<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $1.00 PAR VALUE
(Title of class)
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the last sale price on March 17, 2000, was
approximately $20,034,000.
As of March 17, 2000, there were outstanding 3,601,893 shares of the
Registrant's Class A Common Stock, par value $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference information from the Registrant's
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders.
P & F INDUSTRIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1. Business 1 - 4
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 11
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 12
Item 8. Financial Statements and Supplementary Data 13 - 40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 41
PART III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management 41
Item 13. Certain Relationships and Related Transactions 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 42 - 43
Signatures 44
Exhibit Index 45 - 46
</TABLE>
i
<PAGE>
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Any
forward-looking statements contained herein, including those related to the
Company's performance for the year 2000, are based upon the Company's historical
performance and on current plans, estimates and expectations. They are subject
to various risks and uncertainties, including, but not limited to, the impact of
competition, product demand and pricing, investment results, legislative and
regulatory developments and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission. These risks could
cause the Company's actual results for the 2000 fiscal year and beyond to differ
materially from those expressed in any forward-looking statement made by or on
behalf of the Company. Forward-looking statements speak only as of the date on
which they are made, and the Company undertakes no obligation to update publicly
or revise any forward-looking statement, whether as a result of new information,
future developments or otherwise.
ii
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PART I
ITEM 1. BUSINESS
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 Hardware division
("Franklin"). 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 ("Berkley"), a line of pipe cutting and threading tools, wrenches and
replacement electrical components for a widely used brand of pipe cutting and
threading machines. Green Manufacturing, Inc. ("Green"), which was acquired by
the Company on September 16, 1998, 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. Note 9 of the Notes to Consolidated Financial Statements presents
additional information regarding the acquisition of Green. Note 11 of the Notes
to Consolidated Financial Statements presents financial information for the
segments of the Company's business.
Florida Pneumatic has two major customers, Sears, Roebuck and Co. and
W.W. Grainger, Inc., that accounted for 24.7%, 35.7% and 45.4% and 7.7%, 10.1%
and 9.1% of consolidated revenues for the years ended December 31, 1999, 1998
and 1997, respectively. A third major customer, The Home Depot, is a customer of
both Florida Pneumatic and Franklin and accounted for 10.1% of consolidated
revenues for the year ended December 31, 1999. Revenues derived from countries
outside the United States were immaterial for the years ended December 31, 1999,
1998 and 1997.
EMBASSY
1
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Embassy's baseboard heating products are sold nationally, under the
Embassy name and under its Panel-Track and System 6 trademarks, for use in
hot-water heating systems installed in single family homes, multi-unit dwellings
and commercial and industrial buildings. Products are sold principally to
wholesalers by manufacturers' representatives and in-house sales support
personnel. Embassy's products are also sold to other manufacturers for
incorporation into their products and for distribution on a private label basis.
Hot-water heating systems operate by heating water in a boiler and
circulating it through the copper tubing in the baseboard along the perimeter of
the space to be heated. Attached to the copper tubing are numerous
closely-spaced aluminum fins which dissipate the heat. Sections are two to ten
feet in length, project several inches from the wall and rise less than a foot
from the floor. These sections may be combined for longer installations.
Embassy's baseboard contains patented plastic tracks which ease handling and
reduce operating noise.
Embassy also imports a line of radiant heating systems. These systems
are different from baseboard heating systems in that the radiant heating systems
radiate heat provided by hot water circulating through plastic tubing, which is
generally installed beneath the surface of the floor. These systems include the
tubing, manifolds, controls and installation supplies. Embassy also provides
computer software which aids in the design of the system. Sales of this product
accounted for 15.4% of Embassy's total heating equipment revenues in 1999.
Baseboard and radiant heating systems compete with forced hot-air and
electric heating systems. Compared to baseboard and radiant heating systems,
electric heating systems are generally more expensive to operate, while forced
hot-air systems are noisier, sometimes cause discomfort from fluctuations in
temperature as the furnace cycles on and off and do not distribute warm air
uniformly within the room. Radiant heating systems are generally the most
expensive of these systems to install and therefore tend to be installed more
often in custom and higher priced homes. Since Embassy's products are used
primarily in new installations, its sales are related to housing starts.
Embassy's baseboard heating products are sold off the shelf and no
material backlog of orders exists. Raw materials are readily available. The
business is seasonal, with approximately 60.0% of Embassy's heating equipment
revenues coming in the last six months of the year.
The primary competitive factors in the baseboard and radiant heating
market are quality, price, service and brand-name awareness.
The Franklin division of Embassy imports and packages approximately 225
types of hardware products, including locksets, deadbolts, door and window
security hardware, rope-related hardware products and fire escape ladders.
Products generally range in price from under $1.00 to $30.00 and are sold to
retailers, wholesalers and private label accounts through manufacturers'
representatives and in-house sales support personnel. Nearly all of Franklin's
sales are of products imported from the Far East. Three customers accounted for
approximately 41.4%, 48.9% and 55.9% of Franklin's revenues in 1999, 1998 and
1997, respectively. A fourth major customer accounted for 26.5% of Franklin's
for the year ended December 31, 1999. The Company believes that its
relationships with these customers remain excellent.
The primary competitive factors in the hardware business are price,
service, skill in packaging and point-of-sale marketing.
Franklin's products are sold off the shelf and no material backlog of
orders exists. Sources of imported products are readily available. Franklin's
business is not seasonal.
FLORIDA PNEUMATIC
Florida Pneumatic imports or manufactures approximately fifty types of
pneumatic hand tools, most of which are sold at prices ranging from $50 to
$1,000, under the names "Florida Pneumatic", "Universal Tool" and "Fuji", as
well as under the trade names or trademarks of several private label customers.
The line of products includes sanders, grinders, drills, saws, impact wrenches,
nailers and staplers. These tools are similar in appearance and function to
electric hand tools but are powered by compressed air, rather than directly by
electricity. Air tools, as they are also called, are generally less expensive to
operate, offer better performance and are lighter in weight than their
electrical counterparts.
Most of Florida Pneumatic's sales are of pneumatic tools imported from
Japan and Taiwan, along with sales of some products imported from mainland
China. Florida Pneumatic manufactures high speed rotary and reciprocating
pneumatic tools at its factory in Jupiter, Florida and imports air filters.
Products are sold to distributors, retailers and private label
customers through in-house sales personnel and manufacturers' representatives.
Typical users of Florida Pneumatic's hand tools include industrial maintenance
and production staffs, do-it-yourself mechanics, automobile mechanics and auto
body repairmen.
The primary competitive factors in the pneumatic tool market are price,
service and brand-name awareness.
Two customers accounted for 57.4%, 70.4% and 72.9% of Florida
Pneumatic's revenues in 1999, 1998 and 1997, respectively. A third customer
accounted for 14.6% of Florida Pneumatic's revenues in 1999. The Company
believes that its relationships with these customers remain excellent.
2
<PAGE>
Berkley markets a product line consisting of pipe and bolt dies, pipe
taps, pipe and tubing cutter wheels and replacement electrical components for a
widely used brand of pipe cutting and threading machines. Florida Pneumatic
markets Berkley's products through industrial distributors and contractors.
Florida Pneumatic's products are sold off the shelf and no material
backlog of orders exists. The business is not seasonal, but it may be subject to
significant periodic changes resulting from occasional sales promotions by
customers.
Florida Pneumatic purchases significant amounts of pneumatic tools from
two foreign suppliers. Other sources are available. However, the loss of either
supplier could cause a temporary disruption in the flow of products, possibly
creating an adverse effect on operating results.
GREEN
Green is engaged primarily in the manufacture, development and sale of
heavy-duty welded custom designed hydraulic cylinders. All of Green's hydraulic
cylinders are sold on an OEM basis and are integrated components on a variety of
equipment and machinery. Hydraulic cylinders are welded casings whose internal
chambers consist of a rod and piston surrounded by a petroleum-based fluid. The
casings contain openings or valves which allow the introduction of fluid into
one side of the chamber at high pressure. The introduction of fluid causes the
rod/piston to move with tremendous force and allows for the pushing or lifting
of extremely heavy loads.
Green's products, which are sold throughout the United States, are used
on tow trucks and car carriers for hoisting and lifting cars and on aerial lifts
and cranes to raise platforms and other heavy objects. The cylinders are also
used on various types of construction equipment for digging and as steering
mechanisms. They are also installed in compacting equipment, as the means to
compress recyclable cardboard or other refuse.
Green specializes in cylinders that range in bore size from 1 to 8
inches and stroke, or extend, up to 180 inches. Each cylinder is engineered to
the customer's specifications.
Green sells its products directly to OEM customers, at prices ranging
from $50 to $1,500, with an approximate average selling price of $150.
The primary competitive factors in the hydraulic cylinder industry are
quality and timely delivery.
Green also manufactures a line of access equipment for the
petro-chemical and bulk storage industries. This product line, which accounts
for about 10% of Green's revenues, consists of bridges, platforms, walkways and
stairways, constructed of steel or aluminum and generally installed outdoors.
These products are designed to customers' specifications and sold directly to
them for use in overhead and elevated access to large containers, including rail
cars and storage tanks.
Green also markets a small line of diggers used primarily as
attachments to small tractors for light farm work. This product line, which
accounts for less than 5% of Green's revenues, is marketed through farm
equipment dealers and wholesalers.
Green's business does not exhibit a great deal of seasonality, except
for the agricultural equipment business, which is stronger during the growing
season. Backlogs totalling as much as 25% of yearly sales are standard for the
cylinder business.
One customer accounted for 22.6% and 24.1% of Green's revenues in 1999
and 1998, respectively. The Company believes that its relationship with this
customer remains excellent.
Green purchases significant amounts of raw materials from one supplier.
Other sources are available. The Company believes that the loss of this supplier
would not cause any disruption in the flow of products or have an adverse effect
on operating results.
EMPLOYEES
The Company employed 422 persons as of December 31, 1999, including 5
at corporate headquarters. The 100 employees of the pneumatic tool segment and
the 225 employees of the hydraulic cylinder segment are not represented by a
union. Of the 92 persons employed in the heating equipment and hardware
segments, 65 factory workers are covered by a single-employer union contract.
The heating equipment union contract expires on November 30, 2001. The Company
believes that its relations with its employees are satisfactory.
ITEM 2. PROPERTIES
3
<PAGE>
Embassy, Florida Pneumatic and Green each own the plant facilities
which they occupy. The facilities owned by Embassy and Florida Pneumatic are
subject to mortgages. Embassy's 75,000 square foot plant facility is located in
Farmingdale, New York. Florida Pneumatic's 72,000 square foot plant facility is
located in Jupiter, Florida. Green's 85,000 square foot plant facility is
located in Bowling Green, Ohio. Each facility either provides adequate space for
the operations of the respective subsidiary in the foreseeable future or can be
expanded to provide additional space. The Company's executive offices are
located in Embassy's facility in Farmingdale, New York.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation that is expected to have a
material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of the period covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Class A Common Stock trades on The Nasdaq Stock Market.
