<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 SEPTEMBER 30, 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 November 16, 1998, there were outstanding 3,239,345 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 SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 1 - 2
Consolidated Statements of Income for the
nine months ended September 30, 1998 and 1997 3 - 4
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998
and 1997 5 - 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
PART II
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 1,324,364 $ 2,092,244
Accounts receivable, less allowance
for possible losses of $595,766
in 1998 and $421,014 in 1997 10,776,722 7,924,941
Inventories 19,789,243 13,382,480
Deferred income taxes 365,000 365,000
Prepaid expenses and other assets 544,542 254,544
------------- -------------
TOTAL CURRENT ASSETS 32,799,871 24,019,209
------------- -------------
PROPERTY AND EQUIPMENT:
Land 1,182,939 846,939
Buildings and improvements 5,631,771 4,304,779
Machinery and equipment 9,201,208 5,763,749
------------- -------------
16,015,918 10,915,467
Less accumulated depreciation
and amortization 5,810,729 5,257,701
------------- -------------
NET PROPERTY AND EQUIPMENT 10,205,189 5,657,766
------------- -------------
GOODWILL, net of accumulated
amortization of $1,109,513 in
1998 and $1,025,722 in 1997 8,315,883 2,788,045
OTHER ASSETS, net of accumulated
amortization of $62,673 in 1998
and $50,667 in 1997 246,289 183,875
------------- -------------
TOTAL ASSETS $ 51,567,232 $ 32,648,895
------------- -------------
------------- -------------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
----------------------------------------
----------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 3,609,351 $ --
Accounts payable 5,374,102 4,040,125
Accruals:
Compensation 1,588,234 1,365,857
Other 2,361,503 1,396,217
Current maturities of long-term debt 301,135 157,140
------------- -------------
TOTAL CURRENT LIABILITIES 13,234,325 6,959,339
LONG-TERM DEBT, less current maturities 14,587,699 3,755,683
DEFERRED INCOME TAXES 444,000 444,000
SUBORDINATED DEBENTURES -- 1,369,200
------------- -------------
28,266,024 12,528,222
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock:
Class A - $1 par; shares authorized
7,000,000; outstanding 3,239,345
and 3,101,845 3,239,345 3,101,845
Class B - $1 par; shares authorized
2,000,000 -- --
Additional paid-in capital 7,863,677 7,772,239
Retained earnings 12,198,186 9,246,589
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 23,301,208 20,120,673
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 51,567,232 $ 32,648,895
------------- -------------
------------- -------------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 13,915,613 $ 14,862,840 $ 38,223,141 $ 34,585,064
Other 203,076 118,615 434,044 257,522
------------ ------------ ------------ ------------
14,118,689 14,981,455 38,657,185 34,842,586
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 8,644,887 10,122,611 23,466,037 22,725,294
Selling, administrative and general 3,161,405 2,958,227 9,504,027 8,196,987
Interest - net 160,669 207,293 404,496 500,934
Depreciation 192,009 169,768 553,028 509,303
------------ ------------ ------------ ------------
12,158,970 13,457,899 33,927,588 31,932,518
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES ON INCOME 1,959,719 1,523,556 4,729,597 2,910,068
TAXES ON INCOME 739,000 652,000 1,778,000 1,190,000
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 1,220,719 871,556 2,951,597 1,720,068
INCOME FROM DISCONTINUED
OPERATION (NET OF INCOME
TAXES OF $850,000) -- 542,837 -- 542,837
------------ ------------ ------------ ------------
NET INCOME $ 1,220,719 $ 1,414,393 $ 2,951,597 $ 2,262,905
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(CONTINUED)
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME $ 1,220,719 $ 1,414,393 $ 2,951,597 $ 2,262,905
------------ ------------ ------------ ------------
Preferred dividends $ -- $ -- $ -- $ 21,858
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income available
to common shareholders:
Continuing operations $ 1,220,719 $ 871,556 $ 2,951,597 $ 1,698,210
Discontinued operation -- 542,837 -- 542,837
------------ ------------ ------------ ------------
Net income $ 1,220,719 $ 1,414,393 $ 2,951,597 $ 2,241,047
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Average number of common shares
and common share equivalents:
Basic 3,240,469 2,989,121 3,197,301 2,975,071
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted 3,723,588 3,507,089 3,688,497 3,509,253
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share of common stock:
Basic:
Continuing operations $ .38 $ .29 $ .92 $ .57
Discontinued operation -- .18 -- .18
------------ ------------ ------------ ------------
Net income $ .38 $ .47 $ .92 $ .75
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted:
Continuing operations $ .33 $ .25 $ .80 $ .49
Discontinued operation -- .15 -- .15
------------ ------------ ------------ ------------
Net income $ .33 $ .40 $ .80 $ .64
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,951,597 $ 2,262,905
