<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 JUNE 30, 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: (631) 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 August 4, 2000, there were outstanding 3,583,733 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 JUNE 30, 2000
TABLE OF CONTENTS
PAGE
<TABLE>
<CAPTION>
<S> <C>
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 1 - 2
Consolidated Statements of Income for the
three months and the six months ended
June 30, 2000 and 1999 3
Consolidated Statement of Shareholders' Equity
for the six months ended June 30, 2000 4
Consolidated Statements of Cash Flows for
the six months ended June 30, 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 - 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19 - 20
PART I - FINANCIAL INFORMATION
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT:
Cash $ 205,082 $ 1,305,351
Accounts receivable, less allowance
for possible losses of $502,727
in 2000 and $767,456 in 1999 10,636,073 12,086,000
Inventories 26,126,698 20,614,501
Deferred income taxes 532,000 532,000
Prepaid expenses and other 747,865 570,914
------------ ------------
TOTAL CURRENT ASSETS 38,247,718 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 11,679,303 11,078,539
------------ ------------
18,805,079 18,204,316
Less accumulated depreciation
and amortization 7,910,675 7,200,142
------------ ------------
NET PROPERTY AND EQUIPMENT 10,894,404 11,004,174
------------ ------------
GOODWILL, net of accumulated
amortization of $1,676,694 in
2000 and $1,514,476 in 1999 7,788,264 7,950,482
OTHER ASSETS 170,037 176,937
------------ ------------
TOTAL ASSETS $ 57,100,423 $ 54,240,359
============ ============
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
=======================================
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 9,000,000 $ 6,000,000
Accounts payable 4,725,288 5,592,249
Accruals:
Compensation 1,209,316 2,474,519
Other 2,361,984 2,173,516
Current maturities of long-term debt 951,136 947,884
------------ ------------
TOTAL CURRENT LIABILITIES 18,247,724 17,188,168
LONG-TERM DEBT, less current maturities 6,924,181 7,325,661
DEFERRED INCOME TAXES 702,000 702,000
------------ ------------
25,873,905 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 - 3,647,893 shares
and 3,504,893 shares 3,647,893 3,504,893
Class B - $1 par;
authorized - 2,000,000 shares;
no shares issued or outstanding -- --
Additional paid-in capital 8,447,414 8,282,602
Retained earnings 19,822,211 17,735,535
Treasury stock, at cost
(69,160 shares and 49,235 shares) (691,000) (498,500)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 31,226,518 29,024,530
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 57,100,423 $ 54,240,359
============ ============
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 18,704,623 $ 16,888,372 $ 39,390,198 $ 34,764,725
Other 259,116 203,785 370,497 435,700
------------ ------------ ------------ ------------
18,963,739 17,092,157 39,760,695 35,200,425
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 12,675,741 11,659,129 27,078,113 24,205,190
Selling, administrative and general 4,321,957 3,894,672 8,647,792 7,616,167
Interest - net 342,372 313,332 677,114 601,637
------------ ------------ ------------ ------------
17,340,070 15,867,133 36,403,019 32,422,994
------------ ------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME 1,623,669 1,225,024 3,357,676 2,777,431
TAXES ON INCOME 614,000 471,000 1,271,000 1,062,000
------------ ------------ ------------ ------------
NET INCOME $ 1,009,669 $ 754,024 $ 2,086,676 $ 1,715,431
============ ============ ============ ============
Weighted average common
shares outstanding:
Basic 3,577,000 3,316,655 3,526,932 3,282,750
Diluted 3,705,365 3,730,457 3,687,438 3,730,388
Earnings per share of common stock:
Basic $ .28 $ .23 $ .59 $ .52
Diluted $ .27 $ .20 $ .57 $ .46
</TABLE>
<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 six
months ended June 30, 2000 -- -- 2,086,676 --
Exercise of stock options,
143,000 shares 143,000 164,812 -- --
Common stock received on
exercise of stock options,
19,925 shares -- -- -- (192,500)
----------- ----------- ------------ ---------
Balance, June 30, 2000 $ 3,647,893 $ 8,447,414 $ 19,822,211 $(691,000)
=========== =========== ============ =========
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,086,676 $ 1,715,431
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 710,533 671,141
Amortization 169,962 159,914
(Gain) on disposal of fixed assets (41,193) --
Provision for losses on
accounts receivable - net 17,065 3,000
Decrease (increase):
Accounts receivable 1,432,862 (853,894)
Inventories (5,512,197) (4,764,082)
Prepaid expenses and other (176,951) (69,604)
Other assets (844) 19,273
Increase (decrease):
Accounts payable (866,961) 549,881
Accruals and other (1,076,735) (1,019,603)
------------ ------------
Total adjustments (5,344,459) (5,303,974)
------------ ------------
Net cash used in
operating activities (3,257,783) (3,588,543)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (600,764) (1,271,192)
