<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, 1998
[ ] 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 8, 1998, there were outstanding 3,204,345 shares of the
Registrant's Class A Common Stock, par value $1.00 per share.
<PAGE>
P & F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 1 - 2
Consolidated Statements of Income for the
three months ended March 31, 1998 and 1997 3
Consolidated Statements of Cash Flows for
the three months ended March 31, 1998 and 1997 4 - 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
PART II
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 1,078,554 $ 2,092,244
Accounts receivable, less allowance
for possible losses of $417,764
in 1998 and $421,014 in 1997 8,222,037 7,924,941
Inventories 14,472,991 13,382,480
Deferred income taxes 365,000 365,000
Prepaid expenses and other assets 252,755 254,544
------------ ------------
TOTAL CURRENT ASSETS 24,391,337 24,019,209
------------ ------------
PROPERTY AND EQUIPMENT:
Land 846,939 846,939
Buildings and improvements 4,304,779 4,304,779
Machinery and equipment 6,048,404 5,763,749
------------ ------------
11,200,122 10,915,467
Less accumulated depreciation
and amortization 5,438,210 5,257,701
------------ ------------
NET PROPERTY AND EQUIPMENT 5,761,912 5,657,766
------------ ------------
GOODWILL, net of accumulated
amortization of $1,050,319 in
1998 and $1,025,722 in 1997 2,763,448 2,788,045
OTHER ASSETS, net of accumulated
amortization of $54,669 in 1998
and $50,667 in 1997 179,873 183,875
------------ ------------
TOTAL ASSETS $ 33,096,570 $ 32,648,895
------------ ------------
------------ ------------
</TABLE>
1
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
=======================================
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,310,321 $ 4,040,125
Accruals:
Compensation 447,166 1,365,857
Other 1,946,425 1,396,217
Current maturities of long-term debt 157,140 157,140
------------ ------------
TOTAL CURRENT LIABILITIES 7,861,052 6,959,339
LONG-TERM DEBT, less current maturities 3,716,382 3,755,683
DEFERRED INCOME TAXES 444,000 444,000
SUBORDINATED DEBENTURES -- 1,369,200
------------ ------------
12,021,434 12,528,222
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock:
Class A - $1 par; shares authorized
7,000,000; outstanding 3,204,345
and 3,101,845 3,204,345 3,101,845
Class B - $1 par; shares authorized
2,000,000 -- --
Additional paid-in capital 7,843,333 7,772,239
Retained earnings 10,027,458 9,246,589
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 21,075,136 20,120,673
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 33,096,570 $ 32,648,895
------------ ------------
------------ ------------
</TABLE>
2
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Net sales $ 12,529,183 $ 9,188,688
Other 11,941 29,120
------------ ------------
12,541,124 9,217,808
------------ ------------
COSTS AND EXPENSES:
Cost of sales 7,757,233 5,834,214
Selling, administrative and general 3,234,704 2,479,515
Interest - net 115,809 140,838
Depreciation 180,509 169,767
------------ ------------
11,288,255 8,624,334
------------ ------------
INCOME BEFORE TAXES ON INCOME 1,252,869 593,474
TAXES ON INCOME 472,000 232,000
------------ ------------
NET INCOME $ 780,869 $ 361,474
------------ ------------
------------ ------------
Preferred dividends $ -- $ 21,858
Net income available to
common shareholders $ 780,869 $ 339,616
Weighted average common shares outstanding:
Basic 3,127,802 2,956,102
Diluted 3,599,511 3,474,070
Earnings per share of common stock:
Basic $ .25 $ .12
Diluted $ .22 $ .10
</TABLE>
3
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 780,869 $ 361,474
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 221,353 207,266
Provision for losses on
accounts receivable 6,259 20,691
Decrease (increase):
Accounts receivable (303,355) 688,978
Inventories (1,090,511) (1,937,022)
Note receivable from officer -- 40,000
Prepaid expenses and other assets (10,456) 12,155
Increase (decrease):
Accounts payable 1,270,196 956,462
Accruals and other (368,483) (686,143)
------------ ------------
Total adjustments (274,997) (697,613)
------------ ------------
Net cash (used in) provided by
operating activities 505,872 (336,139)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (284,655) (40,740)
------------ ------------
Net cash used in
investing activities (284,655) (40,740)
------------ ------------
</TABLE>
4
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 3,985,843 3,117,612
Repayments of short-term borrowings (3,985,843) (3,117,612)
Principal payments on long-term debt (39,301) (45,738)
Proceeds from exercise of stock options 173,594 75 000
Dividends paid on preferred stock -- (21,858)
Redemption of subordinated debentures (1,369,200) --
Redemption of preferred stock -- (2,633,450)
------------ ------------
Net cash used in
