<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 MARCH 31, 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 May 3, 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)
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
CURRENT:
Cash $ 1,287,068 $ 1,224,603
Accounts receivable, less allowance
for possible losses of $373,336
in 1996 and $350,684 in 1995 6,122,691 9,163,246
Inventories 15,093,239 14,903,561
Note receivable from officer 40,000 65,000
Deferred income taxes 423,000 423,000
Prepaid expenses and other assets 338,136 367,988
------------ ------------
TOTAL CURRENT ASSETS 23,304,134 26,147,398
------------ ------------
PROPERTY AND EQUIPMENT:
Land 993,020 993,020
Buildings and improvements 4,505,889 4,505,889
Machinery and equipment 5,413,720 5,394,134
------------ ------------
10,912,629 10,893,043
Less accumulated depreciation
and amortization 4,937,748 4,760,074
------------ ------------
NET PROPERTY AND EQUIPMENT 5,974,881 6,132,969
------------ ------------
GOODWILL, net of accumulated
amortization of $853,543 in
1996 and $828,946 in 1995 2,960,224 2,984,821
OTHER ASSETS, net of accumulated
amortization of $522,662 in 1996
and $518,663 in 1995 129,985 150,484
------------ ------------
TOTAL ASSETS $ 32,369,224 $ 35,415,672
------------ ------------
------------ ------------
1
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 2,183,321 $ 4,233,753
Accounts payable 2,909,267 3,499,174
Accruals and other liabilities 1,619,645 2,222,870
Current maturities of long-term debt 356,185 353,874
------------ ------------
TOTAL CURRENT LIABILITIES 7,068,418 10,309,671
LONG-TERM DEBT, less current maturities 5,955,329 6,044,981
SUBORDINATED DEBENTURES 1,369,200 1,369,200
------------ ------------
14,392,947 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 4,806,346 4,521,889
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 17,976,277 17,691,820
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 32,369,224 $ 35,415,672
------------ ------------
------------ ------------
2
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
------------ -----------
REVENUES:
Net sales $ 9,334,135 $ 9,604,535
Other 42,290 24,654
------------ -----------
9,376,425 9,629,189
------------ -----------
COSTS AND EXPENSES:
Cost of sales 6,143,005 6,386,422
Selling, administrative and general 2,273,337 2,426,946
Interest - net 231,516 233,612
Depreciation 168,274 147,722
------------ -----------
8,816,132 9,194,702
------------ -----------
INCOME BEFORE TAXES ON INCOME 560,293 434,487
TAXES ON INCOME 210,000 162,000
------------ -----------
NET INCOME $ 350,293 $ 272,487
------------ -----------
------------ -----------
Preferred dividends $ 65,836 $ 65,836
------------ -----------
------------ -----------
Net income attributable
to common stock $ 284,457 $ 206,651
------------ -----------
------------ -----------
Average number of common shares
and common share equivalents
- primary 3,160,363 3,355,918
------------ -----------
------------ -----------
- fully diluted 3,228,952 3,355,918
------------ -----------
------------ -----------
Earnings per share of common
stock - primary and fully diluted $ .09 $ .06
------------ -----------
------------ -----------
3
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 350,293 $ 272,487
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 213,581 210,720
Deferred income taxes -- 153,000
Provision for losses on
accounts receivable 27,243 24,999
Decrease (increase):
Accounts receivable 3,013,312 2,297,832
Inventories (189,678) (340,574)
Note receivable from officer 25,000 20,000
Prepaid expenses and other assets 25,841 73,725
Other assets 13,200 3,300
Increase (decrease):
Accounts payable (589,907) 618,526
Accruals and other (603,225) (977,179)
------------ ------------
Total adjustments 1,935,367 2,084,349
------------ ------------
Net cash provided by
operating activities 2,285,660 2,356,836
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,586) (66,459)
Payment for acquisition of assets
of Tradesman Tool Co. and Intech
Industries, Inc. -- (752,959)
------------ ------------
Net cash used in
investing activities (19,586) (819,418)
------------ ------------
4
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 4,530,262 2,442,007
Repayments of short-term borrowings (6,580,694) (4,282,055)
Principal payments on long-term debt (87,341) (85,313)
Dividends paid on preferred stock (65,836) (65,836)
------------ ------------
Net cash used in
financing activities (2,203,609) (1,991,197)
------------ ------------
NET INCREASE (DECREASE) IN CASH 62,465 (453,779)
CASH AT BEGINNING OF PERIOD 1,224,603 1,071,903
------------ ------------
CASH AT END OF PERIOD $ 1,287,068 $ 618,124
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 152,699 $ 94,355
------------ ------------
------------ ------------
Interest $ 264,798 $ 216,694
------------ ------------
------------ ------------
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 three months ended March 31,
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:
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
Finished goods $ 11,062,388 $ 11,004,092
Work in process 1,096,771 423,114
Raw materials and supplies 2,934,080 3,476,355
------------ ------------
$ 15,093,239 $ 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
FIRST QUARTER ENDED MARCH 31, 1996 COMPARED WITH FIRST QUARTER ENDED
MARCH 31, 1995
Consolidated revenues decreased 2.6%, from $9,629,189 to $9,376,425.