The price range of the Company's Class A Common Stock during the last two fiscal
years was as follows:
<TABLE>
<CAPTION>
1999 HIGH LOW
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<S> <C> <C> <C>
First Quarter $10 $ 8 15/16
Second Quarter 10 1/8 8 1/2
Third Quarter 9 3/4 8 1/16
Fourth Quarter 8 3/8 6 3/8
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
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<S> <C> <C> <C>
First Quarter $ 8 $ 5 7/8
Second Quarter 11 5/16 7 9/16
Third Quarter 10 9/16 7 1/8
Fourth Quarter 9 7/8 7 3/8
</TABLE>
As of March 17, 2000, there were approximately 1,700 holders of record
of the Company's Class A Common Stock.
The Company has not declared any cash dividends on its Class A Common
Stock since its incorporation in 1962 and has no plans to declare any cash
dividends in the immediate future. On January 30, 1997, the Company redeemed all
of the outstanding shares of its $1.00 Cumulative Preferred Stock, at the par
value of $10 per share, for a total of $2,633,450, plus an interim dividend
totalling $21,858.
4
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ITEM 6. SELECTED FINANCIAL DATA
P & F INDUSTRIES, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
=======================================
The following selected consolidated financial data has been derived
from the audited consolidated financial statements of P & F Industries, Inc. and
subsidiaries. The selected financial data should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Revenues $82,700,440 $58,165,715 $50,026,947 $43,078,371 $43,047,601
=========== =========== =========== =========== ===========
Income from continuing operations $ 4,545,505 $ 3,943,441 $ 2,513,779 $ 1,953,287 $ 1,491,975
=========== =========== =========== =========== ===========
Income from continuing operations per share of common stock:
Basic $ 1.35 $ 1.23 $ .83 $ .58 $ .42
=========== =========== =========== =========== ===========
Diluted $ 1.23 $ 1.07 $ .71 $ .52 $ .39
=========== =========== =========== =========== ===========
Total assets $54,240,359 $48,078,479 $32,648,895 $31,331,643 $35,415,672
=========== =========== =========== =========== ===========
Long-term obligations $ 7,325,661 $10,193,064 $ 5,124,883 $ 5,288,570 $ 7,414,181
=========== =========== =========== =========== ===========
Cash dividends declared per
common share $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1999 COMPARED TO 1998
Consolidated revenues increased 42.2%, from $58,165,715 to $82,700,440.
Revenues from pneumatic tools and related equipment increased substantially,
from $37,806,138 to $46,708,679, due primarily to the addition of a new large
customer during the fourth quarter. The selling prices of pneumatic tools and
related equipment were unchanged during the year.
5
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Heating equipment revenues increased 4.5%, from $9,423,633 to
$9,843,257. This increase was consistent across both the baseboard and radiant
product lines. Average selling prices for baseboard product, the bulk of the
product line, were unchanged from 1998. Selling prices of radiant tubing were
reduced by an average of 12% in 1999 in an attempt to stimulate demand.
Hardware revenues increased 27.3%, from $4,351,114 to $5,536,822. This
increase was almost exclusively the result of shipments to a new large customer
that was obtained midway through 1998. Selling prices of hardware products were
virtually unchanged, with the exception of one significant region where
discounting was undertaken to maintain competitiveness.
Revenues for hydraulic cylinders and other equipment increased 213.0%,
from $6,584,830 to $20,611,682. Revenues for 1999 were for the entire year,
while revenues for 1998 were for only the period from the date of the
acquisition of Green to December 31, 1998. Selling prices for hydraulic
cylinders and other equipment were unchanged during the year.
Consolidated gross profit, as a percentage of revenues, decreased from
35.5% to 30.9%, due primarily to the lower overall gross margins from hydraulic
cylinders and other equipment. Gross profit from pneumatic tools and related
equipment decreased from 40.1% to 37.5%, due to a less favorable exchange rate
of the dollar compared to the Japanese yen, which raised the cost of imported
product. Gross profit from heating equipment increased from 34.1% to 35.8%, due
primarily to an increase in labor productivity and a reduction in the cost of
some raw materials. Gross profit from hardware decreased from 28.3% to 26.3%,
due to the price discounting noted above. In addition, an increase in warehouse
expenses associated with a large increase in the average number of orders per
dollar of revenue had a negative impact on gross profit from hardware. Gross
profit from hydraulic cylinders decreased from 15.8% to 14.6%, due primarily to
a temporary decrease in labor productivity, as well as to a less favorable
product mix.
Consolidated selling, general and administrative expenses increased
27.1%, from $13,332,424 to $16,944,706, due primarily to the inclusion of
Green's expenses for the entire year in 1999. As a percentage of revenues,
selling, general and administrative expenses decreased from 22.9% to 20.5%, due
primarily to the increase in revenues.
Interest expense increased 80.0%, from $772,035 to $1,389,383,
primarily due to the debt related to the Green acquisition, the funds borrowed
to build-up inventory associated with the large new customer gained in the
fourth quarter and, to a lesser extent, an increase in the average borrowing
rate.
The effective tax rates for the years ended December 31, 1999 and 1998
were 36.8% and 39.6%, respectively. See Note 8 of the Notes to Consolidated
Financial Statements.
1998 COMPARED TO 1997
Consolidated revenues increased 16.3%, from $50,026,947 to $58,165,715.
Revenues from pneumatic tools and related equipment were essentially flat,
increasing from $37,485,572 to $37,806,138. This increase would have been 18.2%
over the same period in 1997 if not for a one time order in 1997 of a special
product from one large customer. This order, which amounted to $5,494,865, was
shipped in the third and fourth quarters of 1997. The increase, after adjusting
for the shipments noted above, was the result of both the addition of a major
new line of pneumatic tools and an increase in sales to the industrial sector.
Selling prices of pneumatic tools and related equipment were unchanged during
the year.
Heating equipment revenues increased 13.0%, from $8,342,996 to
$9,423,633. This increase was consistent across both the baseboard and radiant
product lines. Selling prices for several large new accounts opened in 1999 were
lower than the average selling prices on existing business.
Hardware revenues increased 3.7%, from $4,196,351 to $4,351,114. A
decrease in sales to one large customer was more than offset by the combination
of a large increase in sales to another large customer and the addition of
another large customer in the second half of 1998. Selling prices of hardware
were unchanged during the year.
Revenues for hydraulic cylinders and other equipment, attributable to
the acquisition of Green, were $6,584,830 for the period from the date of the
acquisition to December 31. Selling prices for hydraulic cylinders and other
equipment were unchanged during the year.
Consolidated gross profit, as a percentage of revenues, increased from
33.0% to 35.5%. Gross profit from pneumatic tools and related equipment
increased from 33.2% to 40.1%, due to a more favorable exchange rate of the
dollar compared to the Japanese yen, which reduced the cost of imported product,
and a slightly more favorable product mix. Gross profit from heating equipment
decreased from 35.3% to 34.1%, due primarily to several new large accounts
receiving slightly lower prices than existing accounts. Gross profit from
hardware increased from 26.1% to 28.3%, due to a more favorable product mix.
Gross profit from hydraulic cylinders was 15.8%.
Consolidated selling, general and administrative expenses increased
15.2%, from $11,573,473 to $13,332,424, primarily as the result of both an
increase in marketing and compensation program expenditures and the acquisition
of Green.
6
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As a percentage of revenues, selling, general and administrative expenses
decreased from 23.1% to 22.9%, due to the increase in revenues.
Interest expense increased 11.3%, from $693,660 to $772,035, primarily
due to the borrowing in September to effect the acquisition of Green.
The effective tax rates for the years ended December 31, 1998 and 1997
were 39.6% and 45.6%, respectively. See Note 8 of the Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company gauges its liquidity and financial stability by the
measurements shown in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
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1999 1998 1997
---- ---- ----
(amounts in thousands, except for ratios)
<S> <C> <C> <C>
Working Capital $17,921 $15,994 $17,060
Current Ratio 2.04 to 1 2.24 to 1 3.45 to 1
Shareholders' Equity $29,025 $24,450 $20,121
</TABLE>
During 1999, gross accounts receivable increased by $3,812,583. Florida
Pneumatic's accounts receivable increased by approximately $4,050,000, while
Green's accounts receivable decreased by approximately $400,000. The increase at
Florida Pneumatic was primarily the result of the timing of shipments to a large
customer, which resulted in an increase of approximately $2,125,000 in accounts
receivable. During 1999, sales to the new customer noted above increased
accounts receivable by approximately $1,300,000. The decrease in accounts
receivable at Green was primarily the result of improved collections, which
resulted in a 9% decrease in average days of accounts receivable outstanding.
Inventories increased $3,593,026, primarily to support the increase in revenues.
The increases in accounts receivable and inventories were financed by an
increase in short-term borrowings of $2,500,000 and by the cash derived from
operations.
During 1998, gross accounts receivable increased by $694,918, caused by
two factors. The acquisition of Green resulted in an increase in accounts
receivable of approximately $3,200,000, which was substantially offset by a
decrease of approximately $3,000,000 in accounts receivable at Florida
Pneumatic. A majority of Florida Pneumatic's fourth quarter sales occurred in
October. Because substantially all of Florida Pneumatic's accounts receivable
are collected in approximately 60 days, accounts receivable were unusually low
at December 31. The remainder of the increase was due to a very strong fourth
quarter for Embassy. Also during 1998, inventories increased $3,638,995, due to
the acquisition of Green, which increased inventories by over $1,100,000, a
build-up at Florida Pneumatic related to two large promotional orders to be
shipped in early 1999 and an increase at Franklin to support the addition of a
new account. This increase in inventories was financed by an increase in
short-term borrowings of $3,500,000.
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 December 31, 1999, there was
$6,000,000 outstanding against the revolving credit loan facility. There was
also a commitment of approximately $464,000 at December 31, 1999 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. As noted below,
$10,000,000 of the term loan facility was used to help finance the
acquisition of Green and there was $3,833,333 still outstanding against this
facility at December 31, 1999. 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 December 31, 1999. This standby letter of credit was used to
secure the Economic Development Revenue Bond assumed as part of the
acquisition of Green.
7
<PAGE>
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
December 31, 1999 was approximately $507,000.
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 December 31, 1999, and for the year 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. The acquisition was
financed with $500,000 in working capital funds and a $10,000,000 7-year term
loan from the Company's principal bank. This loan bears interest at LIBOR
(London Interbank Offered Rates) plus 1.75%. The Company made payments of
principal only through October 1999, at which time payments of both principal
and interest became due. As of December 31, 1999, $6,166,667 of the loan had
been repaid. 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
December 31, 1999 was 5.7%.
On January 30, 1998, the Company redeemed all of its outstanding 13.75%
Subordinated Debentures, due January 1, 2017, at 100% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date. The funds used
for this redemption, totalling $1,384,686, were derived from working capital.
In August 1997, the Company sold the 36,000 square foot building it
owned in New Hyde Park, New York. This building was being leased to Triangle
Sheet Metal Works, Inc. ("Triangle"), a former subsidiary of the Company. The
sale of the building, with proceeds totalling approximately $1,766,000, resulted
in a gain of $542,837, net of income taxes. This gain is presented in the
financial statements as income from discontinued operation.
