<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1 - 5332
P & F INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-1657413
(State of incorporation) (I.R.S. Employer Identification Number)
300 SMITH STREET, FARMINGDALE, NEW YORK 11735
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 694-1800
---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES ( X ) NO ( )
As of May 5, 2000, there were outstanding 3,574,733 shares of the
Registrant's Class A Common Stock, par value $1.00 per share.
<PAGE>
P & F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 1 - 2
Consolidated Statements of Income for the
three months ended March 31, 2000 and 1999 3
Consolidated Statement of Shareholders' Equity
for the three months ended March 31, 2000 4
Consolidated Statements of Cash Flows for
the three months ended March 31, 2000 and 1999 5 - 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18 - 19
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT:
Cash $ 251,728 $ 1,305,351
Accounts receivable, less allowance
for possible losses of $782,582
in 2000 and $767,456 in 1999 12,183,970 12,086,000
Inventories 23,895,374 20,614,501
Deferred income taxes 532,000 532,000
Prepaid expenses and other 527,794 570,914
------------ ------------
TOTAL CURRENT ASSETS 37,390,866 35,108,766
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,182,938 1,182,939
Buildings and improvements 5,942,838 5,942,838
Machinery and equipment 11,293,944 11,078,539
------------ ------------
18,419,720 18,204,316
Less accumulated depreciation
and amortization 7,555,409 7,200,142
------------ ------------
NET PROPERTY AND EQUIPMENT 10,864,311 11,004,174
------------ ------------
GOODWILL, net of accumulated
amortization of $1,595,585 in
2000 and $1,514,476 in 1999 7,869,373 7,950,482
OTHER ASSETS 173,487 176,937
------------ ------------
TOTAL ASSETS $ 56,298,037 $ 54,240,359
============ ============
</TABLE>
1
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
=======================================
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 8,000,000 $ 6,000,000
Accounts payable 5,934,339 5,592,249
Accruals:
Compensation 975,416 2,474,519
Other 2,401,991 2,173,516
Current maturities of long-term debt 953,591 947,884
------------ ------------
TOTAL CURRENT LIABILITIES 18,265,337 17,188,168
LONG-TERM DEBT, less current maturities 7,120,976 7,325,661
DEFERRED INCOME TAXES 702,000 702,000
------------ ------------
26,088,313 25,215,829
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock - $10 par;
authorized - 2,000,000 shares;
no shares outstanding -- --
Common stock:
Class A - $1 par;
authorized - 7,000,000 shares;
issued - 3,643,893 shares
and 3,504,893 shares 3,643,893 3,504,893
Class B - $1 par;
authorized - 2,000,000 shares;
no shares issued or outstanding -- --
Additional paid-in capital 8,444,289 8,282,602
Retained earnings 18,812,542 17,735,535
Treasury stock,
at cost (69,160 shares) (691,000) (498,500)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 30,209,724 29,024,530
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 56,298,037 $ 54,240,359
============ ============
</TABLE>
2
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Net sales $ 20,685,575 $ 17,876,353
Other 111,381 231,915
------------ ------------
20,796,956 18,108,268
------------ ------------
COSTS AND EXPENSES:
Cost of sales 14,402,372 12,546,061
Selling, administrative and general 4,325,835 3,721,495
Interest - net 334,742 288,305
------------ ------------
19,062,949 16,555,861
------------ ------------
INCOME BEFORE TAXES ON INCOME 1,734,007 1,552,407
TAXES ON INCOME 657,000 591,000
------------ ------------
NET INCOME $ 1,077,007 $ 961,407
============ ============
Weighted average common
shares outstanding:
Basic 3,476,865 3,248,247
Diluted 3,669,512 3,729,720
Earnings per share of common stock:
Basic $ .31 $ .30
Diluted $ .29 $ .26
</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, 2000 $ 3,504,893 $ 8,282,602 $ 17,735,535 ($ 498,500)
Net income for the three
months ended March 31, 2000 -- -- 1,077,007 --
Exercise of stock options,
139,000 shares 139,000 161,687 -- --
Common stock received on
exercise of stock options,
19,925 shares -- -- -- (192,500)
----------- ----------- ------------ ---------
Balance, March 31, 2000 $ 3,643,893 $ 8,444,289 $ 18,812,542 ($ 691,000)
=========== =========== ============ =========
</TABLE>
4
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,077,007 $ 961,407
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 355,267 334,136
Amortization 85,403 60,445
(Gain) on disposal of fixed assets (41,193) --
Provision for losses on
accounts receivable - net 15,126 1,500
Decrease (increase):
Accounts receivable (113,096) (2,915,253)
Inventories (3,280,873) (2,214,764)
Prepaid expenses and other 43,120 (206,555)
Other assets (844) --
Increase (decrease):
Accounts payable 342,090 493,309
Accruals and other (1,270,628) (503,770)
