--------- --------- --------- ---------
- fully diluted 3,268,415 3,355,918 3,269,371 3,355,918
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share of common
stock - primary and fully diluted $ .09 $ .07 $ .18 $ .13
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
3
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
---------------------------------------
---------------------------------------
SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 706,089 $ 571,033
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 394,160 436,889
Deferred income taxes -- 322,000
Provision for losses on
accounts receivable 54,486 45,917
Decrease (increase):
Accounts receivable 2,750,026 1,352,958
Inventories (41,293) 400,057
Note receivable from officer 25,000 20,000
Prepaid expenses and other assets 108,740 198,870
Other assets 3,200 (2,691)
Increase (decrease):
Accounts payable (1,191,769) 351,373
Accruals and other (1,017,247) (1,022,448)
------------ ------------
Total adjustments 1,085,303 2,102,925
------------ ------------
Net cash provided by
operating activities 1,791,392 2,673,958
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (122,851) (124,067)
Payment for acquisition of assets
of Tradesman Tool Co. and Intech
Industries, Inc. -- (752,959)
------------ ------------
Net cash used in
investing activities (122,851) (877,026)
------------ ------------
4
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
---------------------------------------
---------------------------------------
SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 7,635,754 5,957,986
Repayments of short-term borrowings (9,341,961) (7,865,016)
Proceeds from mortgage refinancing 2,062,500 --
Principal payments on long-term debt (2,338,097) (171,043)
Dividends paid on preferred stock (131,673) (131,673)
------------ ------------
Net cash used in
financing activities (2,113,477) (2,209,746)
------------ ------------
NET INCREASE (DECREASE) IN CASH (444,936) (412,814)
CASH AT BEGINNING OF PERIOD 1,224,603 1,071,903
------------ ------------
CASH AT END OF PERIOD $ 779,667 $ 659,089
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 600,449 $ 115,487
------------ ------------
------------ ------------
Interest $ 575,683 $ 577,703
------------ ------------
------------ ------------
5
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO 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 consolidated financial statements for the six months ended June 30,
1996 and 1995 are presented as unaudited but, in the opinion of the Company,
they include all adjustments necessary for a fair statement of the results of
operations for those periods. All such adjustments are of a normal recurring
nature. The consolidated balance sheet information for December 31, 1995 was
derived from audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. These interim
financial statements should be read in conjunction with that report.
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 Company conducts its business operations through two wholly-owned
subsidiaries. Florida Pneumatic Manufacturing Corporation ("Florida Pneumatic")
is engaged in the importation, manufacture and sale of pneumatic hand tools for
the industrial, retail and automotive markets and air filters. Florida Pneumatic
also markets, through its Berkley Tool Division ("Berkley"), a line of pipe
cutting and threading tools, wrenches and replacement electrical components for
a widely used brand of pipe cutting and threading machines. Embassy Industries,
Inc. ("Embassy") is engaged in the manufacture and sale of baseboard and radiant
hot-water heating products. Embassy also imports, assembles and packages a line
of small hardware items through its Franklin Hardware division ("Franklin").
BASIS OF FINANCIAL STATEMENT PRESENTATION
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.
6
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
---------------------------------------
---------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Primary and fully diluted earnings per share are computed using the
treasury stock method, modified for stock options and warrants outstanding in
excess of 20% of the total outstanding shares of common stock. Under this
method, the aggregate number of shares outstanding reflects the assumed use of
proceeds from the hypothetical exercise of the outstanding options and warrants,
unless the effect on earnings per share is antidilutive. The assumed proceeds
are used to repurchase shares of common stock, to a maximum of 20% of the shares
outstanding. The balance of the proceeds, if any, are used to reduce outstanding
debt. Fully diluted earnings per share also reflects the assumed use of proceeds
from the hypothetical exercise of contingent issuances if such contingent
issuances have a reasonable possibility of occurring.
In calculating the purchase price of common stock, the average market value
for the period is used for primary earnings per share and the greater of the
average or ending market value for the period is used for fully diluted earnings
per share.
Net income or loss is adjusted for preferred dividends in computing the net
income or loss attributable to the common stock.