Proceeds from sale of fixed assets 41,194 --
------------ ------------
Net cash used in
investing activities (559,570) (1,271,192)
------------ ------------
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
=======================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 4,500,000 5,500,000
Repayments of short-term borrowings (1,500,000) (1,000,000)
Proceeds from mortgage refinancing -- 1,800,000
Principal payments on long-term debt (398,228) (3,372,394)
Proceeds from exercise of stock options 115,312 18,750
------------ ------------
Net cash provided by
financing activities 2,717,084 2,946,356
------------ ------------
NET (DECREASE) INCREASE IN CASH (1,100,269) (1,913,379)
CASH AT BEGINNING OF PERIOD 1,305,351 2,280,788
------------ ------------
CASH AT END OF PERIOD $ 205,082 $ 367,409
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
<TABLE>
<CAPTION>
<S> <C> <C>
Income taxes $ 1,336,654 $ 1,110,300
============ ============
Interest $ 665,749 $ 651,055
============ ============
</TABLE>
During the six months ended June 30, 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.
<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.
<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>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Finished goods $ 21,391,049 $ 15,673,198
Work in process 1,030,032 812,929
Raw materials and supplies 3,705,617 4,128,374
------------ ------------
</TABLE>
<TABLE>
<S> <C> <C>
------------ ------------
$ 26,126,698 $ 20,614,501
============ ============
</TABLE>
NOTE 3 - CAPITAL STOCK TRANSACTIONS
During the six months ended June 30, 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 six months ended June 30, 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.
<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 June 30, 2000 and 1999. Segment profit excludes general corporate
expenses, interest expense and income taxes. There were no intersegment
revenues.
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
SIX MONTHS ENDED CON- RELATED HYDRAULIC HEATING
JUNE 30, 2000 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 39,761 $ 21,032 $ 11,357 $ 4,390 $ 2,982
========= ========= ========= ========= =======
Segment profit $ 5,598 $ 4,341 $ 785 $ 241 $ 231
========= ========= ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
SIX MONTHS ENDED CON- RELATED HYDRAULIC HEATING
JUNE 30, 1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 35,200 $ 18,160 $ 10,315 $ 3,947 $ 2,778
========= ========= ========= ========= =======
Segment profit $ 4,827 $ 3,849 $ 603 $ 68 $ 307
========= ========= ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
JUNE 30, 2000 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 18,964 $ 9,962 $ 5,521 $ 2,099 $ 1,382
========= ========= ========= ========= =======
Segment profit $ 2,743 $ 2,143 $ 399 $ 126 $ 75
========= ========= ========= ========= =======
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 4 - SEGMENTS OF BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
PNEUMATIC
TOOLS AND
THREE MONTHS ENDED CON- RELATED HYDRAULIC HEATING
JUNE 30, 1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
------------------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 17,092 $ 8,393 $ 5,264 $ 2,047 $ 1,388
========= ========= ========= ========= =======
Segment profit $ 2,259 $ 1,818 $ 263 $ 47 $ 131
========= ========= ========= ========= =======
</TABLE>
The reconciliation of combined operating profits for reportable segments to
consolidated income before income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Total profit for reportable segments $5,598,111 $4,826,997
General corporate expenses (1,563,321) (1,447,929)
Interest expense (677,114) (601,637)
---------- ----------
Income before income taxes $3,357,676 $2,777,431
========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Total profit for reportable segments $2,743,363 $2,259,012
General corporate expenses (777,322) (720,656)
Interest expense (342,372) (313,332)
---------- ----------
Income before income taxes $1,623,669 $1,225,024
========== ==========
</TABLE>
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per common share -
income available to common
shareholders $ 1,009,669 $ 754,024 $ 2,086,676 $ 1,715,431
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average
common shares outstanding 3,577,000 3,316,655 3,526,932 3,282,750
Effect of dilutive securities:
Common stock options 128,365 413,802 160,506 447,638
----------- ----------- ----------- -----------
Denominator for diluted earnings
per share - adjusted weighted
average common shares and
assumed conversions 3,705,365 3,730,457 3,687,438 3,730,388
=========== =========== =========== ===========
Earnings per common share:
Basic $ .28 $ .23 $ .59 $ .52
===== ===== ===== =====
Diluted $ .27 $ .20 $ .57 $ .46
===== ===== ===== =====
</TABLE>
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
=======================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 2000 COMPARED WITH SECOND QUARTER ENDED
JUNE 30, 1999
Consolidated revenues increased 10.9%, from $17,092,157 to $18,963,739.