------------ ------------
Total adjustments (3,865,628) (4,950,952)
------------ ------------
Net cash used in
operating activities (2,788,621) (3,989,545)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (215,405) (701,109)
Proceeds from sale of fixed assets 41,194 --
------------ ------------
Net cash used in
investing activities (174,211) (701,109)
------------ ------------
</TABLE>
5
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 2,500,000 4,000,000
Repayments of short-term borrowings (500,000) --
Principal payments on long-term debt (198,978) (37,847)
Proceeds from exercise of stock options 108,187 18,750
------------ ------------
Net cash used in
financing activities 1,909,209 3,980,903
------------ ------------
NET (DECREASE) INCREASE IN CASH (1,053,623) (709,751)
CASH AT BEGINNING OF PERIOD 1,305,351 2,280,788
------------ ------------
CASH AT END OF PERIOD $ 251,728 $ 1,571,037
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 121,654 $ 53,300
============ ============
Interest $ 324,823 $ 346,420
============ ============
</TABLE>
During the quarter ended March 31, 2000, the Company received 19,925 shares
of common stock in connection with the exercise of stock options. The value of
these shares was recorded at $192,500.
6
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 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.
BASIS OF FINANCIAL STATEMENT PRESENTATION
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 to 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, 1999 was
derived from the audited financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. 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 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Finished goods $ 19,476,590 $ 15,673,198
Work in process 1,030,154 812,929
Raw materials and supplies 3,388,630 4,128,374
------------ ------------
$ 23,895,374 $ 20,614,501
============ ============
</TABLE>
NOTE 3 - CAPITAL STOCK TRANSACTIONS
During the quarter ended March 31, 2000, a director of the Company
surrendered 13,144 shares of Class A Common Stock, with a fair value of
$130,625, in connection with the exercise of options to purchase 50,000 shares
of Class A Common Stock.
Also during the quarter ended March 31, 2000, an employee of the
Company surrendered 6,781 shares of Class A Common Stock, with a fair value of
$61,875, in connection with the exercise of options to purchase 35,000 shares of
Class A Common Stock.
8
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 4 - SEGMENTS OF BUSINESS
The following tables present financial information by segment for the
periods ended March 31, 2000 and 1999. Segment profit excludes general corporate
expenses, interest expense and income taxes. During these periods, there were no
intersegment revenues.
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
MARCH 31, 2000 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
- ------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 20,797 $ 11,070 $ 5,836 $ 2,291 $ 1,600
========= ========= ========= ========= ========
Segment profit $ 2,855 $ 2,198 $ 386 $ 115 $ 156
========= ========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
MARCH 31, 1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
- ------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 18,108 $ 9,767 $ 5,051 $ 1,900 $ 1,390
========= ========= ========= ========= ========
Segment profit $ 2,568 $ 2,031 $ 340 $ 21 $ 176
========= ========= ========= ========= ========
</TABLE>
9
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 4 - SEGMENTS OF BUSINESS (CONTINUED)
The reconciliation of combined operating profits for reportable
segments to consolidated income before income taxes is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Total profit for reportable segments $2,854,748 $2,567,985
General corporate expenses (785,999) (727,273)
Interest expense (334,742) (288,305)
---------- ----------
Income before income taxes $1,734,007 $1,552,407
========== ==========
</TABLE>
10
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per common share - income
available to common shareholders $1,077,007 $ 961,407
========== ==========
Denominator:
Denominator for basic earnings
per common share - weighted
average common shares outstanding 3,476,865 3,248,247
Effect of dilutive securities:
Common stock options 192,647 481,473
--------- ---------
Denominator for diluted earnings
per common share - adjusted
weighted average common shares
and assumed conversions 3,669,512 3,729,720
========= =========
Earnings per common share:
Basic $ .31 $ .30
===== =====
Diluted $ .29 $ .26
===== =====
</TABLE>
11
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
=======================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 2000 COMPARED WITH FIRST QUARTER ENDED
MARCH 31, 1999
Consolidated revenues increased 14.8%, from $18,108,268 to $20,796,956.
