<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, 1999
|_| 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 10, 1999, there were outstanding 3,504,945 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, 1999
TABLE OF CONTENTS
PAGE
PART I ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 1 - 2
Consolidated Statements of Income for
the three months and nine months ended
September 30, 1999 and 1998 3
Consolidated Statement of Shareholders' Equity
for the nine months ended September 30, 1999 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 5 - 6
Notes to Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
PART II
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
i
<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,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT:
Cash $ 593,308 $ 2,280,788
Accounts receivable, less allowance
for possible losses of $494,461
in 1999 and $498,669 in 1998 14,194,026 8,542,204
Inventories 26,454,559 17,021,475
Deferred income taxes 507,000 507,000
Prepaid expenses and other assets 883,928 586,913
------------ ------------
TOTAL CURRENT ASSETS 42,632,821 28,938,380
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,182,939 1,182,939
Buildings and improvements 5,882,280 5,773,608
Machinery and equipment 11,262,717 9,724,919
------------ ------------
18,327,936 16,681,466
Less accumulated depreciation
and amortization 7,049,293 6,052,899
------------ ------------
NET PROPERTY AND EQUIPMENT 11,278,643 10,628,567
------------ ------------
GOODWILL, net of accumulated
amortization of $1,419,922 in
1999 and $1,190,040 in 1998 8,045,037 8,274,918
OTHER ASSETS 203,902 236,614
------------ ------------
TOTAL ASSETS $ 62,160,403 $ 48,078,479
============ ============
</TABLE>
1
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
=======================================
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 12,500,000 $ 3,500,000
Accounts payable 8,800,171 4,844,403
Accruals:
Compensation 2,017,601 1,944,960
Other 2,307,973 2,130,026
Current maturities of long-term debt 944,980 524,974
------------ ------------
TOTAL CURRENT LIABILITIES 26,570,725 12,944,363
LONG-TERM DEBT, less current maturities 7,670,228 10,193,064
DEFERRED INCOME TAXES 491,000 491,000
------------ ------------
34,731,953 23,628,427
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock:
Class A - $1 par; shares authorized
7,000,000; outstanding 3,504,945
and 3,239,345 3,504,945 3,239,345
Class B - $1 par; shares authorized
2,000,000 -- --
Additional paid-in capital 8,282,602 8,020,677
Retained earnings 16,139,403 13,190,030
Treasury stock,
at cost (49,235 shares) (498,500) --
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 27,428,450 24,450,052
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 62,160,403 $ 48,078,479
============ ============
</TABLE>
2
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 20,219,270 $ 13,915,613 $ 54,983,995 $ 38,223,141
Other 139,109 203,076 574,809 434,044
------------ ------------ ------------ ------------
20,358,379 14,118,689 55,558,804 38,657,185
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 14,027,734 8,757,041 38,232,924 23,783,501
Selling, administrative and general 3,987,012 3,241,260 11,603,179 9,739,591
Interest - net 371,691 160,669 973,328 404,496
------------ ------------ ------------ ------------
18,386,437 12,158,970 50,809,431 33,927,588
------------ ------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME 1,971,942 1,959,719 4,749,373 4,729,597
TAXES ON INCOME 738,000 739,000 1,800,000 1,778,000
------------ ------------ ------------ ------------
NET INCOME $ 1,233,942 $ 1,220,719 $ 2,949,373 $ 2,951,597
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 3,455,208 3,240,469 3,340,868 3,197,301
Diluted 3,718,914 3,723,588 3,727,195 3,688,497
Earnings per share of common stock:
Basic $ .35 $ .38 $ .88 $ .92
Diluted $ .33 $ .33 $ .79 $ .80
</TABLE>
3
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
==============================================
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1999 $ 3,239,345 $ 8,020,677 $ 13,190,030 $ --
Net income for the nine months
ended September 30, 1999 -- -- 2,949,373 --
Exercise of stock options,
265,600 shares 265,600 261,925 -- --
Common stock received on
exercise of stock options,
49,235 shares -- -- -- (498,500)
----------- ----------- ------------ ---------
Balance, September 30, 1999 $ 3,504,945 $ 8,282,602 $ 16,139,403 ($ 498,500)
=========== =========== ============ =========
</TABLE>
4
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,949,373 $ 2,951,597
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,236,266 648,825
Provision for losses on
accounts receivable 4,481 16,690
Decrease (increase):
Accounts receivable (5,656,303) (283,525)
Inventories (9,433,084) (4,787,856)
Prepaid expenses and other assets (297,015) (189,297)
Other assets 22,721 158
Increase (decrease):
Accounts payable 3,955,768 541,949
Accruals and other 250,588 725,158
------------ ------------
Total adjustments (9,916,578) (3,327,898)
------------ ------------
Net cash used in
operating activities (6,967,205) (376,301)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,646,470) (750,451)
Purchase of Green Manufacturing, Inc. -- (10,693,286)
------------ ------------
Net cash used in
investing activities (1,646,470) (11,443,737)
------------ ------------
</TABLE>
5
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 10,500,000 16,053,023
Repayments of short-term borrowings (1,500,000) (13,703,672)
Proceeds from acquisition loan -- 10,000,000
Proceeds from mortgage refinancing 1,800,000 --
Principal payments on long-term debt (3,902,830) (156,931)
Proceeds from exercise of stock options 29,025 228 938
Redemption of subordinated debentures -- (1,369,200)
------------ ------------
Net cash provided by
financing activities 6,926,195 11,052,158
------------ ------------
NET (DECREASE) INCREASE IN CASH (1,687,480) (767,880)
CASH AT BEGINNING OF PERIOD 2,280,788 2,092,244
------------ ------------
CASH AT END OF PERIOD $ 593,308 $ 1,324,364
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 1,625,300 $ 1,700,876
============ ============
Interest $ 1,010,770 $ 413,362
============ ============
</TABLE>
The Company received 49,235 shares of common stock in connection
with the exercise of stock options by an officer of the Company. The
value of these shares was recorded at $498,500.