On January 30, 1997, the Company redeemed all of its outstanding $1.00
Cumulative Preferred Stock at the par value of $10 per share, plus an interim
dividend, through the redemption date, of $.083 per share. The funds used for
this redemption, totalling $2,655,308, were derived from working capital.
Capital spending was approximately $1,647,000, $1,416,000 and $652,000
in 1999, 1998 and 1997, respectively. The total amount was provided from working
capital. Capital expenditures for 2000 are expected to be approximately
$1,750,000, some of which may be financed through the Company's credit
facilities. Included in the expected total for 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 in 1999 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.
YEAR 2000
The Company made substantial preparations for the Year 2000 (Y2K) issue, which
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 vast majority of the products produced by the Company
are unaffected by the Y2K issue, because they do not contain microprocessors.
Based on the information to date, the Company has not experienced any
significant events attributable to the Y2K issue. The Company will continue to
monitor its internal systems for any potential problems and it believes that if
any Y2K problem were to arise at this point, the impact would be immaterial and
short-lived.
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
8
<PAGE>
entered into after 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 7A. 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 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 year-end, the Company held open hedge
forward contracts to deliver approximately $507,000 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 December 31, 1999 is approximately $56,000.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
P & F INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants 14
Consolidated Balance Sheets as of December 31, 1999
and 1998 15 - 16
Consolidated Statements of Income for each of
the three years ended December 31, 1999, 1998
and 1997 17 - 18
Consolidated Statements of Shareholders' Equity for
each of the three years ended December 31, 1999,
1998 and 1997 19
Consolidated Statements of Cash Flows for each of
the three years ended December 31, 1999,
1998 and 1997 20 - 21
Notes to Consolidated Financial Statements 22 - 40
Schedule II - Valuation and Qualifying Accounts for
each of the three years ended December 31, 1999,
1998 and 1997 43
</TABLE>
10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and the Shareholders of
P & F Industries, Inc.
Farmingdale, New York
We have audited the accompanying consolidated balance sheets of P & F
Industries, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. We have also
audited the schedule listed in the accompanying index. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of P & F Industries,
Inc. and subsidiaries at December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 7, 2000
11
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
=======================================
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT:
Cash $ 1,305,351 $ 2,280,788
Accounts receivable, less allowance
for possible losses of $767,456
and $498,669 12,086,000 8,542,204
Inventories (Note 2) 20,614,501 17,021,475
Deferred income taxes (Note 8) 532,000 507,000
Prepaid expenses and other 570,914 586,913
------------ ------------
TOTAL CURRENT ASSETS 35,108,766 28,938,380
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,182,939 1,182,939
Buildings and improvements 5,942,838 5,773,608
Machinery and equipment 11,078,539 9,724,919
------------ ------------
18,204,316 16,681,466
Less accumulated depreciation 7,200,142 6,052,899
------------ ------------
NET PROPERTY AND EQUIPMENT 11,004,174 10,628,567
------------ ------------
GOODWILL, net of accumulated
amortization of $1,514,476
and $1,190,040 7,950,482 8,274,918
------------ ------------
OTHER ASSETS 176,937 236,614
------------ ------------
$ 54,240,359 $ 48,078,479
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
=======================================
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 6,000,000 $ 3,500,000
Accounts payable 5,592,249 4,844,403
Accruals:
Compensation 2,474,519 1,944,960
Other 2,173,516 2,130,026
Current maturities of long-term
debt (Note 5) 947,884 524,974
------------ ------------
TOTAL CURRENT LIABILITIES 17,188,168 12,944,363
LONG-TERM DEBT, less current
maturities (Note 5) 7,325,661 10,193,064
DEFERRED INCOME TAXES (Note 8) 702,000 491,000
------------ ------------
TOTAL LIABILITIES 25,215,829 23,628,427
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 3 and 10)
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Preferred stock - $10 par
authorized - 2,000,000 shares;
no shares outstanding -- --
Common stock:
Class A - $1 par
authorized - 7,000,000 shares;
issued - 3,504,893 shares
and 3,239,345 shares 3,504,893 3,239,345
Class B - $1 par
authorized - 2,000,000 shares;
no shares issued or outstanding -- --
Additional paid-in capital 8,282,602 8,020,677
Retained earnings 17,735,535 13,190,030
Treasury stock,
at cost (49,235 shares) (498,500) --
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 29,024,530 24,450,052
------------ ------------
$ 54,240,359 $ 48,078,479
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
=======================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES (Note 11):
Net sales $ 81,936,434 $ 57,363,317 $ 49,605,480
Other 764,006 802,398 421,467
------------ ------------ ------------
82,700,440 58,165,715 50,026,947
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 57,168,846 37,534,815 33,535,035
Selling, administrative
and general 16,944,706 13,332,424 11,573,473
Interest 1,389,383 772,035 693,660
------------ ------------ ------------
75,502,935 51,639,274 45,802,168
------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME 7,197,505 6,526,441 4,224,779
TAXES ON INCOME (Note 8) 2,652,000 2,583,000 1,711,000
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 4,545,505 3,943,441 2,513,779
INCOME FROM DISCONTINUED
OPERATION (NET OF INCOME
TAXES OF $850,000) (Note 9(b)) -- -- 542,837
------------ ------------ ------------
NET INCOME $ 4,545,505 $ 3,943,441 $ 3,056,616
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
=======================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET INCOME $ 4,545,505 $ 3,943,441 $ 3,056,616
============ ============ ============
PREFERRED DIVIDENDS $ -- $ -- $ 21,858
============ ============ ============
INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 4,545,505 $ 3,943,441 $ 3,034,758
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC 3,370,098 3,208,181 2,986,920
========= ========= =========
DILUTED 3,704,633 3,689,963 3,525,690
========= ========= =========
EARNINGS PER SHARE OF COMMON STOCK:
BASIC:
CONTINUING OPERATIONS $ 1.35 $ 1.23 $ .83
DISCONTINUED OPERATION -- -- .18
------ ------ ------
NET INCOME $ 1.35 $ 1.23 $ 1.01
====== ====== ======
DILUTED:
CONTINUING OPERATIONS $ 1.23 $ 1.07 $ .71
DISCONTINUED OPERATION -- -- .15
------ ------ ------
NET INCOME $ 1.23 $ 1.07 $ .86
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
===============================================
<TABLE>
<CAPTION>
PREFERRED STOCK CLASS A COMMON
- $10 PAR STOCK - $1 PAR ADDITIONAL TREASURY STOCK
YEARS ENDED DECEMBER 31, -------------------- ---------------------- PAID-IN RETAINED -------------------
1997, 1998 AND 1999 SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
- ------------------------ ------- ----------- --------- ----------- ----------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 263,345 $ 2,633,450 2,928,867 $ 2,928,867 $ 7,607,614 $ 6,211,831 -- $ --
Net income for the year
ended December 31, 1997 -- -- -- -- -- 3,056,616 -- --
Redemption of
preferred stock (263,345) (2,633,450) -- -- -- -- -- --
Exercise of stock options
and warrants -- -- 172,978 172,978 87,625 -- -- --
Tax benefit from exercise
of stock options -- -- -- -- 77,000 -- -- --
Dividends on
preferred stock -- -- -- -- -- (21,858) -- --
------- ----------- --------- ----------- ----------- ----------- ------- ----------
BALANCE, December 31, 1997 -- -- 3,101,845 3,101,845 7,772,239 9,246,589 -- --
Net income for the year
ended December 31, 1998 -- -- -- -- -- 3,943,441 -- --
Exercise of stock options -- -- 137,500 137,500 91,438 -- -- --
Tax benefit from exercise
of stock options -- -- -- -- 157,000 -- -- --
------- ----------- --------- ----------- ----------- ----------- ------- ----------
BALANCE, December 31, 1998 -- -- 3,239,345 3,239,345 8,020,677 13,190,030 -- --
Net income for the year
ended December 31, 1999 -- -- -- -- -- 4,545,505 -- --
Exercise of stock options -- -- 265,548 265,548 261,925 -- -- --
Shares surrendered as
payment for exercise
of stock options -- -- -- -- -- -- (49,235) (498,500)
------- ----------- --------- ----------- ----------- ----------- ------- ----------
BALANCE, December 31, 1999 -- $ -- 3,504,893 $ 3,504,893 $ 8,282,602 $17,735,535 (49,235) ($ 498,500)
======= =========== ========= =========== =========== =========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
=======================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,545,505 $ 3,943,441 $ 3,056,616
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 1,240,600 795,198 661,275
Amortization 354,940 183,707 128,278
Provision for losses on
accounts receivable - net 268,787 18,776 77,327
Deferred income taxes 186,000 (95,000) 465,000
Loss on disposal
of fixed assets 22,262 -- --
(Gain) on disposal of fixed
assets of discontinued
operation -- -- (1,392,837)
Decrease (increase):
Accounts receivable (3,812,583) 1,948,907 (1,889,009)
Inventories (3,593,026) (2,020,088) (2,262,630)
Prepaid expenses and other 15,999 (231,668) 76,406
Other assets 29,173 2,450 (56,400)
Increase (decrease):
Accounts payable 747,846 12,250 1,378,536
Accruals 573,049 850,407 461,149
----------- ----------- -----------
Total adjustments (3,966,953) 1,464,939 (2,352,905)
----------- ----------- -----------
Net cash provided by
operating activities 578,552 5,408,380 703,711
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,646,999) (1,415,999) (652,223)
Purchase of assets of Green
Manufacturing, Inc. -- (10,284,685) --
Payments for acquisition-related
expenses -- (448,163) --
Proceeds from sale of fixed assets 8,530 -- --
Proceeds from sale of fixed assets
of discontinued operation -- -- 1,724,564
----------- ----------- -----------
Net cash (used in)
provided by investing
activities (1,638,469) (12,148,847) 1,072,341
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
=======================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 12,500,000 16,253,023 19,088,495
Repayments of short-term borrowings (10,000,000) (14,013,023) (19,088,495)
Proceeds from acquisition loan -- 10,000,000 --
Proceeds from mortgage refinancing 1,800,000 -- --
Principal payments on long-term debt (4,244,493) (4,327,727) (1,924,238)
Redemption of subordinated debentures -- (1,369,200) --
Proceeds from exercise of stock
options and warrants 28,973 228,938 260,603
Tax benefit from exercise
of stock options -- 157,000 77,000
Redemption of preferred stock -- -- (2,633,450)
Dividends paid on preferred stock -- -- (21,858)
----------- ----------- -----------
Net cash (used in)
provided by financing
activities 84,480 6,929,011 (4,241,943)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (975,437) 188,544 (2,465,891)
CASH AT BEGINNING OF YEAR 2,280,788 2,092,244 4,558,135
----------- ----------- -----------
CASH AT END OF YEAR $ 1,305,351 $ 2,280,788 $ 2,092,244
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<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.
P & F Industries, Inc. 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 Hardware division. Florida Pneumatic
Manufacturing Corporation 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. Note 11 presents financial information for the
segments of the Company's business.