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 648,825 619,767
Deferred income taxes -- 455,000
Provision for losses on
accounts receivable 16,690 62,093
Gain on sale of land and building
of discontinued operation -- (1,652,927)
Decrease (increase):
Accounts receivable (283,525) (3,833,745)
Inventories (4,787,856) (5,526,273)
Note receivable from officer -- 40,000
Prepaid expenses and other assets (189,297) 144,524
Other assets 158 --
Increase (decrease):
Accounts payable 541,949 1,166,377
Accruals and other 725,158 1,407,180
------------ ------------
Total adjustments (3,327,898) (7,118,004)
------------ ------------
Net cash (used in) provided by
operating activities (376,301) (4,855,099)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (750,451) (356,233)
Purchase of Green Manufacturing, Inc., (10,693,286) --
Proceeds from sale of land and
building of discontinued operation -- 1,765,760
------------ ------------
Net cash used in
investing activities (11,443,737) 1,409,527
------------ ------------
------------ ------------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 16,053,023 14,712,324
Repayments of short-term borrowings (13,703,672) (10,459,722)
Proceeds from acquisition loan 10,000,000 --
Principal payments on long-term debt (156,931) (1,885,115)
Proceeds from exercise of stock options 228,938 120,000
Dividends paid on preferred stock -- (21,858)
Redemption of subordinated debentures (1,369,200) --
Redemption of preferred stock -- (2,633,450)
------------ ------------
Net cash provided by (used in)
financing activities 11,052,158 (167,821)
------------ ------------
NET (DECREASE) INCREASE IN CASH (767,880) (3,613,393)
CASH AT BEGINNING OF PERIOD 2,092,244 4,558,135
------------ ------------
CASH AT END OF PERIOD $ 1,324,364 $ 944,742
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 1,700,876 $ 974,865
------------ ------------
------------ ------------
Interest $ 413,362 $ 590,874
------------ ------------
------------ ------------
</TABLE>
<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 periods ended September
30, 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 three 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. Green Manufacturing,
Inc. ("Green") is engaged primarily in the manufacture and sale of hydraulic
cylinders. Green is also engaged in the manufacture and sale of prefabricated
stairways and platforms and tractor-mounted post hole diggers. 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.
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
----------------------------------------
----------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The consolidated financial statements present basic and diluted
earnings per share. Earnings per share amounts for prior periods have been
restated to reflect basic and diluted 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. 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>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Finished goods $ 14,844,067 $ 9,632,361
Work in process 637,470 211,368
Raw materials and supplies 4,307,706 3,538,751
------------ ------------
$ 19,789,243 $ 13,382,480
------------ ------------
------------ ------------
</TABLE>
NOTE 3 - ACQUISITIONS
On September 16, 1998, the Company acquired certain assets,
including cash totalling $215,314, and assumed certain liabilities of Green
Manufacturing, Inc., a manufacturer of custom-engineered hydraulic cylinders,
prefabricated stairways and platforms and tractor-mounted post hole diggers.
The purchase price for the acquisition was $10,500,000 in cash, $10,000,000 of
which was provided by an acquisition loan made pursuant to a Credit Agreement,
dated as of July 23, 1998, as amended, between the Company and its bank. The
balance of $500,000 was provided by working capital funds.
As part of the acquisition, the Company assumed $1,095,000 of
outstanding Economic Development Revenue Bonds issued by Wood County, Ohio
and $1,260,000 in short-term borrowings from a bank.
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
----------------------------------------
----------------------------------------
NOTE 3 - ACQUISITIONS (CONTINUED)
The purchase price of $10,500,000 includes $50,000 in consideration of
a covenant not to compete. The cost allocated to this covenant is included in
the accompanying consolidated balance sheets as "Other Assets" and is being
amortized over five years on a straight-line basis.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the accompanying consolidated financial statements
include the results of operations of the acquired company only from the date of
acquisition. The excess of acquisition costs over the fair value of net assets
acquired is included in the accompanying balance sheets as "Goodwill". Also
included in "Goodwill" are costs totalling $408,660 incurred in connection with
this acquisition.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company and Green Manufacturing, Inc., as
though the acquisition had been made January 1, 1997. The pro forma amounts give
effect to appropriate adjustments for amortization of goodwill and other
intangible assets, interest expense and income taxes.