Revenues from pneumatic tools and related equipment increased 13.3%, from
$9,767,148 to $11,069,618, due to the addition of a large new customer obtained
in the fourth quarter of 1999. The increase in revenues would have been greater
by $1,685,000 had it not been for a special promotion that occurred in the first
quarter of 1999. Selling prices of pneumatic tools and related equipment were
virtually unchanged from the first quarter of 1999.
Revenues from hydraulic cylinders and other equipment increased 15.5%,
from $5,050,745 to $5,835,674, due primarily to an increase in sales to the
wrecker and refuse markets. Selling prices of hydraulic cylinders were virtually
unchanged from the first quarter of 1999.
Revenues from heating equipment increased 20.6%, from $1,899,890 to
$2,291,404, due primarily to an increase in radiant and commercial product
sales. Revenues from hardware increased 15.1%, from $1,390,485 to $1,600,260,
primarily as the result of a significant increase in sales to a large customer.
Selling prices of all heating and hardware products were virtually unchanged
from the first quarter of 1999.
Consolidated gross profit, as a percentage of revenues, was unchanged
at 30.7%. Gross profit from pneumatic tools and related equipment increased from
38.5% to 38.9%, due primarily to a more profitable product mix. Gross profit
from hydraulic cylinders and other equipment decreased from 15.1% to 14.8%, due
primarily to higher overhead costs resulting from a large increase in state
mandated workers compensation rates. Without these increased costs, gross profit
from hydraulic cylinders and other equipment would have improved to 15.4% as the
result of improvements in factory efficiency. Gross profit from heating
equipment decreased from 34.3% to 34.0%, due primarily to higher material costs
for baseboard product, and gross profit from hardware was virtually unchanged,
going from 28.0% to 27.9%.
Consolidated selling, general and administrative expenses increased
16.2%, from $3,721,495 to $4,325,835, due primarily to the increase in revenues.
As a percentage of revenues, however, these expenses increased only slightly,
from 20.6% to 20.8%. Interest expense increased 16.1%, from $288,305 to
$334,742, as a result of higher interest rates and a slight increase in
short-term borrowings.
The effective tax rates for the quarters ended March 31, 2000 and 1999
were 37.9% and 38.1%, respectively.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company gauges its liquidity and financial stability by the
measurements shown in the following table (dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
--------- ------------ ---------
<S> <C> <C> <C>
Working Capital $ 19,126 $ 17,921 $ 16,401
Current Ratio 2.05 to 1 2.04 to 1 1.95 to 1
Shareholders' Equity $ 30,210 $ 29,025 $ 25,430
</TABLE>
During the quarter ended March 31, 2000, gross accounts receivable
increased by approximately $113,000, due primarily to increases in accounts
receivable at Embassy and Green as the result of very strong sales during March
2000. The increases at Embassy and Green were partially offset by a decrease in
accounts receivable at Florida Pneumatic due to weaker first quarter 2000 sales
compared to the fourth quarter of 1999. Inventories increased by approximately
$3,281,000, due primarily to restocking required after extremely strong fourth
quarter sales at Florida Pneumatic. Accounts payable increased approximately
$342,000, due primarily to the timing of inventory receipts.
On July 26, 1999, the Company renewed its credit agreement, as amended,
with European American Bank. This agreement 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. The amended credit agreement
also includes a step-up period, from the date of renewal through January 31,
2000, during which the total availability under the revolving credit loan
facility was increased to $17,000,000 to support the buildup of inventory
related to a significant new customer. At March 31, 2000, there was $8,000,000
outstanding against the revolving credit loan facility. There was also a
commitment of approximately $405,000 at March 31, 2000 for open letters of
credit.
The term loan facility provides a commitment of $15,000,000 to finance
acquisitions subject to the lending banks approval. In September 1998,
$10,000,000 of the term loan facility was used to help finance the acquisition
of Green and there was $3,666,667 still outstanding against this facility at
March 31, 2000. This 7-year term loan bears interest at LIBOR (London Interbank
Offered Rates) plus 1.75%. The Company made payments of interest only through
October 1999, at which time payments of both principal and interest became due.