BASIS OF FINANCIAL STATEMENT PRESENTATION
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company records revenues when products are shipped.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and
short-term debt, approximated fair value as of December 31, 1999 and 1998,
because of the relatively short-term maturity of these instruments. The carrying
value of long-term debt, including the current portion, approximated fair value
as of December 31, 1999 and 1998, based upon quoted market prices for the same
or similar debt issues.
At December 31, 1999, the Company had foreign currency forward
contracts, maturing in 2000, to purchase approximately $507,000 in Japanese yen
at contracted forward rates.
19
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS (continued)
The Company enters into foreign currency forward contracts as a hedge
against foreign accounts payable. At December 31, 1999, gains and losses on such
contracts were included in the measurement of the related foreign currency
transactions and reflected in the cost of sales. The Company does not hold or
issue financial instruments for trading purposes.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost.
Depreciation is computed by the straight-line method for financial
reporting purposes and by the straight-line and accelerated methods for income
tax purposes. The estimated useful lives for financial reporting purposes are as
follows:
Buildings and improvements 10 - 30 years
Machinery and equipment 3 - 12 years
LONG-LIVED ASSETS
The Company reviews certain long-lived assets and identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. In that regard, the Company
assesses the recoverability of such assets based upon estimated non-discounted
cash flow forecasts.
GOODWILL
The excess of the purchase price over fair value of net assets of
acquired businesses arises from business combinations accounted for as purchases
and is amortized on a straight-line basis over periods from 25 to 40 years.
The Company's operational policy for the assessment and measurement of
any impairment in the value of excess of cost over net assets acquired which is
other than temporary is to evaluate the recoverability and remaining life of its
goodwill and determine whether the goodwill should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment of goodwill if the fair value of the goodwill is deemed to be less
than its carrying value. If the Company determines that goodwill has been
impaired, the Company will reflect the impairment through a reduction in the
carrying value of goodwill, in an amount equal to the excess of the carrying
amount of the goodwill over the amount of the undiscounted estimated operating
cash flows.
20
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
=========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)
TAXES ON INCOME
The Company files a consolidated Federal tax return. The parent company
and each of its subsidiaries file separate state and local tax returns.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and any operating loss or tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of
any change in the tax rate is recognized in income in the period that includes
the enactment date of such change.
EARNINGS PER SHARE
Basic earnings per share is based only on the average number of common
shares outstanding for the period. Diluted earnings per share reflects the
effect of common shares issuable upon the exercise of options, warrants and
convertible securities.
Diluted earnings per share is computed using the treasury stock method.
Under this method, the aggregate number of shares outstanding reflects the
assumed use of proceeds from the hypothetical exercise of any outstanding
options or warrants to repurchase shares of common stock. The average market
value for the period is used as the assumed repurchase price.
STOCK-BASED COMPENSATION
The Company accounts for its stock option awards under the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic
value based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. The Company makes pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting had been applied, as required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
21
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
=========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
NOTE 2 - INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 4,128,374 $ 3,444,804
Work-in-process 812,929 435,453
Finished goods 15,673,198 13,141,218
------------ ------------
$ 20,614,501 $ 17,021,475
============ ============
</TABLE>
22
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
=========================================
NOTE 3 - SHORT-TERM BORROWINGS
The Company's credit agreement with a bank includes a revolving credit
loan facility which provides a total of $12,000,000, with various sublimits, for
direct borrowings, letters of credit, bankers' acceptances and equipment loans.
The 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 December 31,
1999, there was $6,000,000 outstanding against the revolving credit loan
facility. There was also a commitment of approximately $464,000 at December 31,
1999 for open letters of credit.
The credit agreement also includes a foreign exchange line, which
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 December 31, 1999 was approximately
$507,000.
Direct borrowings under the Company's revolving credit loan facility
are secured by the accounts receivable, inventory and equipment of the Company
and are cross-guaranteed by each of the Company's subsidiaries. These borrowings
bear interest at either the prime interest rate or LIBOR plus 1.60%. The prime
interest rate at December 31, 1999 was 8.5% and LIBOR was approximately 5.8%.
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 December 31, 1999, and for the year then ended, the
Company satisfied all of these covenants.
The maximum short-term borrowings outstanding at month-end during the years
ended December 31, 1999, 1998 and 1997 were approximately $13,000,000,
$3,610,000 and $4,250,000, respectively.
The weighted average monthly balances for the years ended December 31,
1999, 1998 and 1997 were approximately $8,038,000, $4,656,000 and $1,920,000,
respectively. The weighted average interest rates of 7.3%, 7.5% and 8.5% for the
years ended December 31, 1999, 1998 and 1997, respectively, were calculated by
dividing the weighted average monthly interest expense by the weighted average
monthly balance.
NOTE 4 - SUBORDINATED DEBENTURES
The Company's 13.75% Subordinated Debentures were unsecured general
obligations of the Company, subordinate to all senior indebtedness of the
Company. On January 30, 1998, the Company redeemed all of the outstanding
Debentures at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date.
Interest expense on the Subordinated Debentures was $15,486 and
$188,265 for the years ended December 31, 1998 and 1997, respectively.
23
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Term loan - principal amount outstanding
at October 1, 1999 to be paid in equal
monthly installments (plus interest at
LIBOR plus 1.75%) through September 2005.(a) $ 3,833,333 $ 6,000,000
Mortgage loan - $17,438 payable monthly
(plus interest at 8.16%) through May
2006, when a final payment of approximately
$1,435,000 is due.(b) 1,884,993 1,938,054
Mortgage loan - $16,370 payable monthly
(plus interest at 7.09%) through
February 2014.(b) 1,745,219 --
Mortgage loan - $9,095 payable monthly
(plus interest at 1/2% above prime)
through February 1999, when a final
payment of approximately $1,798,000
was due. (b)(c)(d) -- 1,824,984
Economic Development Revenue Bond
-- payable yearly in various principal
amounts (plus interest at variable rates)
through November 2004 (e) 810,000 955,000
----------- -----------
8,273,545 10,718,038
Less current maturities 947,884 524,974
----------- -----------
$ 7,325,661 $10,193,064
=========== ===========
</TABLE>
- ----------
(a) LIBOR at December 31, 1999 was approximately 5.8%.
(b) These mortgages payable relate to the land and buildings of the
Company's subsidiaries. Property with a net book value of approximately
$5,121,000 is pledged as collateral.
(c) The prime interest rate at December 31, 1999 was 8.5%. (d) This
mortgage was refinanced in March 1999.
(e) The interest rate at December 31, 1999 was 5.7%. This bond was secured
by a standby letter of credit.
The aggregate amounts of the long-term debt scheduled to mature in each
of the years ended December 31 are as follows: 2000 - $947,884; 2001 - $962,743;
2002 - $978,787; 2003 - $995,702; 2004 - $1,023,556; 2005 - $690,758; and 2006
and thereafter - $2,674,115. Interest expense on long-term debt was $653,297,
$528,824 and $478,229 for the years ended December 31, 1999, 1998 and 1997,
respectively.
24
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 6 - 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.
On January 30, 1997, the Company redeemed all of the outstanding shares
of its $1.00 Cumulative Preferred Stock at $10 per share.
In 1994, in connection with its Stockholder Rights Plan, the Company
entered into a Rights Agreement (as amended) and distributed as a dividend to
each holder of Class A Common Stock a preferred stock purchase right. These
rights entitle the stockholders, in certain circumstances, to purchase one
one-thousandth of a share of the Company's Series A Junior Participating
Preferred Stock for $10. The Stockholder Rights Plan is intended to protect,
among other things, the interests of the Company's stockholders in the event the
Company is confronted with coercive or unfair takeover tactics.
NOTE 7 - STOCK OPTIONS AND WARRANTS
In 1992, the Company adopted its Incentive Stock Option Plan (as
amended) (the "Plan"), which authorizes the issuance, to employees and
directors, of options to purchase a maximum of 1,100,000 shares of Class A
Common Stock. These options must be issued within ten years of the effective
date of the Plan and are exercisable for a ten year period from the date of
grant at prices not less than 100% of the market value of the Class A Common
Stock on the date the option is granted. Options granted to any 10% stockholder
are exercisable for a five year period from the date of the grant at prices not
less than 110% of the market value of the common stock on the date the option is
granted.
The Company applies the Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB Opinion 25"), and related
interpretations in accounting for the Plan. Under APB Opinion 25, no
compensation cost is recognized if the exercise price of the Company's employee
stock options is equal to or greater than the market price of the underlying
stock on the date of the grant.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", requires the Company to provide pro
forma information regarding net income and earnings per share as if compensation
cost for the Company's stock option plan had been determined in accordance with
the fair value method prescribed by SFAS 123. The Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average assumptions for options
granted in 1999, 1998 and 1997, respectively: no dividends paid for any of these
years; expected volatility of 33.9%, 35.2% and 34.5%; risk-free interest rates
of 5.1%, 5.5% and 6.6%; and expected lives of 10.0 years, 9.7 years and 4.0
years.
25
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)
The weighted-average fair values of options for which the exercise
price equaled the market price on the grant date were $4.97 in 1999, $4.53 in
1998 and $2.83 in 1997. The weighted-average fair values of options for which
the exercise price exceeded the market price on the grant date were $2.89 in
1998 and $1.98 in 1997.
Under the provisions of SFAS 123, the Company's income from continuing
operations available to common shareholders and its basic and diluted earnings
per share would have decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income from continuing operations
available to common shareholders:
As reported $4,545,505 $3,943,441 $2,491,921
Pro forma $4,492,088 $3,485,588 $2,296,814
Basic earnings per share:
As reported $1.35 $1.23 $.83
Pro forma $1.33 $1.09 $.77
Diluted earnings per share:
As reported $1.23 $1.07 $.71
Pro forma $1.21 $ .94 $.65
</TABLE>
The following table contains information on stock options for the three
years ended December 31, 1999:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
PRICE AVERAGE
OPTION RANGE EXERCISE
SHARES PER SHARE PRICE
-------------------------------------
<S> <C> <C> <C> <C>
Outstanding, January 1, 1997 $ 741,200 $ 1.44 to 2.61 1.85
Granted 147,800 3.75 to 5.71 5.33
Exercised (103,000) 1.50 to 1.88 1.51
---------
Outstanding, December 31, 1997 786,000 1.44 to 5.71 2.55
Granted 171,500 7.88 to 8.66 7.93
Exercised (137,500) 1.50 to 1.94 1.67
---------
Outstanding, December 31, 1998 820,000 1.44 to 8.66 3.82
Granted 17,000 8.94 to 9.00 8.96
Exercised (265,600) 1.81 to 1.99 1.99
---------
Outstanding, December 31, 1999 571,400 1.44 to 9.00 4.83
=========
</TABLE>
26
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)
There were options available for issuance under the Plan as of December
31 of each year as follows: 1997 - 548,700; 1998 - 377,200; and 1999 - 360,200.
Of the 571,400 options outstanding at December 31, 1999, 452,300 options were
issued under the Plan and 119,100 options were issued under a previous plan.