The pro forma amounts presented are not necessarily indicative of
future operating results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $18,032,047 $19,533,692 $52,139,612 $48,317,590
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income from
continuing operations $ 1,159,848 $ 1,003,564 $ 3,058,381 $ 2,044,837
Less preferred dividends -- -- -- (21,858)
----------- ----------- ----------- -----------
Net income from continuing
operations available to
common shareholders $ 1,159,848 $ 1,003,564 $ 3,058,381 $ 2,022,979
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share of
common stock from
continuing operations:
Basic $.36 $.34 $.96 $.68
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $.31 $.29 $.83 $.58
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
---------------------------------------
---------------------------------------
NOTE 4 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share from continuing operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income from
continuing operations $ 1,220,719 $ 871,556 $ 2,951,597 $ 1,720,068
Dividends on preferred stock -- -- -- 21,858
----------- ----------- ----------- -----------
Numerator for basic and diluted
earnings per common share
income from continuing
operations available to
common shareholders $ 1,220,719 $ 871,556 $ 2,951,597 $ 1,698,210
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Denominator:
Denominator for basic earnings
per share - weighted average
common shares outstanding 3,240,469 2,989,121 3,197,301 2,975,071
Effect of dilutive securities:
Common stock options 483,119 517,968 491,196 534,182
----------- ----------- ----------- -----------
Denominator for diluted earnings
per share - adjusted weighted
average common shares and
assumed conversions 3,723,588 3,507,089 3,688,497 3,509,253
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per common share from
continuing operations:
Basic $ .38 $ .29 $ .92 $ .57
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ .33 $ .25 $ .80 $ .49
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
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, 1998 COMPARED WITH THIRD QUARTER
ENDED SEPTEMBER 30, 1997
Consolidated revenues decreased 5.8%, from $14,981,455 to $14,118,689.
Revenues from pneumatic tools and related equipment decreased 16.9%, from
$11,377,858 to $9,425,651, due primarily to the one time order in 1997 of a
special product from one large customer. The majority of this order, amounting
to $2,993,515, was shipped in the third quarter of 1997. Without this shipment
in 1997, revenues from pneumatic tools and related equipment for the current
quarter would have increased by 12.4% over the prior year's quarter. Revenues
from heating equipment increased 2.1%, from $2,534,485 to $2,587,738, while
revenues from hardware declined 4.3%, from $1,108,692 to $1,061,230, mostly due
to a weak quarter for one large customer. Revenues from hydraulic cylinders and
other equipment, attributable to the subsidiary acquired on September 16, 1998,
were $1,044,506 for the period from the date of the acquisition to September 30.
Selling prices of all products were virtually unchanged.
Consolidated gross profit, as a percentage of revenues, rose from 31.3%
to 37.4%. Gross profit from pneumatic tools and related equipment rose from
31.7% to 41.6%, 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 34.1% to
34.5% and gross profit from hardware rose from 23.5% to 27.8%, both due to a
more profitable product mix. Gross profit from hydraulic cylinders and other
equipment was 19.7%.
Consolidated selling, administrative and general expenses increased
6.9%, from $2,958,227 to $3,161,405. This increase would have been more
correlated to the change in sales without the one time sale in the third
quarter of 1997 discussed above.
Interest expense decreased 22.5%, from $207,293 to $160,669, due to a
systematic effort to reduce overall borrowings prior to the acquisition made at
the end of the third quarter. Although the acquisition debt was substantial, it
had only a minimal impact on the overall interest expense for the quarter, due
to the short amount of time that it was outstanding.
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
----------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1997
Consolidated revenues increased 11.0%, from $34,842,586 to $38,657,185.
Revenues from pneumatic tools and related equipment increased 8.2%, from
$25,827,535 to $27,931,943, due primarily to a 32% increase in sales to the
second largest customer. Revenues from heating equipment increased 10.3%, from
$5,903,112 to $6,510,595. Revenues from hardware increased 1.9%, from $3,110,345
to $3,170,141. Revenues from hydraulic cylinders and other equipment,
attributable to the subsidiary acquired on September 16, 1998, were $1,044,506
for for the period from the date of the acquisition to September 30. Selling
prices of all products were virtually unchanged.