financing activities (1,234,907) (2,626,046)
------------ ------------
NET (DECREASE) INCREASE IN CASH (1,013,690) (3,002,925)
CASH AT BEGINNING OF PERIOD 2,092,244 4,558,135
------------ ------------
CASH AT END OF PERIOD $ 1,078,554 $ 1,555,210
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 171,150 $ 140,383
------------ ------------
------------ ------------
Interest $ 118,199 $ 130,358
------------ ------------
------------ ------------
</TABLE>
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, 1998 and 1997 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, 1997 was
derived from audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. 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 and retail markets and the importation and sale of compressor 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 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 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
In June 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which provides for the calculation of basic and
diluted earnings per share. Basic and diluted earnings per share replace the
previously reported primary and fully diluted earnings per share. Unlike primary
earnings per share, basic earnings per share is based only on the average number
of common shares outstanding for the period. Diluted earnings per share
reflects, in periods for which they have a dilutive effect, the effect of common
shares issuable upon the exercise of options, warrants and convertible
securities and is very similar to fully diluted earnings per share. Earnings per
share amounts for all periods have been presented and the amounts for prior
periods have been restated to comply with the provisions of Statement No. 128.
Diluted earnings per share is computed using the treasury stock method.
Under this method, the aggregate number of shares outstanding reflects the
assumed use of proceeds from the hypothetical exercise of any outstanding
options or warrants to repurchase shares of common stock. The average market
value for the period is used to calculate the repurchase price.
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:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Finished goods $ 10,854,286 $ 9,632,361
Work in process 287,684 211,368
Raw materials and supplies 3,331,021 3,538,751
------------ ------------
$ 14,472,991 $ 13,382,480
------------ ------------
------------ ------------
</TABLE>
7
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
=======================================
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Numerator:
Net income $ 780,869 $ 361,474
Dividends on preferred stock -- (21,858)
---------- ----------
Numerator for basic and diluted
earnings per common share - income
available to common shareholders $ 780,869 $ 339,616
---------- ----------
---------- ----------
Denominator:
Denominator for basic earnings
per share - weighted average
common shares outstanding 3,127,802 2,956,102
Effect of dilutive securities:
Common stock options 471,709 517,968
--------- ---------
Denominator for diluted earnings
per share - adjusted weighted
average common shares and
assumed conversions 3,599,511 3,474,070
---------- ----------
---------- ----------
Earnings per common share:
Basic $ .25 $ .12
----- -----
----- -----
Diluted $ .22 $ .10
----- -----
----- -----
</TABLE>
8
<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, 1998 COMPARED WITH FIRST QUARTER ENDED
MARCH 31, 1997
Consolidated revenues increased 36.1%, from $9,217,808 to $12,541,124.
Revenues from pneumatic tools and related equipment increased 45.3%, from
$6,594,915 to $9,584,170, due primarily to the addition of a major new product
line of pneumatic tools. Selling prices of pneumatic tools and related equipment
were virtually unchanged from the prior year.
Revenues from heating equipment increased 12.8%, from $1,660,942 to
$1,873,058. This increase was due primarily to a 104.1% increase in sales of
radiant heating products. Revenues from hardware also increased 12.8%, from
$961,199 to $1,083,706. This increase in hardware sales was the result of two
unusually large stocking orders to this division's largest customer. As the
timing of these orders was unusual, this sales increase is not expected to
continue. Selling prices of both heating equipment and hardware were unchanged
from the prior year.
Consolidated gross profit, as a percentage of revenues, rose from 36.7%
to 38.2%. Gross profit from pneumatic tools and related equipment rose from
38.5% to 39.8%, due to a more profitable product mix and an increase in the
value of the U.S. dollar as compared to the Japanese yen, which lowered the cost
of imported product. Gross profit from heating equipment rose from 34.2% to
34.6% and gross profit from hardware rose from 24.7% to 26.1%, both due to a
more profitable product mix.