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.50 to 2.61 169,100 .6 $2.01 $ 169,100 $2.01
5.71 17,500 2.4 5.71 17,500 5.71
5.71 52,500 2.4 5.71 -- --
8.66 11,500 3.2 8.66 -- --
1.44 15,000 3.6 1.44 15,000 1.44
1.94 51,000 5.0 1.94 51,000 1.94
3.75 to 5.25 77,800 7.2 5.00 77,800 5.00
7.88 160,000 8.2 7.88 160,000 7.88
8.94 to 9.00 17,000 9.2 8.96 17,000 8.96
------- -------
1.44 to 9.00 571,400 4.6 4.83 507,400 4.65
======= =======
</TABLE>
27
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 8 - TAXES ON INCOME
Provisions for taxes on income in the consolidated statements of income
consist of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal $2,262,000 $2,476,000 $1,520,000
State and local 204,000 202,000 112,000
---------- ---------- ----------
Total current 2,466,000 2,678,000 1,632,000
---------- ---------- ----------
Deferred:
Federal 170,000 (90,000) 38,000
State and local 16,000 (5,000) 41,000
---------- ---------- ----------
Total deferred 186,000 (95,000) 79,000
---------- ---------- ----------
Taxes on income from
continuing operations 2,652,000 2,583,000 1,711,000
---------- ---------- ----------
Discontinued operation:
Current:
Federal -- -- 464,000
State and local -- -- --
---------- ---------- ----------
Total current -- -- 464,000
---------- ---------- ----------
Deferred:
Federal -- -- 117,000
State and local -- -- 269,000
---------- ---------- ----------
Total deferred -- -- 386,000
---------- ---------- ----------
Taxes on income from
discontinued operation -- -- 850,000
---------- ---------- ----------
Total taxes on income $2,652,000 $2,583,000 $2,561,000
========== ========== ==========
</TABLE>
28
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 8 - TAXES ON INCOME (continued)
Deferred tax assets (liabilities) consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Current deferred tax assets:
Bad debt reserves $145,000 $131,000
Warranty and other reserves 387,000 376,000
-------- --------
$532,000 $507,000
======== ========
Non-current deferred tax liabilities:
Depreciation ($635,000) ($474,000)
Goodwill (67,000) (17,000)
--------- ---------
($702,000) ($491,000)
========= =========
</TABLE>
A reconciliation of the Federal statutory rate to the total effective tax
rate applicable to income before taxes on income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
$ % $ % $ %
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Federal income
taxes computed at
statutory rates 2,447,000 34.0 2,219,000 34.0 1,910,000 34.0
Increase in taxes resulting from:
State and local taxes,
net of Federal tax
benefit 135,000 1.9 128,000 2.0 384,000 6.9
Expenses not deductible
for tax purposes 110,000 1.5 97,000 1.5 100,000 1.7
Other (40,000) (.6) 139,000 2.1 167,000 3.0
--------- ---- --------- ---- --------- ----
Taxes on income 2,652,000 36.8 2,583,000 39.6 2,561,000 45.6
========= ==== ========= ==== ========= ====
</TABLE>
29
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 9 - ACQUISITION AND DISCONTINUED OPERATION
(a) Acquisition
On September 16, 1998, the Company acquired certain assets, including
cash totalling $215,315, and assumed certain liabilities of Green Manufacturing,
Inc., a manufacturer of custom-engineered hydraulic cylinders, prefabricated
stairways and platforms and tractor-mounted post hole diggers. The purchase
price for the acquisition was $10,500,000 in cash, $10,000,000 of which was
provided by an acquisition loan made pursuant to the Company's credit agreement
and $500,000 of which was provided by working capital funds.
As part of the acquisition, the Company assumed $1,095,000 of
outstanding Economic Development Revenue Bonds issued by Wood County, Ohio and
$1,260,000 in short-term borrowings from a bank.
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
the acquisition.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company and Green, as though the
acquisition had been made January 1, 1997. The pro forma amounts give effect to
adjustments for amortization of goodwill, interest expense and income taxes. The
pro forma amounts presented are not necessarily indicative of future operating
results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $82,700,440 $72,082,186 $68,246,335
=========== =========== ===========
Net income from
continuing operations
available to common
shareholders $ 4,545,505 $ 4,013,224 $ 2,576,074
=========== =========== ===========
Earnings per share of
common stock from
continuing operations:
Basic $ 1.35 $ 1.25 $ .86
====== ====== =====
Diluted $ 1.23 $ 1.08 $ .73
====== ====== =====
</TABLE>
30
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 9 - ACQUISITION AND DISCONTINUED OPERATION (continued)
(b) Discontinued operation
In 1994, the Company sold substantially all of the assets and
liabilities of Triangle Sheet Metal Works, Inc. ("Triangle"), its sheet metal
contracting subsidiary. The assets sold did not include Triangle's land,
building and building improvements. As part of the sale agreement, the Company
leased this building to the acquirer. In August 1997, the Company sold the land
and building to the acquirer for approximately $1,766,000. The Company realized
a gain of $542,837 on the sale, net of related taxes.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
(a) The Company and two of its subsidiaries have adopted a defined
contribution pension plan, which covers substantially all non-union employees.
Contributions to this plan were determined as a percentage of compensation. The
amounts recognized as pension expense for this plan were approximately $312,000,
$278,000 and $258,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
In conjunction with the acquisition of Green, the Company acquired a
defined contribution 401(k) plan, which covers all of Green's employees.
Employer contributions to this plan were determined as a percentage of employee
contributions. The amounts recognized as expense for this plan were
approximately $62,000 for the year ended December 31, 1999 and approximately
$26,000 for the period from the date of acquisition to December 31, 1998.
One of the Company's subsidiaries also participates in a multi-employer
pension plan. This plan provides defined benefits to all union workers.
Contributions to this plan are determined by union contracts and the Company
does not administer or control the funds in any way. The amounts recognized as
pension expense for this plan were approximately $32,000, $29,000 and $29,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
(b) The Company has an employment agreement with an officer. This
agreement currently provides for a minimum annual aggregate salary of $610,000
through February 2004. This agreement provides that if a change in control of
the Company occurs and, as a result, the officer is terminated or is unable to
exercise his functions and duties and therefore resigns, he shall have the
option to receive either full compensation for the remaining term of the
agreement or a severance allowance equal to three times average annual
compensation for the five previous years.
(c) Florida Pneumatic purchases significant amounts of pneumatic tools
from two foreign suppliers. Other sources are available. However, the loss of
either supplier could cause a temporary disruption in the flow of products,
possibly creating an adverse effect on operating results.
(d) Green purchases significant amounts of raw materials from one
supplier. Other sources are available. The Company believes that the loss of
this supplier would not cause any disruption in the flow of products or have an
adverse effect on operating results.
31
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 11 - SEGMENTS OF BUSINESS
The Company currently operates four business segments: pneumatic tools
and related equipment, hydraulic cylinders, heating equipment and hardware. The
accounting policies of each of the segments are the same as those described in
Note 1. The Company evaluates segment performance based on operating income.
The following presents financial information by segment for the years
ended December 31, 1999, 1998 and 1997. Operating income excludes general
corporate expenses, interest expense and income taxes. Identifiable assets are
those assets directly owned or utilized by the particular business segment.
<TABLE>
<CAPTION>
PNEUMATIC
(IN THOUSANDS) TOOLS AND
CON- RELATED HYDRAULIC HEATING
1999 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
---- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 82,700 $ 46,708 $ 20,612 $ 9,843 $ 5,537
========= ========= ========= ========= ========
Operating income $ 11,736 $ 9,304 $ 1,208 $ 718 $ 506
General corporate ========= ========= ======== ========
expense (3,149)
Interest expense (1,389)
---------
Income before
taxes on income $ 7,198
=========
Identifiable assets at
December 31, 1999 $ 52,066 $ 31,127 $ 14,563 $ 4,031 $ 2,345
Corporate assets 2,174 ========= ========= ========= ========
---------
Total assets at
December 31, 1999 $ 54,240
=========
Depreciation (including
$13 corporate) $ 1,241 $ 440 $ 528 $ 230 $ 30
========= ========= ========= ========= ========
Amortization $ 355 $ 109 $ 240 $ 6 $ --
========= ========= ========= ========= ========
Capital expenditures
(including $7
corporate) $ 1,647 $ 867 $ 773 $ -- $ --
========= ========= ========= ========= ========
</TABLE>
32
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 11 - SEGMENTS OF BUSINESS (continued)
<TABLE>
<CAPTION>
PNEUMATIC
(IN THOUSANDS) TOOLS AND
CON- RELATED HYDRAULIC HEATING
1998 SOLIDATED EQUIPMENT CYLINDERS EQUIPMENT HARDWARE
---- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 58,166 $ 37,806 $ 6,585 $ 9,424 $ 4,351
========= ========= ========= ========= ========
Operating income $ 9,770 $ 8,410 $ 417 $ 471 $ 472
General corporate ========= ========= ========= ========
expense (2,472)
Interest expense (772)
---------
Income before
taxes on income $ 6,526
=========
Identifiable assets at
December 31, 1998 $ 44,342 $ 22,672 $ 14,225 $ 5,013 $ 2,432
Corporate assets 3,736 ========= ========= ========= ========
---------
Total assets at
December 31, 1998 $ 48,078
=========
Depreciation (including
$7 corporate) $ 795 $ 419 $ 111 $ 238 $ 20
========= ========= ========= ========= ========
Amortization $ 184 $ 112 $ 66 $ 6 $ --
========= ========= ========= ========= ========
Capital expenditures
(including $29
corporate) $ 1,416 $ 383 $ 397 $ 607 $ --
========= ========= ========= ========= ========
</TABLE>
33
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 11 - SEGMENTS OF BUSINESS (continued)
<TABLE>
<CAPTION>
PNEUMATIC
(IN THOUSANDS) TOOLS AND
CON- RELATED HEATING
1997 SOLIDATED EQUIPMENT EQUIPMENT HARDWARE
---- --------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues from
external customers $ 50,027 $ 37,486 $ 8,343 $ 4,198
======== ========= ========= ========
Operating income $ 7,337 $ 6,488 $ 420 $ 429
General corporate ========= ========= ========
expense (2,418)
Interest expense (694)
--------
Income before
taxes on income $ 4,225
========
Identifiable assets at
December 31, 1997 $ 29,833 $ 22,629 $ 5,115 $ 2,089
Corporate assets 2,816 ========= ========= ========
--------
Total assets at
December 31, 1997 $ 32,649
========
Depreciation
(including $23 corporate) $ 661 $ 387 $ 231 $ 20
======== ========= ========= ========
Amortization $ 128 $ 122 $ 6 $ --
======== ========= ========= ========
Capital expenditures
(including $2 corporate) $ 652 $ 486 $ 164 $ --
======== ========= ========= ========
</TABLE>
The heating equipment segment, which sells to plumbing supply houses
primarily in the northern tier of the United States, is directly affected by the
housing industry. The pneumatic tools, hydraulic cylinders and hardware segments
sell primarily throughout the United States.