Consolidated gross profit, as a percentage of sales, rose from 33.3% to
37.9%. Gross profit from pneumatic tools and related equipment rose from 34.4%
to 40.9%, due to 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 34.0% to 34.3% and gross profit from hardware rose
from 25.7% to 27.2%, both due to a more profitable product mix. Gross profit
from hydraulic cylinders and other equipment was 19.7%.
Consolidated selling, administrative and general expenses rose 16.0%,
from $8,196,987 to $9,504,027, essentially in line with the increase in revenues
taking into consideration the one time sale of pneumatic tools in 1997 discussed
above.
Interest expense decreased 19.3%, from $500,934 to $404,496, as a
result of lower average short-term borrowings in 1998.
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>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Working Capital $ 19,566 $ 17,060 $ 16,165
Current Ratio 2.48 to 1 3.45 to 1 2.38 to 1
Shareholders' Equity $ 23,301 $ 20,121 $ 19,109
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
----------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During the nine months ended September 30, 1998, gross accounts
receivable increased approximately $3,027,000 and inventories increased
approximately $6,407,000. The increase in accounts receivable was primarily the
result of the acquisition of Green Manufacturing, Inc. on September 16, 1998.
The increase in inventories was the result of overall sales increases for the
year, the timing of shipments, and to a lesser extent the acquisition of Green
Manufacturing, Inc. Short-term borrowings and accounts payable, combined,
increased approximately $4,943,000 as a result of the increase in inventories,
but the increase was substantially less than it would have been due to the
remaining positive cash flows.
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.
On September 16, 1998, the Company acquired certain assets and
liabilities of Green Manufacturing, Inc. for $10,500,000 plus the assumption of
$1,095,000 of outstanding Economic Development Revenue Bonds issued by Wood
County, Ohio. The acquisition was financed with $500,000 in working capital
funds and a $10,000,000 7-year note from the Company's main bank. The note bears
interest at LIBOR plus 175 basis points and is payable with interest only for up
to one year at the Company's discretion. The Economic Development Revenue Bonds
were issued on November 16, 1994 and provide for annual retirement payments each
November 1 over a 10-year period. The Bonds bear interest at variable rates. The
interest rate at September 30, 1998 was 4.2%.
Capital spending for the nine months ended September 30, 1998 was
approximately $750,000. The total amount was provided from working capital.
Capital expenditures for the rest of 1998 are expected to total approximately
$300,000, 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.
On July 27, 1998, the Company signed a new credit facility agreement
with European American Bank. This multi-part facility provides up to $12,000,000
for letters of credit, bankers' acceptances, import loans and general working
capital loans. At September 30, 1998, there were loans totalling approximately
$3,609,000 outstanding against this line of credit. Also at September 30, 1998,
there was a commitment of approximately $1,187,000 for open letters of credit
and a commitment of approximately $1,113,000 for a backup letter of credit
related to Economic Development Revenue Bonds assumed as part of the
acquisition of Green Manufacturing, Inc.
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
----------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Also included in the credit facility agreement is 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, 1998 was approximately $1,127,000.
Finally, the credit facility agreement includes a commitment of
$15,000,000 for loans to finance acquisitions subject to the lending bank's
approval. As noted above, $10,000,000 of this credit facility was utilized to
help finance the acquisition of Green Manufacturing, Inc. There was a total of
$10,000,000 in acquisition loans outstanding at September 30, 1998.
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 September 30, 1998, and for the nine months then
ended, the Company satisfied all of these covenants.
The Company continues to conduct an acquisition search. The funds for
any acquisition will be provided by working capital and existing credit
facilities, including the $15,000,000 credit facility earmarked for acquisitions
referred to above.
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.
<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
A report on Form 8-K was filed by the Registrant regarding the
acquisition of Green Manufacturing, Inc. The date of the report was
September 30, 1998.
<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: November 16, 1998 (Principal Financial Officer)
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,324,364
<SECURITIES> 0
<RECEIVABLES> 10,776,722
<ALLOWANCES> 0<F1>
<INVENTORY> 19,789,243
<CURRENT-ASSETS> 32,789,871
<PP&E> 16,015,918
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3,239,345
0
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