Revenues from pneumatic tools and related equipment increased 18.7%, from
$8,392,853 to $9,962,215, due primarily to the addition of a significant new
account obtained in the fourth quarter of 1999. Selling prices of pneumatic
tools and related equipment were virtually unchanged from the second quarter of
1999. Revenues from hydraulic cylinders and other equipment increased 4.9%, from
$5,264,495 to $5,521,760, due primarily to an increase in sales to the refuse
market. Selling prices of hydraulic cylinders and other equipment were virtually
unchanged from the second quarter of 1999. Revenues from heating equipment
increased 2.5%, from $2,047,187 to $2,098,238, due primarily to an increase in
sales of commercial baseboard products. Revenues from hardware were virtually
unchanged, decreasing slightly from $1,387,622 to $1,381,526. Selling prices of
both heating products and hardware were virtually unchanged from the second
quarter of 1999.
Consolidated gross profit, as a percentage of revenues, increased from
31.8% to 33.2%. Gross profit from pneumatic tools and related equipment
increased from 42.4% to 42.7%, due to a more profitable product mix and higher
volumes, partially offset by a decrease in the value of the U.S. dollar as
compared to the Japanese yen. Gross profit from hydraulic cylinders and other
equipment increased from 14.6% to 16.4%, due to increases in production, which
better utilized operators and machinery, and higher labor productivity. Gross
profit from heating equipment decreased from 35.3% to 34.8%, due primarily to an
increase in the cost of
<PAGE>
purchased raw materials. Gross profit from hardware increased from 27.5% to
28.9%, due primarily to a more favorable product mix.
Consolidated selling, general and administrative expenses increased 11.0%,
from $3,894,672 to $4,321,957, due primarily to the overall increase in revenue.
Interest expense increased 9.3%, from $313,332 to $342,372, primarily as a
result of an increase in the average interest rate on the Company's debt
obligations.
The effective tax rates for the quarters ended June 30, 2000 and 1999 were
37.8% and 38.4%, respectively.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED
JUNE 30, 1999
Consolidated revenues increased 13.0%, from $35,200,425 to $39,760,695.
Revenues from pneumatic tools and related equipment increased 15.8%, from
$18,160,001 to $21,031,833, due primarily to the addition of a significant new
account obtained in the fourth quarter of 1999. Selling prices of pneumatic
tools and related equipment were virtually unchanged from the six months ended
June 30, 1999. Revenues from hydraulic cylinders and other equipment increased
10.1%, from $10,315,240 to $11,357,434, due primarily to an increase in sales to
the refuse and wrecker markets, which was partially offset by slight decreases
in sales to the lift and construction markets. Selling prices of hydraulic
cylinders and other equipment were virtually unchanged from the six months ended
June 30, 1999. Revenues from heating equipment increased 11.2%, from $3,947,077
to $4,389,642, due primarily to strong sales in commercial baseboard and radiant
products. Revenues from hardware increased 7.3%, from $2,778,107 to $2,981,786,
due primarily to strong sales to the top three accounts. Selling prices of both
heating products and hardware were virtually unchanged from the six months ended
June 30, 1999.
Consolidated gross profit, as a percentage of revenues, increased from
31.2% to 31.9%. Gross profit from pneumatic tools and related equipment
increased from 40.3% to 40.7%, due to a more profitable product mix and higher
volumes, partially offset by a decrease in the value of the U.S. dollar as
compared to the Japanese yen. Gross profit from hydraulic cylinders and other
equipment increased from 14.8% to 15.6%, due to increases in production, which
better utilized operators and machinery, and higher labor productivity. Gross
profit from heating equipment decreased from 34.8% to 34.4%, due primarily to an
increase in the cost of purchased raw materials. Gross profit from hardware
increased from 27.8% to 28.3%, due primarily to a more favorable product mix.
Consolidated selling, general and administrative expenses increased 13.6%,
from $7,616,167 to $8,647,792, due primarily to the overall increase in revenue.
Interest expense increased 12.6%, from $601,637 to $677,114, primarily as a
result of an increase in the average interest rate on the Company's debt
obligations.