6
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
P & F Industries, Inc. (the "Company") conducts its business operations
through three wholly-owned subsidiaries. Embassy Industries, Inc. ("Embassy") is
engaged in the manufacture and sale of baseboard heating products and the
importation and sale of radiant heating systems. Embassy also imports a line of
door and window hardware items through its Franklin division. Florida Pneumatic
Manufacturing Corporation ("Florida Pneumatic") is engaged in the importation,
manufacture and sale of pneumatic hand tools, primarily for the industrial and
retail markets, and the importation and sale of compressor air filters. Florida
Pneumatic also markets, through its Berkley Tool division, a line of pipe
cutting and threading tools, wrenches and replacement electrical components for
a widely used brand of pipe cutting and threading machines. Green Manufacturing,
Inc. ("Green") is engaged primarily in the manufacture, development and sale of
heavy-duty welded custom designed hydraulic cylinders. Green also manufactures a
line of access equipment for the petro-chemical industry and a line of post hole
digging equipment for the agricultural industry.
The consolidated financial statements contained herein include the
accounts of P & F Industries, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting. Accordingly, these
interim financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the Company, the unaudited consolidated financial
statements include all adjustments necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of a normal
recurring nature. Results for interim periods are not necessarily indicative of
results to be expected for a full year, since the operations of some of the
Company's subsidiaries are seasonal in nature.
The consolidated balance sheet information for December 31, 1998 was
derived from the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. These interim
financial statements should be read in conjunction with that report.
7
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION (CONTINUED)
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - INVENTORIES
Major classes of inventory were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Finished goods $ 20,624,514 $ 13,141,218
Work in process 1,211,869 435,453
Raw materials and supplies 4,618,176 3,444,804
------------ ------------
$ 26,454,559 $ 17,021,475
============ ============
</TABLE>
NOTE 3 - CAPITAL STOCK TRANSACTIONS
On June 1, 1999, an officer of the Company surrendered 49,235 shares of
Class A Common Stock, with a fair value of $498,500, in connection with the
exercise of stock options for 250,000 shares of Class A Common Stock.
NOTE 4 - ACQUISITION
On September 16, 1998, the Company acquired certain assets, and assumed
certain liabilities, of Green Manufacturing, Inc., an Ohio corporation and 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 European American Bank (the "Credit
Agreement"). The balance of $500,000 was provided by working capital funds. The
purchase price of $10,500,000 included $50,000 in consideration of a covenant
not to compete.
8
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 4 - ACQUISITION (CONTINUED)
As part of the acquisition, the Company also assumed the outstanding
balance of $1,095,000 on an Economic Development Revenue Bond issued by Wood
County, Ohio.
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 $448,163 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, 1998. 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>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues $55,558,804 $52,573,656
=========== ===========
Net income $ 2,949,373 $ 3,069,380
=========== ===========
Earnings per share of common stock
from continuing operations:
Basic $ .88 $ .96
===== =====
Diluted $ .79 $ .83
===== =====
</TABLE>
9
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 5 - SEGMENTS OF BUSINESS
The following tables present financial information by segment for the
periods ended September 30, 1999 and 1998. Segment profit excludes general
corporate expenses, interest expense and income taxes. There were no
intersegment revenues.
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
NINE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
- ------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 55,559 $ 29,016 $ 15,295 $ 6,841 $ 4,407
========= ========= ========= ========= =======
Segment profit $ 7,982 $ 6,501 $ 729 $ 303 $ 449
========= ========= ========= ========= =======
<CAPTION>
PNEUMATIC
TOOLS AND
NINE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 1998 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
- ------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 38,657 $ 27,932 $ 1,044 $ 6,511 $ 3,170
========= ========= ========= ========= =======
Segment profit $ 7,128 $ 6,461 $ 100 $ 259 $ 308
========= ========= ========= ========= =======
<CAPTION>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
- ------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 20,359 $ 10,856 $ 4,980 $ 2,894 $ 1,629
========= ========= ========= ========= =======
Segment profit $ 3,155 $ 2,652 $ 126 $ 235 $ 142
========= ========= ========= ========= =======
</TABLE>
10
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 5 - SEGMENTS OF BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
SEPTEMBER 30, 1998 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
- ------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 14,119 $ 9,426 $ 1,044 $ 2,588 $ 1,061
========= ========= ========= ========= =======
Segment profit $ 2,672 $ 2,291 $ 100 $ 182 $ 99
========= ========= ========= ========= =======
</TABLE>
The reconciliation of combined operating profits for reportable segments
to consolidated income before income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Total profit for reportable segments $7,981,890 $7,128,266
General corporate expenses (2,259,189) (1,994,173)
Interest expense (973,328) (404,496)
---------- ----------
Income before income taxes $4,749,373 $4,729,597
========== ==========
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Total profit for reportable segments $3,154,893 $2,672,746
General corporate expenses (811,260) (552,358)
Interest expense (371,691) (160,669)
---------- ----------
Income before income taxes $1,971,942 $1,959,719
========== ==========
</TABLE>
11
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 6 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per common share -
income available to common
shareholders $ 1,233,942 $ 1,220,719 $ 2,949,373 $ 2,951,597
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average
common shares outstanding 3,455,208 3,240,469 3,340,868 3,197,301
Effect of dilutive securities:
Common stock options 263,706 483,119 386,327 491,196
----------- ----------- ----------- -----------
Denominator for diluted earnings
per share - adjusted weighted
average common shares and
assumed conversions 3,718,914 3,723,588 3,727,195 3,688,497
=========== =========== =========== ===========
Earnings per common share:
Basic $ .35 $ .38 $ .88 $ .92
===== ===== ===== =====
Diluted $ .33 $ .33 $ .79 $ .80
===== ===== ===== =====
</TABLE>
12
<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, 1999 COMPARED WITH THIRD QUARTER ENDED
SEPTEMBER 30, 1998
Consolidated revenues increased 44.2%, from $14,118,689 to $20,358,379,
due primarily to the acquisition of Green, which had revenues of $4,979,176 from
hydraulic cylinders and other equipment in the third quarter of 1999, compared
to $1,044,506 in 1998, for the period from September 16, 1998 to September 30,
1998.