The pneumatic tools segment has two customers that accounted for 24.7%,
35.7% and 45.4% and 7.7%, 10.1% and 9.1%, respectively, of consolidated revenues
for the years ended December 31, 1999, 1998 and 1997, respectively. These two
customers also accounted for 37.6% and 25.5% of consolidated accounts receivable
as of December 31, 1999 and 1998, respectively. A third customer, a customer of
both the pneumatic tools segment and the hardware segment, accounted for 10.1%
of consolidated revenues for the year ended December 31, 1999 and 13.2% of
consolidated accounts receivable as of December 31, 1999. There were no other
major customers requiring disclosure.
34
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 12 - UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION
Unaudited interim consolidated financial information for the two years
ended December 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------- ---------- ------------- ------------
1999 $ $ $ $
----
<S> <C> <C> <C> <C>
Revenues 18,108,268 17,092,157 20,358,379 27,141,636
========== ========== ========== ==========
Gross profit 5,562,207 5,433,028 6,330,645 8,205,714
========== ========== ========== ==========
Net income 961,407 754,024 1,233,942 1,596,132
========== ========== ========== ==========
Earnings per share
of common stock:
Basic .30 .23 .35 .46
=== === === ===
Diluted .26 .20 .33 .44
=== === === ===
</TABLE>
<TABLE>
<CAPTION>
1998 $ $ $ $
----
<S> <C> <C> <C> <C>
Revenues 12,541,124 11,997,372 14,118,689 19,508,530
========== ========== ========== ==========
Gross profit 4,681,236 4,830,800 5,361,648 5,757,216
========== ========== ========== ==========
Net income 780,869 950,009 1,220,719 991,844
========== ========== ========== ==========
Earnings per share
of common stock:
Basic .25 .29 .38 .31
=== === === ===
Diluted .22 .25 .33 .27
=== === === ===
</TABLE>
35
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 13 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share from continuing operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income from continuing operations $4,545,505 $3,943,441 $2,513,779
Dividends on preferred stock -- -- (21,858)
---------- ---------- ----------
Numerator for basic and diluted
earnings per common share - income
from continuing operations available
to common shareholders $4,545,505 $3,943,441 $2,491,921
========== ========== ==========
Denominator:
Denominator for basic earnings
per share - weighted average
common shares outstanding 3,370,098 3,208,181 2,986,920
Effect of dilutive securities:
Common stock options 334,535 481,782 538,770
---------- ---------- ----------
Denominator for diluted earnings
per share - adjusted weighted
average common shares and
assumed conversions 3,704,633 3,689,963 3,525,690
========== ========== ==========
Basic earnings per common share
from continuing operations $ 1.35 $ 1.23 $ .83
====== ======= =====
Diluted earnings per common share
from continuing operations $ 1.23 $ 1.07 $ .71
====== ====== =====
</TABLE>
36
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest $ 1,400,165 $ 673,814 $ 818,552
=========== =========== ===========
Income taxes $ 2,414,890 $ 2,539,601 $ 2,113,329
=========== =========== ===========
Accruals included in
gain on sale of fixed
assets of discontinued
operation $ -- $ -- $ 218,894
=========== =========== ===========
</TABLE>
The Company received 49,235 shares of Class A 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.
37
<PAGE>
PART II (continued)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors and executive officers of the
Registrant is set forth in the Registrant's definitive Proxy Statement for its
2000 Annual Meeting of Stockholders (the "Proxy Statement") to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth in the
Proxy Statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of certain beneficial
owners and management is set forth in the Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions
is set forth in the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, and is hereby incorporated by reference.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(a) Financial statements and financial statement schedules
(1) The consolidated financial statements of the Registrant as set
forth under Item 8 are filed as part of this report.
(2) The following consolidated financial statement schedule for the
three years ended December 31, 1999, 1998 and 1997 is filed as part of
this report:
Schedule II - Valuation and Qualifying Accounts 43
All other schedules are omitted because they are not required, are not
applicable, or the required information is otherwise shown in the financial
statements or notes thereto.
(3) The following exhibits are filed as part of this report:
See "Exhibit Index" immediately following the signature
page. 45 - 46
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 1999.
</TABLE>
39
<PAGE>
P & F INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
=======================================
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ----------------------- ----------- ----------
ADDITIONS
-----------------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for possible losses $ 498,669 $ 339,743 $ -- $ 70,956(b) $ 767,456
========== ========== ========== ========== ==========
Year ended December 31, 1998:
Allowance for possible losses $ 421,014 $ 18,776 $ 177,517(a) $ 118,638(b) $ 498,669
========== ========== ========== ========== ==========
Year ended December 31, 1997:
Allowance for possible losses $ 370,410 $ 77,327 $ -- $ 26,723(b) $ 421,014
========== ========== ========== ========== ==========
</TABLE>
- -----------------
(a) Amount received as part of purchase of net assets of Green
Manufacturing, Inc.
(b) Write-off of expenses against reserve.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ RICHARD A. HOROWITZ By: /s/ JOSEPH A. MOLINO, JR.
------------------------------ ------------------------------
Richard A. Horowitz Joseph A. Molino, Jr.
Chairman of the Board Vice President
President Principal Financial and
Principal Executive Officer Accounting Officer
Principal Operating Officer
Date: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ ROBERT L. DUBOFSKY /s/ ALAN GOLDBERG
- -------------------------------- --------------------------------
Robert L. Dubofsky, Director Alan Goldberg, Director
/s/ RICHARD A. HOROWITZ /s/ SIDNEY HOROWITZ
- -------------------------------- --------------------------------
Richard A. Horowitz, Director Sidney Horowitz, Director
/s/ ARTHUR HUG, JR. /s/ DENNIS KALICK
- -------------------------------- --------------------------------
Arthur Hug, Jr., Director Dennis Kalick, Director
/s/ NEIL NOVIKOFF /s/ MARC A. UTAY
- -------------------------------- --------------------------------
Neil Novikoff, Director Marc A. Utay, Director
Date: March 17, 2000
41
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO.
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.
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).
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.
42
<PAGE>
EXHIBIT INDEX
(CONTINUED)
EXHIBIT
NO.
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).
21 Subsidiaries of the Registrant.
23 Consent of the Registrant's Independent Certified Public Accountants.
27 Financial Data Schedules (submitted to the Securities and Exchange
Commission in electronic format).
43
<PAGE>
P & F INDUSTRIES, INC.
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
P & F INDUSTRIES, INC.
It is hereby certified that:
1. (a) The present name of the corporation (herein- after
called the "corporation") is "P & F Industries, Inc."
(b) The name under which the corporation was originally
incorporated is "Plastics & Fibers, Inc."; and the date of filing the original
certificate of incorporation of the corporation with the Secretary of State of
the State of Delaware is April 19, 1963.
2. The provisions of the certificate of incorporation of the
corporation as heretofore amended and/or supplemented, are hereby restated and
integrated into the single instrument which is hereinafter set forth, and which
is entitled Restated Certificate of Incorporation of P & F INDUSTRIES, INC.
without any further amendment and without any discrepancy between the provisions
of the certificate of incorporation as heretofore amended and supplemented and
the provisions of the said single instrument hereinafter set forth.
3. The restatement of the restated certificate of
incorporation herein certified has been duly adopted by the board of directors
in accordance with the provisions of Section 245 of the General Corporation Law
of the State of Delaware. The capital of the corporation will not be reduced
under or by reason of this Restated Certificate of Incorporation.
4. The certificate of incorporation of the corporation, as
restated herein, shall upon the effective date of this Restated Certificate of
Incorporation, read as follows:
"Restated Certificate of Incorporation
-of-
P & F INDUSTRIES, INC."
We, the undersigned, for the purpose of associating to
establish a corporation for the transaction of the business and the promotion
and conduct of the objects and purposes hereinafter stated, under the provisions
and subject to the requirements of the laws of the State of Delaware
(particularly Chapter 1, Title 8 of the 1953 Delaware Code and the acts
amendatory thereof and supplemental thereto, and known as the "General
Corporation Law of the State of Delaware"), do make and file this Certificate of
Incorporation in writing and do hereby certify as follows, to wit:
FIRST: The name of the Corporation (hereinafter called the
"Corporation") is P & F INDUSTRIES, INC.
SECOND: The respective names of the County and of the City
within the County in which the principal office of the corporation is to be
located in the State of Delaware are the County of Kent and the City of Dover.
The name of the resident agent of the corporation is The Prentice- Hall
Corporation System, Inc. The street and number of said principal office and the
address by street and number of said resident agent is 229 South State Street,
Dover, Delaware.
THIRD: The nature of the business of the corporation and the
objects or purposes to be transacted, promoted or carried on by it are as
follows:
To manufacture, process and distribute at wholesale
or retail, or otherwise, products made of metals, plastics and fibers,
including, among other things, pipes, fittings, valves, pumps, boilers,
gauges, controls and any and all kinds of machinery and equipment used
or useful in heating, cooling, treating, processing, conditioning and
conveying air, gases, fluids and materials, and building and
construction materials and equipment.
To design, construct and deal in machinery, tools,
dies and equipment as well as mills and plants for the manufacture or
processing of any of the foregoing products.
To acquire by purchase, subscription, contract or
otherwise, and to invest in, hold for investment or otherwise, to
pledge and otherwise realize upon and to sell, contract to sell and
dispose of all forms of securities, real and personal property,
including, but not by way of limitations shares, stocks, bonds,
debentures, notes, warrants, rights, options, certificates of deposit,
mortgages, evidences of indebtedness, certificates of indebtedness and
certificates of interest issued or created, or to be issued or created
in any and all parts of the world by corporations, associations,
partnerships, trustees, syndicates, individuals, governments, states,
municipalities and other political and governmental divisions and
subdivisions, or by any combinations, organizations or entities
whatsoever, irrespective of their form or the name by which they may be
described, and all trust, participation, and other certificates of, and
receipts evidencing interest in any such securities; to exercise any
and all rights, powers and privileges of individual ownership or
interest in respect of any and all such securities, real and personal
property, or evidences of interest therein, including the right to vote
thereon and to consent and otherwise act with respect thereto; to do
any and all acts and things for the preservation, protection,
improvement and enhancement in value of
<PAGE>
any and all such securities, or evidences of interest therein, and to
aid by loan, subsidy, guaranty or otherwise those issuing, creating or
responsible for any bonds or other evidences of indebtedness or stock
or certificates of interest therein, or other securities owned or hold
by this corporation or by any corporation in which this corporation may
have an interest as stockholder or otherwise, or those developing,
promoting or otherwise operating on any real estate owned or held by
this corporation; to acquire and become interested in any such
securities or evidences of interest therein, as aforesaid, by original
subscription, participation in syndicates or otherwise and irrespective
of whether or not such securities or evidences of interest therein be
fully paid or subject to further payments; to make payment thereon as
called for in advance of calls or otherwise.
To acquire by purchase, exchange, concession,
easement, contract, lease or otherwise, to hold, own, use, control,
manage, improve, maintain and develop, to mortgage, pledge, grant,
sell, convey, exchange, assign, divide, lease, sublease, or otherwise
encumber and dispose of, and to deal and trade in, real estate improved
or unimproved, lands, leaseholds, options, concessions, easements,
tenements, hereditaments and interests in real, mixed, and personal
property, of every kind and description wheresoever situated, and any
and all rights therein.