The effective tax rates for the six months ended June 30, 2000 and 1999
were 37.9% and 38.2%, respectively.
<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>
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
--------- ------------ ---------
<S> <C> <C> <C>
Working Capital $ 20,000 $ 17,921 $ 15,420
Current Ratio 2.10 to 1 2.04 to 1 1.89 to 1
Shareholders' Equity $ 31,227 $ 29,025 $ 26,184
</TABLE>
During the six months ended June 30, 2000, gross accounts receivable
decreased by approximately $1,715,000. A decrease of approximately $2,325,000 in
accounts receivable at Florida Pneumatic was partially offset by an increase of
approximately $481,000 in accounts receivable at Green. Florida Pneumatic's
accounts receivable at December 31, 1999 were high because of strong first-time
sales to a significant new customer. Green's accounts receivable at June 30,
2000 were higher than at December 31, 1999 because of a significant increase in
sales late in the second quarter. During the six months ended June 30, 2000,
inventories increased by approximately $5,512,000. Florida Pneumatic's inventory
increased by approximately $4,501,000, primarily to support sales to a
significant new customer obtained in the fourth quarter of 1999. Green's
inventory increased by approximately $489,000, primarily in order to support
additional on-hand finished goods commitments to customers as well as the
overall increase in sales. Embassy's inventory increased by approximately
$522,000 as part of the typical preparation for the heating season and an
overall growth in heating product sales. During the six months ended June 30,
2000, short-term borrowings increased by $3,000,000, primarily to support the
inventory buildups in each segment. During the six months ended June 30, 2000,
accounts payable decreased by approximately $867,000. A decrease of
approximately $1,349,000 in accounts payable at Florida Pneumatic, due primarily
to the timing of payments to foreign suppliers, was partially offset by an
increase of approximately $499,000 in accounts payable at Green, due primarily
to the inventory buildup.
On July 26, 2000, 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.
At June 30, 2000, there was $9,000,000 outstanding against the revolving credit
loan facility. There was also a commitment of approximately $95,000 at June 30,
2000 for
<PAGE>
open letters of credit.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The term loan facility provides a commitment of $15,000,000 to finance
acquisitions subject to the lending bank's approval. In September 1998,
$10,000,000 of the term loan facility was used to help finance the acquisition
of Green and there was $3,500,000 still outstanding against this facility at
June 30, 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.
There was also a standby letter of credit totalling approximately $818,000
outstanding against this facility at June 30, 2000. 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
June 30, 2000 was approximately $1,765,000.
The Company's 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 June 30, 2000, and for the six months then ended, the
Company satisfied all of these covenants.
Capital spending for the six months ended June 30, 2000 was approximately
$600,000. The total amount was provided from working capital. Capital
expenditures for the rest of 2000 are expected to total approximately $800,000,
some of which may be financed under the Company's Credit Agreement. 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 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."
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.
<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 June 30, 2000, the Company held open hedge forward
contracts to deliver approximately $1,765,000 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 June 30, 2000 is approximately $196,000.
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
<PAGE>
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 31, 2000, the Registrant held its Annual Meeting of
Stockholders, at which two proposals were voted upon: (i) Election of
Directors; and (ii) the Appointment of Auditors.
The following persons were duly elected to serve, subject to the
Company's Bylaws, as directors of the Company until the next Annual
Meeting, or until election and qualification of their successors:
<TABLE>
<CAPTION>
Votes Votes Votes
in favor against abstained
--------- ------- ---------
<S> <C> <C> <C>
Sidney Horowitz 2,884,182 353,046 0
Arthur Hug, Jr. 2,884,422 352,806 0
Dennis Kalick 3,227,232 9,996 0
</TABLE>
The appointment of BDO Seidman, LLP as the Company's Auditors was
ratified by 3,214,744 votes in favor and 6,708 votes against, with 15,776
votes abstained.
There were no broker non-votes pertaining to these proposals.
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 June 30, 2000.
<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: August 4, 2000 (Principal Financial Officer)
<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).
</TABLE>
<PAGE>
EXHIBIT INDEX
(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<S> <C>
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 Amendment No. 3 to Credit Agreement, dated as of July 26, 2000, 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.
4.7 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>
<PAGE>
P & F INDUSTRIES, INC.