NOTE 2 - INVENTORIES
Major classes of inventory were as follows:
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
Finished goods $ 10,775,743 $ 11,004,092
Work in process 989,609 423,114
Raw materials and supplies 3,179,502 3,476,355
------------ ------------
$ 14,944,854 $ 14,903,561
------------ ------------
------------ ------------
7
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
---------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 1996 COMPARED WITH SECOND QUARTER
ENDED JUNE 30, 1995
Consolidated revenues decreased 10.3%, from $10,798,608 to $9,691,210.
Revenues from pneumatic tools and related equipment decreased 15.0%, from
$8,402,944 to $7,140,977. The loss of a large customer in late 1995 resulted in
a decrease in revenues of $743,642. The balance of the decrease in revenues from
pneumatic tools and related equipment was the result of lower sales to existing
customers. Selling prices of pneumatic tools and related equipment increased
approximately 2.7%.
Revenues from heating equipment increased 10.9%, from $1,394,636 to
$1,546,595. Selling prices of heating equipment increased approximately 2.0%.
Revenues from hardware and the selling prices of hardware were both unchanged.
Consolidated gross profit, as a percentage of revenues, increased from
31.2% to 34.7%. Gross profit from pneumatic tools and related equipment
increased from 30.2% to 35.5%, due to the increased selling prices and a more
favorable exchange rate of the dollar compared to the Japanese yen, which
reduced the cost of imported product. These improvements in gross profit were
partially offset by a less favorable product mix. Gross profit from heating
equipment decreased from 35.3% to 33.2%. Higher material costs and a less
favorable product mix more than offset the 2.0% increase in selling prices.
Gross profit from hardware decreased from 30.8% to 27.8%, due to a less
favorable product mix.
Consolidated selling, administrative and general expenses were virtually
unchanged, but increased as a percentage of revenues, from 22.6% to 25.2%, due
to the decreased revenues.
8
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
---------------------------------------
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED
JUNE 30, 1995
Consolidated revenues decreased 6.7%, from $20,427,797 to $19,067,635.
Revenues from pneumatic tools and related equipment decreased 11.1%, from
$15,662,830 to $13,925,344. The loss of a large customer in late 1995 resulted
in a decrease in revenues of $1,396,612. Selling prices of pneumatic tools and
related equipment increased approximately 2.8%.
Revenues from heating equipment increased 7.6%, from $2,958,752 to
$3,183,256. Selling prices of heating equipment increased approximately 3.0%.
These higher selling prices and the increased sales of radiant heating products
accounted for the increase in revenues from heating equipment. Revenues from
hardware increased 8.0%, from $1,812,828 to $1,958,088. Selling prices of
hardware were unchanged.
Consolidated gross profit, as a percentage of revenues, increased from
32.4% to 34.6%. Gross profit from pneumatic tools and related equipment
increased from 32.0% to 35.6%, due to the increased selling prices and a more
favorable exchange rate of the dollar compared to the Japanese yen, which
reduced the cost of imported product. These improvements in gross profit were
partially offset by a less favorable product mix. Gross profit from heating
equipment decreased from 34.6% to 33.2%. Higher material costs and a less
favorable product mix more than offset the 3.0% increase in selling prices.
Gross profit from hardware decreased from 28.3% to 25.9%, due to a less
favorable product mix.
Consolidated selling, general and administrative expenses decreased 3.0%,
from $4,863,894 to $4,716,751, but increased as a percentage of revenues, from
23.8% to 24.7%, due to the decreased revenues.
9
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
---------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company gauges its liquidity and financial stability by the
measurements shown in the following table (dollar amounts in thousands):
JUNE 30, DECEMBER 31, JUNE 30,
1996 1995 1995
--------- ------------ ---------
Working Capital $ 16,491 $ 15,838 $ 15,053
Current Ratio 3.62 to 1 2.54 to 1 3.42 to 1
Shareholders' Equity $ 18,266 $ 17,692 $ 16,903
During the six months ended June 30, 1996, gross accounts receivable
decreased by approximately $2,770,000. This decrease was the result of the
collection of the unusually high level of accounts receivable at December 31,
1995, including approximately $2,337,000 in one-time sales to a customer in
December 1995. Part of the monies received from the collection of these accounts
receivable was used to reduce short-term borrowings, which decreased by
approximately $1,710,000.