Consolidated selling, general and administrative expenses increased
30.5%, from $2,479,515 to $3,234,704, primarily due to increases in advertising,
commissions and salaries. Interest expense decreased 17.8%, from $140,838 to
$115,809, primarily as a result of the redemption of the Company's 13.75%
Subordinated Debentures, discussed below.
LIQUIDITY AND CAPITAL RESOURCES
The Company gauges its liquidity and financial stability by the
measurements shown in the following table (dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
--------- ------------ ---------
<S> <C> <C> <C>
Working Capital $ 16,530 $ 17,060 $ 13,587
Current Ratio 3.10 to 1 3.45 to 1 2.96 to 1
Shareholders' Equity $ 21,075 $ 20,121 $ 17,163
</TABLE>
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During the quarter ended March 31, 1998, accounts receivable increased
by approximately $297,000 and inventories increased by approximately $1,091,000.
The increase in inventories was the result of the introduction of a new product
line and the preparation for the launch of a large promotional program for a new
customer. Accounts payable increased approximately $1,270,000, primarily as a
result of the increase in inventories.
On January 30, 1998, the Company redeemed all of its outstanding 13.75%
Subordinated Debentures, due January 1, 2017, at 100% of the principal amount of
the Debentures, plus accrued and unpaid interest to the redemption date. The
funds used for this redemption, totalling $1,384,686, were derived from working
capital. This redemption caused a significant decrease in the Company's working
capital and current ratio.
Capital spending for the quarter ended March 31, 1998 was approximately
$285,000. The total amount was provided from working capital. Capital
expenditures for the rest of 1998 are expected to total approximately
$1,600,000, some of which may be financed. Included in the expected total for
1998 are capital expenditures relating to new products, expansion of existing
product lines and replacement of old equipment.
The Company's credit facility provides a line of credit totalling
$14,000,000 for direct loans, letters of credit and bankers' acceptances. At
March 31, 1998, there were no loans outstanding against this line of credit.
There was a commitment at March 31, 1998 of approximately $1,864,000 for
outstanding letters of credit. In addition, at March 31, 1998, approximately
$3,173,000 of the Company's credit facility was used to secure accounts payable.
The total line of credit also includes $4,000,000 earmarked for acquisitions
subject to the lending bank's approval. The Company's credit facility also
provides 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, 1998 was approximately
$2,292,000.
The Company's credit facility 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, 1998, and for the quarter then ended,
the Company satisfied all of these covenants.
The Company continues to conduct an extensive acquisition search. The
funds for an acquisition will be provided by working capital and existing credit
facilities, including the $4,000,000 credit facility earmarked for acquisitions
referred to above.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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.
The Company is currently determining the modifications required to
ensure that its management and information systems will be able to make the
transition to the year 2000. At this time, management expects that all such
modifications will be completed on a timely basis and that the costs of these
modifications will not have a material adverse effect on the Company's results
of operations, financial position or liquidity.
11
<PAGE>
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
The following exhibit has been filed as part of this
report:
Exhibit 27 - Financial Data Schedule (submitted to
the Securities and Exchange Commission in electronic
format)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the quarter ended March 31, 1998.
12
<PAGE>
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: May 8, 1998 (Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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 March 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,078,554
<SECURITIES> 0
<RECEIVABLES> 8,222,037
<ALLOWANCES> 0
<INVENTORY> 14,472,991
<CURRENT-ASSETS> 24,391,337
<PP&E> 11,200,122
<DEPRECIATION> 5,438,210
<TOTAL-ASSETS> 33,096,570
<CURRENT-LIABILITIES> 7,861,052
<BONDS> 3,716,382
0
0
<COMMON> 3,204,345
<OTHER-SE> 17,870,791
<TOTAL-LIABILITY-AND-EQUITY> 33,096,570
<SALES> 12,529,183
<TOTAL-REVENUES> 12,541,124
<CGS> 7,757,233
<TOTAL-COSTS> 7,757,233
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,809
<INCOME-PRETAX> 1,252,869
<INCOME-TAX> 472,000
<INCOME-CONTINUING> 780,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 780,869
<EPS-PRIMARY> .25
<EPS-DILUTED> .22
</TABLE>