EXHIBIT 4.6
AMENDMENT NO. 3
TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 3 is entered into as of July 26, 2000 (the "Amendment"),
by and among P&F INDUSTRIES, INC., a Delaware corporation ("P&F), FLORIDA
PNEUMATIC MANUFACTURING CORPORATION, a Florida corporation ("Florida
Pneumatic"), EMBASSY INDUSTRIES, INC., a New York corporation ("Embassy"), and
GREEN MANUFACTURING, INC., a Delaware corporation ("Green") (P&F, Florida
Pneumatic, Embassy and Green, the "Co-Borrowers"), and EUROPEAN AMERICAN BANK, a
New York banking corporation (the "Bank").
BACKGROUND
The Co-Borrowers and the Bank are parties to a Credit Agreement, dated
as of July 23, 1998 (as same has been and may be further amended, restated,
supplemented or modified, from time to time, the "Credit Agreement"),
pursuant to which the Bank provides the Co-Borrowers with certain financial
accommodations.
The Co-Borrowers have requested that the Bank extend the Revolving Credit
Termination Date through July 26, 2001, and the Bank is willing to do so on the
terms and conditions hereinafter set forth. Capitalized terms used herein and
not defined herein shall have the meanings given to them in the Credit
Agreement.
Accordingly, in consideration of the premises and of the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I.
AMENDMENT TO CREDIT AGREEMENT.
Section 1. The definition of the term "Revolving Credit Termination Date"
in Section 1.1 of the Credit Agreement is hereby amended and restated in its
entirety to provide as follows:
"Revolving Credit Termination Date" shall mean the earlier of (i) July
26, 2001 or (ii) the date on which the Revolving Credit Commitment
shall have been terminated hereunder.
ARTICLE II.
CONDITIONS OF EFFECTIVENESS
Section 2.1. This Amendment shall become effective as of the date hereof
upon receipt by the Bank of each of this Amendment, duly executed by each
Co-Borrower.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES; EFFECT ON CREDIT AGREEMENT.
Section 3.1. Each Co-Borrower hereby represents and warrants as follows:
a. This Amendment and the Credit Agreement, as amended hereby,
constitute legal, valid and binding obligations of the Co-Borrowers and are
enforceable against the Co-Borrowers in accordance with their respective terms.
b. Upon the effectiveness of this Amendment, the Co-Borrowers hereby
reaffirm all covenants, representations and warranties made in the Credit
Agreement and the other Loan Documents to the extent that the same are not
amended hereby and each Co-Borrower agrees that all such
<PAGE>
covenants, representations and warranties shall be deemed to have been remade as
of the date hereof.
c. No Default or Event of Default has occurred and is continuing or
would exist after giving effect to this Amendment.
d. No Co-Borrower has any defense, counterclaim or offset with
respect to the Credit Agreement.
Section 3.2. EFFECT ON CREDIT AGREEMENT.
a. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import shall mean and be a reference to the Credit Agreement as amended
hereby.
b. Except as specifically amended herein, the Credit Agreement, and
all other documents, instruments and agreement executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
c. The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Bank, nor
constitute a waiver of any provision of the Credit Agreement, or any other
documents, instruments or agreements executed and/or delivered under or in
connection therewith.
ARTICLE IV.
MISCELLANEOUS.
Section 4.1. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
Section 4.2. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
Section 4.3. This Amendment may be executed in one or more counterparts,
each of which shall constitute an original, and all of which, taken together,
shall be deemed to constitute one and the same agreement.
Section 4.4. Each of the Loan Documents continues to be in full force and
effect in accordance with their respective terms, and the liens heretofore
granted pledged and/or assigned to the Bank as security for the Co-Borrowers'
obligations with respect to each Security Agreement, Pledge
<PAGE>
Agreement and Credit Agreement shall not be impaired, limited or affected in any
manner whatsoever by reason of this Amendment.
[next page is signature page]
<PAGE>
IN WITNESS WHEREOF, the Co-Borrowers and the Bank have caused this
Amendment to be duly executed by their duly authorized officers as of the day
and year first above written.
P&F INDUSTRIES, INC.
By:
------------------------------------------
Joseph A. Molino, Vice President
FLORIDA PNEUMATIC
MANUFACTURING CORPORATION
By:
------------------------------------------
Joseph A. Molino, Vice President
EMBASSY INDUSTRIES, INC.
By:
------------------------------------------
Joseph A. Molino, Vice President
GREEN MANUFACTURING, INC.
By:
------------------------------------------
Joseph A. Molino, Vice President
EUROPEAN AMERICAN BANK
By:
------------------------------------------
Stephen Kelly, Vice President