The Company's credit facilities provide a line of credit totalling
$18,000,000. Of this amount, $14,000,000 is available for direct loans, letters
of credit and bankers' acceptances. At June 30, 1996, there were loans totalling
approximately $2,528,000 outstanding against this line of credit. In addition,
there was a commitment at June 30, 1996 of approximately $1,686,000 for letters
of credit. The total line of credit also includes $4,000,000 earmarked for
acquisitions subject to the lending bank's approval. The Company's credit
facilities also provide 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 June 30, 1996 was
approximately $1,732,000.
The Company's credit facilities agreement is subject to annual review by
the lending bank. Under this agreement, the Company is required to adhere to
certain financial covenants. At June 30, 1996, and for the six months then
ended, the Company satisfied all of these covenants.
In April 1996, the mortgage on the Company's Farmingdale, New York facility
was refinanced. The original principal balance on the new mortgage was
$2,062,500. Payments of principal and interest are due monthly through May 2006,
at which time the entire remaining unpaid principal balance will be due. The
interest rate on the new mortgage is variable, as was the interest rate on the
previous mortgage. At June 30, 1996, the interest rate on the new mortgage was
approximately 7.9%, which was lower than the interest rate on the previous
mortgage.
10
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
---------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company is currently conducting an extensive acquisition search. The
funds for an acquisition will be provided by the Company's credit facilities
described above. The total funds available, including cash derived from
operations, will be approximately $9,000,000.
Capital spending for the six months ended June 30, 1996 was approximately
$125,000. The total amount was provided from working capital. Capital
expenditures for the rest of 1996 are expected to total approximately $375,000,
some of which may be financed. Included in the expected total for 1996 are
capital expenditures relating to new products, expansion of existing product
lines and replacement of old equipment.
On February 15, 1995, Florida Pneumatic purchased the assets and business
of Tradesman Tool Co., Inc. ("Tradesman"), a domestic manufacturer of heavy-duty
pipe wrenches. On March 31, 1995, Florida Pneumatic purchased the assets and
business of Intech Industries, Inc. ("Intech"), a domestic manufacturer of air
filters used in compressors. Cash totalling approximately $753,000 was paid for
these purchases. The operations of both Tradesman and Intech were merged into
the operations of Florida Pneumatic.
The Company, through Florida Pneumatic, imports a significant amount of its
purchases from Japan, with payment due in Japanese yen. As a result, the Company
is subject to the effects of foreign currency exchange fluctuations. The Company
uses a variety of techniques to protect itself from 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. Because of these steps taken
by the Company, foreign currency exchange rate fluctuations have not had a
significant negative effect on the Company's results of operations or its
financial position. Any future weakness of the dollar would again, however,
present a problem and there can be no certainty that the Company will continue
to be successful in its efforts to counter this problem.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended June 30, 1996.
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/ Leon D. Feldman
-----------------------------
Leon D. Feldman
Executive Vice President
Dated: August 1, 1996 (Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 779,667
<SECURITIES> 0
<RECEIVABLES> 6,358,734<F1>
<ALLOWANCES> 0
<INVENTORY> 14,944,854
<CURRENT-ASSETS> 22,797,481
<PP&E> 11,015,894
<DEPRECIATION> 5,082,420
<TOTAL-ASSETS> 31,799,268
<CURRENT-LIABILITIES> 6,305,985
<BONDS> 7,227,047
0
2,633,450
<COMMON> 2,928,867
<OTHER-SE> 12,703,919
<TOTAL-LIABILITY-AND-EQUITY> 31,799,268
<SALES> 18,927,735
<TOTAL-REVENUES> 19,067,635
<CGS> 12,472,364
<TOTAL-COSTS> 12,472,364
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432,885
<INCOME-PRETAX> 1,142,089
<INCOME-TAX> 436,000
<INCOME-CONTINUING> 706,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706,089
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE
</FN>
</TABLE>