Revenues from pneumatic tools and related equipment increased 15.2%, from
$9,425,651 to $10,856,349, due primarily to a special promotional sale totalling
approximately $1,000,000 shipped to a large customer during the third quarter of
1999. Revenues from heating equipment increased 11.8%, from $2,587,738 to
$2,894,313, due to strong sales of the standard baseboard product and
significant growth in sales of the radiant line. Revenues from hardware
increased 53.5%, from $1,061,230 to $1,628,541, due primarily to sales to a
significant customer obtained in the fourth quarter of 1998. The selling prices
of selected heating products were reduced in order to stimulate sales growth.
Selling prices of hardware products were virtually unchanged, with the exception
of one significant region where discounting was undertaken to maintain
competitiveness.
Consolidated gross profit, as a percentage of revenues, decreased from
38.0% to 31.1%, due primarily to the lower overall gross profits from hydraulic
cylinders and other equipment. Gross profit from pneumatic tools and related
equipment decreased from 42.1% to 40.4%, due to a decrease in the value of the
U.S. dollar as compared to the Japanese yen, which raised the cost of imported
product. This was partially offset by a more profitable product mix. Gross
profit from hydraulic cylinders and other equipment decreased from 20.1% to
11.5%, due to decreased productivity of direct labor and an unfavorable product
mix. The gross profit margins for hydraulic cylinders and other equipment for
1998 represent the results of operations for only the period from September 16,
1998, the date of the acquisition of Green, to September 30, 1998 and are not
indicative of the results of operations for an entire quarter. Gross profit from
heating equipment decreased from 34.5% to 34.1%, due to the reduction in selling
prices noted above. Gross profit from hardware decreased from 27.8% to 23.9%,
due to the price adjustments noted above, as well as to significant discounting
on initial orders to new stores of a large customer.
Consolidated selling, administrative and general expenses increased 23.0%,
from $3,241,260 to $3,987,012. These expenses, however, decreased as a
percentage of revenues, from 23.0% to 19.6%, due to the increased revenues and
the reversal of an accrual of $200,000 related to two lawsuits that were settled
for less than the reserved amount.
13
<PAGE>
THIRD QUARTER ENDED SEPTEMBER 30, 1999 COMPARED WITH THIRD QUARTER ENDED
SEPTEMBER 30, 1998 (CONTINUED)
Interest expense increased 131.3%, from $160,669 to $371,691, due
primarily to an increase in borrowings to support an inventory buildup related
to the addition of a significant new customer that began shipping in the fourth
quarter of 1999 and to a slowing of sales to a significant current customer. The
increase in interest expense is also attributable to the interest on the debt
related to the acquisition of Green, which was outstanding for the entire
quarter in 1999, but for only approximately two weeks in 1998.
Effective tax rates for the quarters ended September 30, 1999 and 1998
were 37.4% and 37.7%, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
Consolidated revenues increased 43.7%, from $38,657,185 to $55,558,804,
due primarily to the acquisition of Green, which had revenues of $15,294,416
from hydraulic cylinders and other equipment for the nine months ended September
30, 1999, compared to $1,044,506 in 1998, for the period from September 16, 1998
to September 30, 1998.
Revenues from pneumatic tools and related equipment increased 3.9%, from
$27,931,943 to $29,016,350, due to increases in sales of most product lines.
Revenues from heating equipment increased 5.1%, from $6,510,595 to $6,841,390,
due to an overall increase in sales of the standard baseboard product. Revenues
from hardware increased 39.0%, from $3,170,141 to $4,406,648, due primarily to
the addition of a significant customer in the fourth quarter of 1998. The
selling prices of selected heating products were reduced in order to stimulate
sales growth. Selling prices of hardware products were virtually unchanged, with
the exception of one significant region where discounting was undertaken to
maintain competitiveness.
Consolidated gross profit, as a percentage of revenues, decreased from
38.5% to 31.2%, due primarily to the lower overall gross profits from hydraulic
cylinders and other equipment. Gross profit from pneumatic tools and related
equipment decreased from 41.4% to 40.3%, due to a decrease in the value of the
U.S. dollar as compared to the Japanese yen, which raised the cost of imported
product. Gross profit from hydraulic cylinders and other equipment decreased
from 20.1% to 13.7%, due to decreased productivity of direct labor and an
unfavorable product mix. The gross profit margins for hydraulic cylinders and
other equipment for 1998 represent the results of operations for only the period
from September 16, 1998, the date of the acquisition of Green, to September 30,
1998 and are not indicative of the results of operations for an entire nine
month period. Gross profit from heating equipment increased from 34.3% to 34.5%,
due to a more profitable product mix and improved efficiencies of manufacturing
operations. Gross profit from hardware decreased from 27.2% to 26.3%, due to the
price adjustments noted above, as well as to significant discounting on initial
orders to new stores of a large customer.