Revenues from pneumatic tools and related equipment decreased 6.6%, from
$7,259,886 to $6,784,367. This decrease was primarily the result of the loss, in
late 1995, of a large customer that accounted for $662,207 of revenues in the
first quarter of 1995. Selling prices of pneumatic tools and related equipment
were approximately 2.9% higher than last year's first quarter.
Heating equipment revenues increased 4.6%, from $1,564,116 to $1,636,661.
Selling price increases of approximately 4% over last year accounted for
substantially all of this increase. Hardware revenues increased 17.7%, from
$811,519 to $955,037. Selling prices of hardware were unchanged from the prior
year.
Consolidated gross profit, as a percentage of revenues, rose from 33.7% to
34.5%. Gross profit from pneumatic tools and related equipment rose from 34.0%
to 35.8%, due to the 2.9% selling price increase, which was partially offset by
changes in product mix. Heating equipment gross profit fell from 34.0% to
33.2%. Higher material costs and a less favorable product mix offset the 4%
price increase. Hardware gross profits fell from 25.2% to 23.9% due to a less
favorable product mix.
Consolidated selling, general and administrative expenses decreased 6.3%,
from $2,426,946 to $2,273,337, primarily due to selective overhead reductions
related to the loss of the pneumatic tool customer referred to above.
8
<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):
MARCH 31, DECEMBER 31, MARCH 31,
1996 1995 1995
--------- ----------- ---------
Working Capital $ 16,236 $ 15,838 $ 14,747
Current Ratio 3.30 to 1 2.54 to 1 3.24 to 1
Shareholders' Equity $ 17,976 $ 17,692 $ 16,670
During the quarter ended March 31, 1996, gross accounts receivable
decreased by approximately $3,018,000. 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 declined by
approximately $2,050,000.
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 March 31, 1996, there were loans
totalling approximately $2,185,000 outstanding against this line of credit. In
addition, there was a commitment at March 31, 1996 of approximately $1,612,000
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 March 31, 1996 was
approximately $1,730,000.
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 March 31, 1996, and for the quarter then ended,
the Company satisfied all of these covenants.
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 quarter ended March 31, 1996 was approximately
$20,000. The total amount was provided from working capital. Capital
expenditures for the rest of 1996 are expected to total approximately $480,000,
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.
9
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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.
10
<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 March 31, 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: May 3, 1996 (Principal Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,287,068
<SECURITIES> 0
<RECEIVABLES> 6,122,691
<ALLOWANCES> 0
<INVENTORY> 15,093,239
<CURRENT-ASSETS> 23,304,134
<PP&E> 10,912,629
<DEPRECIATION> 4,937,748
<TOTAL-ASSETS> 32,369,224
<CURRENT-LIABILITIES> 7,068,418
<BONDS> 7,324,529
0
2,633,450
<COMMON> 2,928,867
<OTHER-SE> 12,413,960
<TOTAL-LIABILITY-AND-EQUITY> 32,369,224
<SALES> 9,334,135
<TOTAL-REVENUES> 9,376,425
<CGS> 6,143,005
<TOTAL-COSTS> 6,143,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,516
<INCOME-PRETAX> 560,293
<INCOME-TAX> 210,000
<INCOME-CONTINUING> 350,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 350,293
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