To manufacture, process, purchase, sell and generally
to trade and deal in and with goods, wares and merchandise of every
kind, nature and description, and to engage and participate in any
mercantile, industrial or trading business of any kind or character
whatsoever.
To apply for, register, obtain, purchase, lease, take
licenses in respect of or otherwise acquire, and to hold, own, use,
operate, develop, enjoy, turn to account, grant licenses and immunities
in respect of, manufacture under and to introduce, sell, assign,
mortgage, pledge or otherwise dispose of, and, in any manner deal with
and contract with reference to:
(a) inventions, devices, formulae, processes and any
improvements and modifications thereof;
(b) Letters patent, patent rights, patented
processes, copyrights, designs, and similar rights,
trade-marks, trade symbols and other indications of origin and
ownership granted by or recognized under the laws of the
United States of America or of any state or subdivision
thereof, or of any foreign country or subdivision thereof, and
all rights connected therewith or appertaining thereunto;
(c) Franchises, licenses, grants and concessions.
To make, enter into, perform and carry out contracts of every
kind and description with any person, firm, association, corporation or
government or subdivision thereof.
To acquire by purchase, exchange or otherwise, all, or any
part of, or any interest in, the properties, assets, business and good
will of any one or more persons, firms, associations or corporations
heretofore or hereafter engaged in any business for which a corporation
may now or hereafter be organized under the laws of the State of
Delaware; to pay for the same in cash, property or its own or other
securities; to hold, operate, reorganize, liquidate, sell or in any
manner dispose of the whole or any part thereof; and in connection
therewith, to assume or guarantee performance of any liabilities,
obligations or contracts of such persons, firms, associations or
corporations, and to conduct the whole or any part of any business thus
acquired.
To lend its uninvested funds from time to time to such extent,
to such persons, firms, associations, corporations, governments or
subdivisions thereof, and on such terms and on such security, if any,
as the Board of Directors of the corporation may determine.
To endorse or guarantee the payment of principal, interest or
dividends upon, and to guarantee the performance of sinking fund or
other obligations of, any securities, and to guarantee in any way
permitted by law the performance of any of the contracts or other
undertakings in which the corporation may otherwise be or become
interested, of any person, firm, association, corporation, government
or subdivision thereof, or of any other combination, organization or
entity whatsoever.
To borrow money for any of the purposes of the corporation,
from time to time, and without limit as to amount; from time to time to
issue and sell its own securities in such amounts, on such terms and
conditions, for such purposes and for such prices, now or hereafter
permitted by the laws of the State of Delaware and by this Certificate
of Incorporation, as the Board of Directors of the corporation may
determine; and to secure such securities by mortgage upon, or the
pledge of, or the conveyance or assignment in trust of, the whole or
any part of the properties, assets, business and good will of the
corporation, then owned or thereafter acquired.
To draw, make, accept, endorse, discount, execute, and issue
promissory notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable instruments and
evidences of indebtedness whether secured by mortgage or otherwise, as
well as to secure the same by mortgage or otherwise, so far as may be
permitted by the laws of the State of Delaware.
To purchase, hold, cancel, reissue, sell, exchange, transfer
or otherwise deal in its own securities from time to time to such an
extent and in such manner and upon such terms as the Board of Directors
of the corporation shall determine; provided that the corporation shall
not use its funds or property for the purchase of its own shares of
capital stock when such use would cause any impairment of its capital,
except to the extent permitted by law; and provided further that shares
of its own capital stock belonging to the corporation shall not be
voted upon directly or indirectly.
To organize or cause to be organized under the laws of the
State of Delaware, or of any other State of the United States of
America, or of the District of Columbia, or of any territory,
dependency, colony or possession of the United States of America, or of
any foreign country, a corporation or corporations for the purpose of
transacting, promoting or carrying on any or all of the objects or
purposes for which corporations may be organized, and to dissolve, wind
up, liquidate, merge or consolidate any such corporation or
corporations or to cause the same to be dissolved, wound up,
liquidated, merged or consolidated.
To conduct its business in any and all of its branches and
maintain offices both within and without the State of
<PAGE>
Delaware, in any and all States of the United States of America, in the
District of Columbia, in any or all territories, dependencies, colonies
or possessions of the United States of America, and in foreign
countries.
To carry out all or any part of the foregoing objects and
purposes in any and all parts of the world and to conduct business in
all or any of its branches as principal, factor, agent, contractor or
otherwise, either alone or through or in conjunction with any
corporations, associations, partnerships, firms, trustees, syndicates,
individuals, organizations and other entities located in or organized
under the laws of any part of the world, and, in carrying out,
conducting or performing its business and attaining or furthering any
of its objects and purposes, to maintain offices, branches and agencies
in any part of the world, to make and perform any contracts and to do
any acts and things, and to carry on any business, and to exercise any
powers suitable, convenient or proper for the
accomplishment of any of the objects and purposes herein specified or
which at any time may appear conducive to or expedient for the
accomplishment of any of such objects and purposes and which might be
engaged in or carried on by a corporation formed under the General
Corporation Law and to have and exercise all of the powers conferred by
the laws of the State of Delaware upon corporations formed under the
General Corporation Law.
The foregoing provisions of this Article THIRD shall be
construed both as purposes and powers and each an independent purpose and power.
The foregoing enumeration of specific purposes and powers shall not be held to
limit or restrict in any manner the purposes and powers of the corporation, and
the purposes and powers herein specified shall, except when otherwise provided
in this Article THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article of this
Certificate of Incorporation; provided, that the corporation shall not carry on
any business or exercise any power in the State of Delaware or in any state,
territory, or country which under the laws thereof the corporation may not
lawfully carry on or exercise.
FOURTH: The total number of shares that may be issued by the
Corporation is 11,020,000, of which 7,000,000 shares of the par value of $1 each
shall be Class A Common Stock, 2,000,000 shares of the par value of $1 each
shall be Class B Common Stock, 2,000,000 shares of the par value of $10 each
shall be Preferred Stock, and 20,000 shares of the par value of $10 each shall
be Prior Preferred Stock. Any and all shares issued, for which the full
consideration has been paid or delivered, shall be deemed fully paid stock and
the holders of such shares shall not be liable for any further call or
assessment or any payment thereon.
The designations, preferences, privileges and voting powers of
the shares of the Prior Preferred Stock and the restrictions or qualifications
thereof are as follows:
The holders of Prior Preferred Stock shall be entitled to
receive out of any funds of this Corporation at the time legally available for
the declaration of dividends, dividends at the rate of five percent (5%) per
annum of the par value thereof, and no more, payable in cash annually or at such
intervals as the Board of Directors may from time to time determine, when and as
declared by the Board of Directors. Such dividends shall accrue from the date of
issuance of the respective Prior Preferred Stock and shall accrued from day to
day, whether or not earned or declared. Such dividends shall be payable before
any dividends shall be declared or paid upon or set apart for the Common or
Preferred Stock and shall be cumulative, so that if in any year or years
dividends upon the outstanding Prior Preferred Stock at the rate of five percent
(5%) per annum of the par value thereof shall not have been paid thereon or
declared and set apart therefor, the amount of the deficiency shall be fully
paid or declared and set apart for payment, but without interest, before any
distribution whether by way of dividend or otherwise, shall be declared or paid
upon, or set apart for, the Common or Preferred Stock.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the shares of
Prior Preferred Stock shall be entitled to receive out of the assets of this
Corporation (whether from capital or surplus or both) $10 per share before any
distribution shall be made to the holders of Common or Preferred Stock and
thereafter the holders of the share of Prior Preferred Stock shall not be
entitled to share in the assets of the Corporation remaining after such payment.
If, upon such liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation shall be insufficient to permit
the payment in full to the holders of Prior Preferred Stock, then the entire
assets of the Corporation shall be distributed ratably among the holders of the
shares of Prior Preferred Stock. The foregoing provisions of this paragraph
shall not, however, be deemed to require the distribution of assets among the
holders of shares of Prior Preferred Stock in the event of a consolidation,
merger, lease or sale which does not in fact result in the liquidation,
dissolution or winding up of the enterprise.
The Corporation, at the option of the Board of Directors, may
redeem the whole or from time to time may redeem any part of the Prior Preferred
Stock on any dividend date by paying in cash therefore Eleven Dollars ($11) per
share, and, in addition to the aforementioned amount, an amount in cash equal to
all dividends on preferred stock unpaid and accumulated as provided in this
Article FOURTH, whether earned or declared or not, to and including the date
fixed for redemption, such sum being hereinafter sometimes referred to as the
redemption price. In case of the redemption of a part only of the outstanding
Prior Preferred Stock, this Corporation shall designate by lot, in such manner
as the Board of Directors may determine, the shares to be redeemed, or shall
effect such redemption pro rata. Less than all of the Prior Preferred Stock at
any time outstanding may not be redeemed until all dividends accrued and in
arrears upon all Prior Preferred Stock outstanding shall have been paid for all
past dividend periods, and until full dividends for the then current dividend
period on all Prior Preferred Stock then outstanding, other than the shares to
be redeemed, shall have been paid or declared and the full amount thereof set
apart for payment. At least thirty (30) days' previous notice by mail, postage
prepaid, shall be given to the holders of record of the Prior Preferred Stock to
be redeemed, such noticed to be addressed to each such shareholder at his
post-office address as shown by the records of this Corporation. On or after the
date fixed for redemption and stated in such notice, each holder of Prior
Preferred Stock called for redemption shall surrender his certificate evidencing
such shares to this Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price. In case less
than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
If such notice of redemption shall have been duly given, and if on the date
fixed for redemption funds necessary for the redemption shall be available
therefor, then, notwithstanding that the certificates evidencing any Prior
Preferred Stock so called for redemption shall not have been surrendered, the
dividends with respect to the shares so called for redemption shall cease to
accrue after the date fixed for redemption and all rights with respect to the
share so called for redemption shall forthwith after such date cease and
determine, except only the right of the holders to receive the redemption
price without interest upon surrender of their certificates therefor.
<PAGE>
If on or prior to any date fixed for redemption of Prior
Preferred Stock, this Corporation deposits with any bank or trust company in the
City of New York, State of New York, or in the City of Dover, State of Delaware,
as a trust fund a sum sufficient to redeem on the date fixed for redemption
thereof, the shares called for redemption, with irrevocable instructions and
authority to the bank or trust company to give the notice of redemption thereof
if such notice shall not previously have been given by this Corporation, or to
complete the giving of such notice if theretofore commenced, and to pay on and
after the date fixed for redemption or prior thereto the redemption price of the
shares to their respective holders upon the surrender of their share
certificates, then from and after the date of the deposit (although prior to the
date fixed for redemption), the shares so called shall be deemed to be redeemed
and dividends on those shares shall cease to accrue after the date fixed for
redemption. The deposit shall be deemed to constitute full payment of the shares
to their holders and from and after the date of the deposit the shares shall be
deemed to be no longer outstanding, and the holders thereof shall cease to be
shareholders with respect to such shares, and shall have no rights with respect
thereto except the right to receive from the bank or trust company payment of
redemption price of the shares without interest, upon the surrender of their
certificates therefor.