14
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998 (CONTINUED)
Consolidated selling, administrative and general expenses increased 19.1%,
from $9,739,591 to $11,603,179, but decreased as a percentage of revenues, from
25.2% to 20.9%, due primarily to the increased revenues.
Interest expense increased 140.6%, from $404,496 to $973,328, due
primarily to an increase in borrowings to support an inventory buildup related
to the addition of a significant new customer that began shipping in fourth
quarter of 1999 and to a slowing of sales to a significant current customer. The
increase in interest expense is also attributable to the interest on the debt
related to the acquisition of Green, which was outstanding for the entire nine
months in 1999, but for only approximately two weeks in 1998.
Effective tax rates for the quarters ended September 30, 1999 and 1998
were 37.9% and 37.6%, respectively.
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,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Working Capital $ 16,062 $ 15,994 $ 19,566
Current Ratio 1.60 to 1 2.24 to 1 2.48 to 1
Shareholders' Equity $ 27,428 $ 24,450 $ 23,301
</TABLE>
During the nine months ended September 30, 1999, gross accounts receivable
increased approximately $5,648,000 and inventories increased approximately
$9,433,000. The increase in accounts receivable was primarily concentrated at
Florida Pneumatic and was the result of three factors. First, unusually heavy
collections at the end of 1998 lowered the balance at December 31, 1998 by
approximately $2,000,000 from normal. Second, sales increased approximately
$945,000. Finally, sales were more concentrated at the end of the period in
1999. The increase in inventories was primarily the result of a large inventory
buildup to support sales to a significant new customer which began shipping in
the fourth quarter of 1999. An unanticipated slow-down in sales to a major
current customer and a general increase in overall sales also contributed to the
increase. Short-term borrowings and accounts payable, combined, increased
approximately $12,956,000 as a result of the increase in inventories discussed
above. Management believes that the inventory is fully saleable and that the the
increase in inventories is only temporary.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On July 26, 1999, the Company renewed its Credit Agreement, which provides
the Company with various credit facilities, including revolving credit loans,
term loans for acquisitions and a foreign exchange line. The revolving credit
loan facility provides a total of $12,000,000, with various sublimits, for
direct borrowings, letters of credit, bankers' acceptances and equipment loans.
This commitment also includes a step-up period through January 31, 2000, during
which borrowings may increase to $17,000,000 to support the inventory buildup
related to a significant new customer. At September 30, 1999, there were direct
borrowings totalling $12,500,000 outstanding against this facility. There was
also a commitment at September 30, 1999 of approximately $487,000 for open
letters of credit.
The term loan facility provides a commitment of $15,000,000 to finance
acquisitions subject to the lending bank's approval. As noted below, $10,000,000
of this facility was used to help finance the acquisition of Green and there was
$4,000,000 still outstanding against this facility at September 30, 1999. This
commitment also includes a step-up period through January 31, 2000, during which
borrowings may increase to $18,000,000 to support any potential acquisitions.
There was also a standby letter of credit totalling approximately $968,000
outstanding against this facility at September 30, 1999. This standby letter of
credit was used to secure the Economic Development Revenue Bond assumed as part
of the acquisition of Green.
The foreign exchange line provides for the availability of up to
$10,000,000 in foreign currency forward contracts. These contracts fix the
exchange rate on future purchases of Japanese yen needed for payments to foreign
suppliers. The total amount of foreign currency forward contracts outstanding at
September 30, 1999 was approximately $2,588,000.
The Credit Agreement is subject to annual review by the lending bank.
Under the Credit Agreement, the Company is required to adhere to certain
financial covenants. At September 30, 1999, and for the nine months then ended,
the Company satisfied all of these covenants.
On September 16, 1998, the Company acquired certain assets and liabilities
of Green Manufacturing, Inc. for $10,500,000, including the assumption of
$1,095,000 of an outstanding Economic Development Revenue Bond issued by Wood
County, Ohio. The acquisition was financed with $500,000 in working capital
funds and a $10,000,000 7-year term loan under the Credit Agreement. As of
September 30, 1999, $6,000,000 of the loan had been repaid. This loan bears
interest at LIBOR plus 175 basis points. Principal payments begin on October 1,
1999 and are due in 72 equal monthly installments totalling $4,000,000, the
balance outstanding on October 1, 1999. The 30 day LIBOR at September 30, 1999
was approximately 5.4%. The Economic Development Revenue Bond was issued on
November 16, 1994 and provides for annual retirement payments each November 1,
over a 10-year period. The Bond bears interest at variable rates. The interest
rate at September 30, 1999 was approximately 4.0%. At September 30, 1999, the
balance outstanding on the Bond was $955,000.
16
<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 mitigate any adverse effects from these
fluctuations, including increasing its selling prices, obtaining price
reductions from its overseas suppliers, using alternative supplier sources and
entering into foreign currency forward contracts. See "Item 3, Quantitative and
Qualitative Disclosures About Market Risk."
Capital spending for the nine months ended September 30, 1999 was
approximately $1,646,000. The total amount was provided from working capital.
Capital expenditures for the rest of 1999 are expected to total approximately
$200,000, some of which may be financed under the Credit Agreement. Included in
the expected total for the rest of 1999 are capital expenditures relating to new
products, expansion of existing product lines and replacement of old equipment.