The amended credit agreement also includes a step-up period, from the date of
renewal through January 31, 2000, during which the total availability under the
term loan facility was increased to $18,000,000 to support potential
acquisitions. There was also a standby letter of credit totalling approximately
$821,000 outstanding against this facility at March 31, 2000. This standby
letter of credit was used to secure the Economic Development Revenue Bond
assumed as part of the acquisition of Green.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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
March 31, 2000 was approximately $2,750,000.
The Company's credit agreement is subject to annual review by the
lending bank. Under this agreement, the Company is required to adhere to certain
financial covenants. At March 31, 2000, and for the three months then ended, the
Company satisfied all of these covenants.
Capital spending for the quarter ended March 31, 2000 was approximately
$215,000. The total amount was provided from working capital. Capital
expenditures for the rest of 2000 are expected to total approximately
$1,500,000, some of which may be financed through the Company's credit
facilities. Included in the expected total for the rest of 2000 are capital
expenditures relating to new products, expansion of existing product lines and
replacement of old equipment.
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. Nevertheless, the
weakening of the U.S. dollar versus the Japanese yen over the last 12 months has
had a negative effect on the Company's results of operations and its financial
position.
The Company believes that cash on hand, cash derived from operations
and cash available through borrowings under its credit facilities will be
sufficient to allow the Company to support its capital expenditure program and
to meet its foreseeable working capital needs.
14
<PAGE>
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 the
Company beginning January 1, 2001 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.
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, pursuant to Company policy.
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 mitigating 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 March 31, 2000, the Company held open hedge forward
contracts to deliver approximately $2,750,000 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 March 31, 2000 is approximately $305,000.
15
<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
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 March 31, 2000.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
P & F INDUSTRIES, INC.
(Registrant)
By /s/ Joseph A. Molino, Jr.
-------------------------------
Joseph A. Molino, Jr.
Vice President
Dated: May 8, 2000 (Principal Financial Officer)
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C>
2.1 Asset Purchase Agreement, dated as of September 16, 1998, by and
between Green Manufacturing, Inc., an Ohio corporation, and the
Registrant (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K dated September 16, 1998).
Pursuant to Item 601(b)(2) of Regulation S-K, the Registrant agrees
to furnish supplementally a copy of any exhibit or schedule omitted
from the Asset Purchase Agreement to the Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant (Incorporated
by reference to Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999).
3.2 Amended By-laws of the Registrant (Incorporated by reference to Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
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/A 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/A for the fiscal year ended
December 31, 1998).
18
<PAGE>
EXHIBIT INDEX
(CONTINUED)
EXHIBIT
NO.
- -------
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.
10.1 Amended and Restated Employment Agreement, dated as of May 28, 1997,
between the Registrant and Richard A. Horowitz (Incorporated by
reference to Exhibit 10.1 to the Registrant's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1998).
10.2 Consulting Agreement, effective as of November 1, 1998, between the
Registrant and Sidney Horowitz (Incorporated by reference to Exhibit
10.2 to the Registrant's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1998).
10.3 1992 Incentive Stock Option Plan of the Registrant, as amended and
restated as of March 13, 1997 (Incorporated by reference to Exhibit
10.3 to the Registrant's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1998).
27 Financial Data Schedules (submitted to the Securities and Exchange
Commission in electronic format).
</TABLE>
19
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 251,728
<SECURITIES> 0
<RECEIVABLES> 12,183,970<F1>
<ALLOWANCES> 0
<INVENTORY> 23,895,374
<CURRENT-ASSETS> 37,390,866
<PP&E> 18,419,720
<DEPRECIATION> 7,555,409
<TOTAL-ASSETS> 56,208,037
<CURRENT-LIABILITIES> 18,265,337
<BONDS> 7,120,976
0
0
<COMMON> 3,643,893
<OTHER-SE> 26,565,831
<TOTAL-LIABILITY-AND-EQUITY> 56,298,037
<SALES> 20,685,575
<TOTAL-REVENUES> 20,796,956
<CGS> 14,402,372
<TOTAL-COSTS> 14,402,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 334,742
<INCOME-PRETAX> 1,734,007
<INCOME-TAX> 657,000
<INCOME-CONTINUING> 1,077,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,077,007
<EPS-BASIC> .31
<EPS-DILUTED> .29
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE
</FN>
</TABLE>