The Company continues to conduct an acquisition search. The funds for an
acquisition will be provided by working capital and existing credit facilities,
including the $15,000,000 credit facility for acquisitions referred to above.
The Company believes that cash on hand, cash generated by future
operations and cash available through its credit facilities will be sufficient
to allow the Company to support its capital expenditure program and to meet its
general working capital needs.
YEAR 2000
The Year 2000 (Y2K) issue is the result of computer programs being written
for, or microprocessors using, two digits (rather than four) to define the
applicable year. Company computer programs that have date-sensitive software may
recognize a date using 00 as the year 1900 rather than the year 2000, which
could result in system failures or miscalculations. The Company is currently
working to mitigate the Y2K issue and has established processes for assessing
the risks and associated costs.
The Company categorizes its Y2K efforts as follows: hardware, software,
embedded processors, vendors and customers. Progress in assessing and
remediating information technology systems (hardware and software) and
non-information technology systems (embedded processors) continues to be tracked
in phases including assessment, identification of non-compliant systems,
remediation, testing and verification. Hardware, software and embedded
processors have been assessed and remediation is in progress. The Company's Y2K
project is progressing and a large portion of its internal remediation work was
completed at September 30, 1999. The Company is using internal and external
resources to remediate and test its systems.
17
<PAGE>
YEAR 2000 (CONTINUED)
The Company has initiated communications with significant vendors and
customers to coordinate the Y2K issue and is in the process of determining the
Company's vulnerability if these companies fail to remediate their Y2K issues.
There can be no guarantee that the systems of other companies will be timely
remediated or that other companies' failure to remediate Y2K issues would not
have a material adverse effect on the Company. The Company continues to develop
contingency plans to mitigate risks associated with the Y2K issue.
Costs incurred to date in addressing the Y2K issue have been expensed as
incurred and are not material. Based on current information, the total cost to
remediate and test the Company's systems is not expected to be material.
The Company presently believes that, with remediation, Y2K risks can be
mitigated. Although the Company is not currently aware of any material internal
operational or financial Y2K related issues, the Company cannot provide
assurances that the computer systems, products, services or other systems upon
which the Company depends will be Y2K ready on schedule, that the costs of its
Y2K program will not become material or that the Company's contingency plans
will be adequate. The Company is currently unable to evaluate accurately the
magnitude, if any, of the Y2K related issues arising from the Company s vendors
and customers. If any such risks (either with respect to the Company or its
vendors or customers) materialize, the Company could experience serious
consequences to its business which could have material adverse effects on the
Company's financial condition, results of operations and liquidity.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for transactions
entered into after January 1, 2000 and requires that all derivative instruments
be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of the hedge
transaction and the type of hedge transaction. The ineffective portion of all
hedges will be recognized in earnings. The Company is in the process of
reviewing SFAS 133 to determine what impact, if any, the adoption of SFAS 133
will have on its results of operations and its financial position. Based on
current market conditions, the Company does not believe that the impact will be
material.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S. and
international exchange rates, the prices of certain commodities and currency
rates as measured against the U.S. dollar and each other. The Company attempts
to reduce the risks related to foreign currency fluctuation by utilizing
financial instruments.
The value of the U.S. dollar affects the Company's financial results.
Changes in exchange rates may positively or negatively affect the Company's
gross margins and operating expenses. The Company engages in hedging programs
aimed at limiting, in part, the impact of currency fluctuations. Using primarily
forward exchange contracts, the Company hedges some of those transactions that,
when remeasured according to generally accepted accounting principles, impact
the income statement. Factors that could impact the effectiveness of the
Company's programs include volatility of the currency markets and availability
of hedging instruments. All currency contracts that are entered into by the
Company are components of hedging programs and are entered into for the sole
purpose of hedging an existing or anticipated currency exposure, not for
speculation. The Company does not buy or sell financial instruments for trading
purposes. Although the Company maintains these programs to reduce the impact of
changes in currency exchange rates, when the U.S. dollar sustains a weakening
exchange rate against currencies in which the Company incurs costs, the
Company's costs are adversely affected. At September 30, 1999, the Company held
open hedge forward contracts to deliver approximately $2,588,000 of Japanese
Yen. The potential loss in value of the Company's net investment in foreign
currency forward contracts resulting from a hypothetical 10 percent adverse
change in foreign currency exchange rates at September 30, 1999 is approximately
$288,000.
19
<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 AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See "Exhibit Index" immediately following the signature page.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended September 30, 1999.
20
<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 10, 1999 (Principal Financial Officer)
21
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO.
- ---
3.1 Restated Certificate of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3A to the Registrant's Registration Statement on Form
S-8 filed on September 20, 1989).
3.2 Amended By-laws of the Registrant.
4.1 Rights Agreement, dated as of August 23, 1994, between the Registrant and
American Stock Transfer & Trust Company, as Rights Agent (Incorporated by
reference to Exhibit 1 to the Registrant's Registration Statement on Form
8-A dated August 24, 1994).
4.2 Amendment to Rights Agreement, dated as of April 11, 1997, between the
Registrant and American Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated April 11, 1997).
4.3 Credit Agreement, dated as of July 23, 1998, by and among the Registrant,
Florida Pneumatic Manufacturing Corporation, a Florida corporation,
Embassy Industries, Inc., a New York corporation, and European American
Bank, a New York banking corporation (Incorporated by reference to Exhibit
4.3 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
4.4 Amendment No. 1 to Credit Agreement, dated as of September 16, 1998, by
and among the Registrant, Florida Pneumatic Manufacturing Corporation, a
Florida corporation, Embassy Industries, Inc., a New York corporation,
Green Manufacturing, Inc., a Delaware corporation, and European American
Bank, a New York banking corporation (Incorporated by reference to Exhibit
4.4 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
4.5 Amendment No. 2 to Credit Agreement, dated as of July 28, 1999, by and
among the Registrant, Florida Pneumatic Manufacturing Corporation, a
Florida corporation, Embassy Industries, Inc., a New York corporation,
Green Manufacturing, Inc., a Delaware corporation, and European American
Bank, a New York banking corporation. (Incorporated by reference to
Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
4.6 Certain instruments defining the rights of holders of the long-term debt
securities of the Registrant are omitted pursuant to Section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant agrees to
furnish supplementally copies of these instruments to the Commission upon
request.
27 Financial Data Schedules (submitted to the Securities and Exchange
Commission in electronic format).
22
<PAGE>
P & F INDUSTRIES, INC.
EXHIBIT 3.2
======================
AMENDED BY-LAWS
OF
P & F INDUSTRIES, INC.
ARTICLE I.
OFFICES
SECTION 1. PRINCIPAL OFFICE. The registered office of P&F Industries, Inc.
(the "corporation") shall be located in such place as may be provided from time
to time in the Certificate of Incorporation.
SECTION 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or as the business of the corporation
may require.
ARTICLE II.
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders of the
corporation shall be held at such place, within or without the State of
Delaware, on such date and at such time as may be determined by the board of
directors and as shall be designated in the notice of said meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be held at any place, within or without the
State of Delaware, and may be called by resolution of the board of directors, or
by the Chairman or the President.
SECTION 3. NOTICE AND PURPOSE OF MEETINGS. Written or printed notice of
the meeting stating the place, day and hour of the meeting and, in case of a
special meeting, stating the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days before the
date of the meeting, either personally or by mail, by or at the direction of the
Chairman or the President to each stockholder of record entitled to vote at such
meeting.
SECTION 4. QUORUM. The holders of a majority of the shares of capital
stock issued and outstanding and entitled to vote, represented in person or by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders present in
person or represented by proxy shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted
23
<PAGE>
which might have been transacted at the meeting as originally notified.
SECTION 5. ORDER OF BUSINESS. At each meeting of the stockholders, the
Chairman of the Board, or, in the absence of the Chairman of the Board, the
President, shall act as chairman. The order of business at each meeting shall be
as determined by the chairman of the meeting. The chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts and things as are necessary or desirable for the proper
conduct of the meeting, including, without limitation, the establishment of
procedures for the maintenance of order and safety, limitations on the time
allotted to questions or comments on the affairs of the corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof, and the opening and closing of the voting polls.
At any annual meeting of stockholders, only such business shall be
conducted as shall have been brought before the annual meeting (i) by or at the
direction of the chairman of the meeting or (ii) by any stockholder who complies
with the procedures set forth in this Section 5.
For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not more than 180 days nor less than 120 days in
advance of the date of the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting. To be in
proper form, a stockholder's notice to the Secretary shall set forth in writing
as to each matter the stockholder proposes to bring the annual meeting the
following information: (i) a description of the business desired to be brought
before the annual meeting, consisting of 500 or fewer words conforming to the
requirements of Schedule 14A of the Regulations of the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Regulations"); (ii) the reasons for conducting such business at the annual
meeting; (iii) the name and address, as they appear on the corporations books,
of the stockholder proposing such business; (iv) the class and number of shares
of the corporation's capital stock which are beneficially owned by the
stockholder and the length of the time during which the stockholder beneficially
owned such shares; and (v) any material interest of the stockholder in such
business. Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 5. The chairman of an annual meeting shall, if the
facts warrant, determine and declare to the annual meeting that business was not
properly brought before the annual meeting in accordance with the provisions of
this Section 5 and, if he should so determine, he shall so declare to the annual
meeting and any such business not properly brought before the annual meeting
shall not be transacted.
SECTION 6. VOTING PROCESS. If a quorum is present or represented the
affirmative vote of a majority of the shares of stock
24
<PAGE>
present or represented at the meeting shall be the act of the stockholders
unless the vote of a greater number of shares of stock is required by law, by
the Certificate of Incorporation or by these by-laws. Each outstanding share of
stock having voting power, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. A shareholder may vote either
in person or by proxy executed in writing by the stockholder or by his duly
authorized attorney-in-fact. The term, validity and enforceability of any proxy
shall be determined in accordance with the General Corporation Law of the State
of Delaware.
ARTICLE III.
DIRECTORS
SECTION 1. POWERS, NUMBER, QUALIFICATION AND TERM. The property, affairs
and business of the corporation shall be managed by its board of directors,
consisting of five persons. At the annual meeting held in 1976, directors shall
be elected in three classes as nearly equal in number as may be. The terms of
office of the first class shall expire at the annual meeting in 1977, and of the
second and third classes at the annual meetings in 1978 and 1979 respectively.
At each annual election held after 1976, directors shall be elected for three
year terms to succeed those whose terms then expire. If a vacancy shall occur in
any class the director elected to fill that vacancy shall be elected for the
remaining term of that class. The directors shall have power at any time when a
stockholders' meeting is not in session to increase or decrease their own number
by an amendment to these By-Laws. If the number of directors be increased, the
additional directors shall be elected for such terms as shall maintain equality
in the annual classes, as nearly as may be. Vacancies created by an amendment
increasing the number of directors may be filled like other vacancies by a
majority of the directors in office at the time. If the number of directors be
reduced, the terms of the directors remaining in office need not be changed, but
the terms of the directors elected to succeed them shall be changed to the
extent necessary to maintain equality in the annual classes as nearly as may be.
The number of directors shall never be less than three. Directors need not be
stockholders.
SECTION 2. QUORUM. A majority of the members of the board of directors
then acting at a meeting duly assembled shall constitute a quorum for the
transaction of business, unless a greater number is required by law, by the
Certificate of Incorporation or by these by-laws. If a quorum shall not be
present at any meeting of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3. VACANCIES. In case one or more vacancies shall occur in the
board of directors by reason of death, resignation or otherwise, except insofar
as otherwise provided in the case of a vacancy or vacancies occurring by reason
of removal by the stockholders, the remaining directors, although less than a
quorum, may, by a majority vote, elect a successor or successors for the
unexpired term or terms.
SECTION 4. PLACE OF MEETINGS. Meetings of the board of
25
<PAGE>
directors, regular or special, may be held either within or without the State of
Delaware.
SECTION 5. FIRST MEETING. The first meeting of each newly elected board of
directors shall be held immediately following and at the place of the annual
meeting of stockholders and no other notice of such meeting shall be necessary
to the newly elected directors in order legally to constitute the meeting,
provided a quorum shall be present, or it may convene at such place and time as
shall be fixed by the consent in writing or the attendance of all the directors.
SECTION 6. REGULAR MEETINGS. Regular meetings of the board of directors
may be held upon such notice, or without notice, and at such time and at such
place as shall from time to time be determined by the board.
SECTION 7. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by the Chairman or the President or by the number of directors who
then legally constitute a quorum. Notice of each special meeting shall, if
mailed, be addressed to each director at his last known address at least four
(4) days prior to the date on which the meeting is to be held; or such notice
shall be sent to each director at such address by telegram, telex, or facsimile,
or be delivered to him personally, not later than one full day before the date
on which such meeting is to be held.
SECTION 8. NOTICE; WAIVER. Attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at a meeting of the directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors entitled to vote with respect to the subject matter thereof. In
addition, meetings of the board may be held by means of conference telephone as
permitted by the General Corporation Law of the State of Delaware.
SECTION 10. ACTION. Except as otherwise provided by law or in the
Certificate of Incorporation or these by-laws, if a quorum is present the
affirmative vote of a majority of the members of the board of directors present
will be required for any action.
SECTION 11. REMOVAL OF DIRECTORS. Subject to any contrary provisions of
law, a director may be removed only for cause, either by affirmative vote of the
holders of a majority of the outstanding shares of stock entitled to vote for
the election of directors or by affirmative vote of at least two thirds of the
remaining members of the board. A finding of cause shall be made only upon
notice to the director to be removed and opportunity to respond to evidence that
the director is unfit to serve.
26
<PAGE>
SECTION 12. NOMINATIONS. Subject to the rights of the holders of any class
or series of stock having a preference over the Class A common stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the board of directors or by any stockholder entitled to vote for the
election of directors. Any stockholder entitled to vote for the election of
directors at a meeting may nominate persons for election as directors only if
written notice of such stockholder's intent to make such nomination is given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the corporation not later than (i) with respect to an election to
be held at an annual meeting of stockholders, not more than 180 nor less than
120 days in advance of the date of the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting; and (ii)
with respect to an election to be held at a special meeting of stockholders for
the election of directors, the close of business on the seventh day following
the date on which notice of such meeting is first given to stockholders. Each
such notice shall set forth: (a) the name and address as they appear in the
corporation's books of the stockholder who intends to make the nomination; (b)
the name and address of the person or persons to be nominated; (c) a
representation of the stockholder listing the class and number of shares of
stock of the corporation beneficially held by him or her and that he or she
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (d) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (e) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to Schedule 14A of the
Regulations had each nominee been nominated, or intended to be nominated, by the
board of directors; and (f) the consent of each nominee to serve as a director
of the corporation if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
ARTICLE IV.
COMMITTEES
SECTION 1. COMMITTEES. The Board may, by resolution adopted by a majority
of the whole Board, designate one or more committees, each of which shall,
except as otherwise prescribed by law, have such authority of the Board as shall
be specified in the resolution of the Board designating such committee. A
majority of all the members of such committee may determine its action and fix
the time and place of its meeting, unless the Board shall otherwise provide. The
Board shall have the power at any time to change the membership of, to fill all
vacancies in and to discharge any such committee, either with or without cause.
SECTION 2. PROCEDURE; MEETINGS; QUORUM. Regular meetings of the committees
of the Board, of which no notice shall be necessary, may be held at such times
and places as shall be fixed by resolution adopted by a majority of the members
thereof. Special meetings of the committees of the Board shall be called at the
request of the Chairman or a majority of members thereof. So far as applicable,
the provisions
27
<PAGE>
of Article III of these By-laws relating to notice, quorum and voting
requirements applicable to meetings of the Board shall govern meetings of the
committees of the Board. Each committee of the Board shall keep written minutes
of its proceedings and circulate summaries of such written minutes to the Board
before or at the next meeting of the Board.
ARTICLE V.
OFFICERS
SECTION 1. NUMBER. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a Chairman, a President, a Secretary
and a Treasurer, none of whom need be a member of the board. The board of
directors way also choose one or more Executive Vice Presidents, one or more
vice presidents, assistant secretaries and assistant treasurers. The board of
directors may appoint such other officers and agents as it shall deem necessary,
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the board of
directors Two or more offices may be held by the same person.
SECTION 2. COMPENSATION. The salaries or other compensation of all
officers of the corporation shall be fixed by the board of directors. No officer
shall be prevented from receiving a salary or other compensation by reason of
the fact that he is also a director.
SECTION 3. TERM; REMOVAL; VACANCY. The officers of the corporation shall
hold office until their successors are chosen and qualify. Any officer may be
removed at any time, with or without cause, by the Affirmative vote of a
majority of the whole board of directors. Any vacancy occurring in any office of
the corporation shall be filled by the board of directors.
SECTION 4. CHAIRMAN. The Chairman shall, if one be elected, preside at all
meetings of the board of directors and shall be the chief executive officer of
the corporation.
SECTION 5. PRESIDENT. The President shall be the chief operating officer
of the corporation, shall preside at all meetings of the stockholders and the
board of directors in the absence of the Chairman, shall have general
supervision over the business of the corporation and shall see that all
directions and resolutions of the board of directors are carried into affect.
SECTION 6. EXECUTIVE VICE PRESIDENT. The Executive Vice President shall,
in the absence or disability of the President, perform the duties and exercise
the powers of the President and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe. If there
shall be more than one Executive Vice President, the Executive Vice Presidents
shall perform such duties and exercise such powers in the absence or disability
of the President, in the order determined by the board of directors. The vice
presidents shall in the absence or disability of the President and of the
Executive Vice Presidents, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
board of directors may from time to time
28
<PAGE>
prescribe. If there shall be more than one vice president, the vice presidents
shall perform such duties and exercise such powers in the absence or disability
of the President and of the Executive Vice President, in the order determined by
the board of directors.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the board
of directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to be
kept for that purpose. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or President, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
the authority to affix the same to an instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
SECTION 8. ASSISTANT SECRETARY. The assistant secretary, if there shall be
one, or if there shall be more than one, the assistant secretaries in the order
determined by the board of directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such powers as the board of directors may
from time to time prescribe.
SECTION 9. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the Chairman, the President and the board of directors, at its regular
meetings, or when the board of directors so requires, an account of all of his
transactions as Treasurer and of the financial condition of the corporation.
SECTION 10. ASSISTANT TREASURER. The assistant treasurer, if there shall
be one, or, if there shall be more than one, the assistant treasurers in the
order determined by the board of directors, shall, in the absence or disability
of the Treasurer, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI.
CAPITAL STOCK
SECTION 1. FORM. The shares of the capital stock of the corporation shall
be represented by certificates in such form as shall be approved by the board of
directors and shall be signed by the
29
<PAGE>
Chairman, the President, an Executive Vice President or a vice president, and by
the Treasurer or an assistant treasurer or the Secretary or an assistant
secretary of the corporation manually or by facsimile, and may be sealed with
the seal of the corporation or a facsimile thereof.
SECTION 2. LOST AND DESTROYED CERTIFICATES. The board of directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the corporation alleged to have been lost or destroyed. When
authorizing such issue of a new certificate, the board of directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient, and may require such
indemnities as it deems adequate, to protect the corporation from any claim that
may be made against it with respect to any such certificate alleged to have been
lost or destroyed.
SECTION 3. TRANSFER OF SHARES. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, a new certificate shall be issued to the person entitled
thereto, and the old certificate cancelled and the transaction recorded upon the
books of the corporation.
ARTICLE VII.
INDEMNIFICATION
SECTION 1. (a) The corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests, of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify, subject to the requirements of
subsection (d) of this Section, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
30
<PAGE>
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of the State of Delaware or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Section, or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
Section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by a director, officer, employee or agent in
defending a civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this Section.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Section shall not limit the
corporation from providing any other indemnification or advancement of expenses
permitted by law nor shall they be deemed exclusive of any other rights to which
a person seeking indemnification
31
<PAGE>
or advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Section.
(h) For the purposes of this Section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who in or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this Section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section shall, unless otherwise provided when
authorized or ratified by the board of directors, continue as to a person who
has ceased to be a director, officer, employee or agent of the corporation and
shall inure to the benefit of the heirs executors and administrators of such a
person.
(k) For purposes of this Article the term "corporation" shall include
wholly-owned subsidiaries of the corporation.
ARTICLE VIII.
GENERAL PROVISIONS
32
<PAGE>
SECTION 1. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be
determined, and may be changed, by resolution of the board of directors.
SECTION 3. SEAL. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE IX.
AMENDMENTS
SECTION 1. These by-laws may be altered, amended, supplemented or repealed
or new by-laws may be adopted by a resolution adopted by a majority of the whole
board of directors at any regular or special meeting of the board.
Adopted by the Board of Directors of P&F Industries, Inc. on September
23, 1999.
33
<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
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 593,308
<SECURITIES> 0
<RECEIVABLES> 14,194,026<F1>
<ALLOWANCES> 0
<INVENTORY> 26,454,559
<CURRENT-ASSETS> 42,632,821
<PP&E> 18,327,936
<DEPRECIATION> 7,049,293
<TOTAL-ASSETS> 62,160,403
<CURRENT-LIABILITIES> 26,570,725
<BONDS> 7,670,228
<COMMON> 3,504,945
0
0
<OTHER-SE> 23,923,505
<TOTAL-LIABILITY-AND-EQUITY> 62,160,403
<SALES> 54,983,995
<TOTAL-REVENUES> 55,558,804
<CGS> 38,232,924
<TOTAL-COSTS> 38,232,924
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 973,328
<INCOME-PRETAX> 4,749,373
<INCOME-TAX> 1,800,000
<INCOME-CONTINUING> 2,949,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,949,373
<EPS-BASIC> .88
<EPS-DILUTED> .79
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE
</FN>
</TABLE>