Any moneys deposited by the Corporation pursuant to this
paragraph and unclaimed at the end of six years from the date fixed for
redemption shall be repaid to the Corporation upon its request expressed in a
resolution of its Board of Directors.
Except as otherwise provided by law or by this Certificate of
Incorporation, the holders of Prior Preferred Stock shall not be entitled to
notice of any shareholders meeting, or to vote upon the election of directors or
upon any question affecting the management or affairs of this Corporation.
If at any time two (2) or more annual dividends (whether
consecutive or not) on the Prior Preferred Stock shall be in default, in whole
or in part, the holders of Prior Preferred Stock as a class shall be entitled to
elect the smallest number of directors which will constitute a majority of the
authorized number of directors. At such time as all dividends accrued on the
outstanding Prior Preferred Stock have been paid or declared and set apart for
payment, the rights of the holders of Prior Preferred Stock to vote as provided
in this paragraph shall cease, subject to renewal from time to time upon the
same terms and conditions.
At any time after the voting power to elect a majority of the
Board of Directors shall have become vested in the holders of Prior Preferred
Stock as provided in this paragraph, the secretary of this Corporation may, and
upon the request of the record holders of at least ten percent (10%) of the
Prior Preferred Stock then outstanding addressed to him at the principal office
of this Corporation, shall call a special meeting of stockholders for the
election of directors, to be held at the place and upon the notice provided in
the By-Laws of the Corporation for the holding of annual meetings. If such
meeting shall not be so called within ten (10) days after personal service of
the request, or within fifteen (15) days after mailing of the same by registered
mail within the United States of America then the record holders of at least ten
percent (10%) of the Prior Preferred Stock then outstanding may designate in
writing one of their number to call such meeting, and the person so designated
may call such meeting at the place and upon the notice above provided, and for
that purpose, shall have access to stock books of the Corporation. At any
meeting so called or at any annual meeting held while the holders of the Prior
Preferred Stock have the voting power to elect a majority of the Board of
Directors, the holders of a majority of the then outstanding Prior Preferred
Stock present in person or by proxy shall be sufficient to constitute a quorum
for the election of directors as herein provided. The terms of office of all
persons who are directors of the Corporation at the time of such meeting shall
terminate upon the election at such meeting by the holders of the Prior
Preferred Stock of the number of directors they are entitled to elect, and the
persons so elected as directors by the holders of Prior Preferred Stock,
together with such persons, if any, as may be elected as directors by the
holders of the Common and/or Preferred Stock, shall constitute the duly elected
directors of this Corporation. In the event the holders of the Common and/or
Preferred Stock fail to elect the number of directors which they are entitled to
elect at such meeting, additional directors may be appointed by the directors
elected by the holders of the Prior Preferred Stock.
Whenever the holders of the Prior Preferred Stock shall be
divested of such voting power as hereinabove in this paragraph provided, the
term of office of all persons who are at the time directors of the Corporation
shall terminate upon the election of their successors.
As long as any Prior Preferred Stock is outstanding, the
Corporation shall not, without the approval (by vote or written consent, as
provided by law) of the holders of two-thirds of the outstanding Prior Preferred
Stock:
1. Amend or repeal any provision of, or add any provision to
the Corporation's Certificate of Incorporation (which term shall include
certificates of determination of preferences, and any future agreements of
consolidation or merger) if such action would alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit of
any Prior Preferred Stock so as to affect such Prior Preferred Stock adversely;
or
2. Authorize or create shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Prior Preferred Stock, or authorize or
create shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having optional rights to
purchase, any shares of stock of the Corporation having any such preference or
priority; or
3. Reclassify any Common Stock, or any other shares of stock
hereafter created junior to the Prior Preferred Stock as to dividends or assets
into Prior Preferred Stock or into shares having any preference or priority as
to dividends or assets superior to or on a parity with that of the Prior
Preferred Stock; or
4. Sell, lease, convey, exchange, transfer or otherwise
dispose of all or substantially all of the property and assets of the
Corporation.
The Preferred Stock shall have the following voting powers,
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof:
1. Except as otherwise provided herein, shares of Common Stock
and Preferred Stock shall be equal in all respects.
<PAGE>
2. The Preferred Stock may be issued from time to time in one
or more series, each of such series to have such voting powers (full or limited
or without voting powers), designation, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof as are stated and expressed herein, or in a resolution or resolutions
providing for the issue of such series adopted by the Board of Directors as
hereinafter provided.
3. Authority is hereby granted to the Board of Directors to
create one or more series of Preferred Stock and, with respect to each series,
to fix by resolution or resolutions providing for the issue of such series;
(a) the number of shares to constitute each such series and
the distinctive designation thereof;
(b) the dividend rate on the shares of such series, the
dividend payment dates, the periods in respect of which dividends are payable
("dividend periods"), whether such dividends shall be cumulative, and, if
cumulative, the date or dates from which dividends shall accumulate and the
medium in which such dividends shall be payable, including whether or not such
dividends shall be payable in Common Stock of the Corporation;
(c) whether or not the shares of such series shall be
redeemable, on what terms, including the redemption prices which the shares of
such series shall be entitled to receive upon the redemption thereof;
(d) whether or not the shares of such series shall be subject
to the operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement and, if such retirement or sinking fund
or funds be established, the annual amount thereof and the terms and provisions
relative to the operation thereof;
(e) whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes of stock of the
corporation and the conversion price or prices or rate or rates, or the rate or
rates at which such exchange may be made, with such adjustment, if any, as shall
be stated and expressed or provided in such resolution or resolutions;
(f) the preference, if any, and the amounts thereof, which the
shares of such series shall be entitled to receive upon the voluntary and
involuntary dissolution of the operation;
(g) the voting power, if any, of the shares of such series;
and
(h) such other terms, conditions, special rights and
protective provisions as to the Board of Directors may seem advisable.
Notwithstanding the fixing of the number of shares
constituting a particular series upon the issuance thereof, the Board of
Directors may at any time thereafter authorize the issuance of additional shares
of the same series.
4. No dividend shall be declared and set apart for payment on
any series of Preferred Stock in respect of any dividend period unless there
shall likewise be or have been paid, or declared and set apart for payment, on
all shares of Preferred Stock of each other series entitled to cumulative
dividends at the time outstanding which ranks equally as to dividends with the
series in question, dividends ratably in accordance with the sums which would be
payable on the said shares through the end of the last preceding dividend period
if all dividends were declared and paid in full.
5. If upon any dissolution of the Corporation, the assets of
the Corporation distributable among the holders of any one or more series of
Preferred Stock which are (i) entitled to a preference over the holders of the
Common Stock upon such dissolution, and (ii) rank equally in connection with any
such distribution, shall be insufficient to pay in full the preferential amount
to which the holders of such shares shall be entitled, then such assets, or the
proceeds thereof, shall be distributed among the holders of each such series of
the Preferred Stock ratably in accordance with the sums which would be payable
on such distribution if all sums payable were discharged in full.
Except as otherwise provided by law or by this Certificate of
Incorporation or by the resolutions of the Board of Directors providing for the
issuance of Preferred Stock, the holders of Class A Common Stock shall have the
sole right to notice of and to vote at meetings of stockholders. No holder of
Class B Common Stock shall have any right to vote except as otherwise provided
by law or by this Certificate of Incorporation.
In case there shall be presented to the holders of Class A
Common Stock for their approval any proposal to:
(a) effect a merger or consolidation of the Corporation;
(b) dissolve the Corporation;
(c) sell, lease or exchange all or substantially all of the
property and assets of the Corporation, then the holders of Class B Common Stock
shall have the right to vote on such proposal, voting together with the holders
of Class A Common Stock as a single class.
When and as dividends are declared, whether payable in cash,
in property or in shares of stock of the Corporation, the holders of Class B
Common Stock and the holders of Class A Common Stock shall be entitled to share
equally, share for share, in such dividends, except that if dividends are
declared which are payable in shares of Class B Common Stock or Class A Common
Stock, dividends shall be declared which are payable at the same rate in both
classes of stock and the dividends payable in shares of Class B Common Stock may
be payable to holders of that class of stock and the dividends payable in shares
of Class A Common Stock may be payable to holders of that class of stock.
If the Corporation shall in any manner subdivide or combine
the outstanding shares of one class of Common Stock, the outstanding shares of
the other class of Common Stock shall be proportionately subdivided or combined.
All shares of Class B Common Stock shall be identical and
shall entitle the holders thereof to the same rights and privileges.
No holder of any of the shares of the stock of the Corporation
of any class shall be entitled as of right to purchase or subscribe for any
unissued stock of any class or any additional shares of any class to be issued
by reason of any increase of the authorized capital stock of the Corporation of
any class, or bonds, certificates of indebtedness, debentures or other
securities convertible into stock of the Corporation, or carrying any right to
purchase stock of any class but any such unissued stock or such additional
authorized issue of any stock or of other securities convertible into stock, or
carrying any right to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations or
associations and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its discretion.
<PAGE>
FIFTH: The minimum amount of capital with which the
corporation will commence business is One Thousand Dollars.
SIXTH: The names and places of residence of each of the
incorporators are as follows:
<TABLE>
<CAPTION>
NAME PLACE OF RESIDENCE
---- ------------------
<S> <C>
Grace Rossler New York, New York
Joy L. Dekle New York, New York
Grace X. Bahler New York, New York
</TABLE>
SEVENTH: The corporation is to have perpetual existence.
EIGHTH: The private property of the stockholders of the
corporation shall not be subject to the payment of corporate debts to any
extent whatever.
NINTH: For the management of the business and for the conduct
of the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and
stockholders, it is further provided:
1. The number of directors of the corporation shall be as
specified in the By-Laws of the corporation but such number may from
time to time be increased or decreased in such manner as may be
prescribed by the By-Laws. In no event shall the number of directors be
less than three. The election of directors need not be by ballot.
Directors need not be stockholders.
2. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors
is expressly authorized and empowered:
(a) To make, alter, amend, and repeal By-Laws,
subject to the power of the stockholders to alter or repeal
the By-Laws made by the Board of Directors
(b) Subject to the applicable provisions of the
By-Laws then in effect, to determine, from time to time,
whether and to what extent and at what times and places and
under what conditions and regulations the accounts and books
of the corporation or any of them shall be open to the
inspection of the stockholders, and no stockholder shall have
any right to inspect any account or book or document of the
corporation, except as conferred by the laws of the State of
Delaware unless and until authorized so to do by resolution of
the Board of Directors or of the stockholders of the
corporation.
(c) Without the assent or vote of the stockholders,
to authorize and issue obligations of the corporation, secured
or unsecured, to include therein such provisions as to
redeemability, convertibility or otherwise, as the Board of
Directors, in its sole discretion, may determine, and to
authorize the mortgaging or pledging, as security therefor, of
any property of the corporation, real or personal, including
after-acquired property.
(d) To establish bonus, profit-sharing or other types
of incentive or compensation plans for the employees
(including officers and directors) of the corporation and to
fix the amount of profits to be distributed or shared and to
determine the persons to participate in any such plans and the
amounts of their respective participations.
In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may be
exercised or done by the corporation, subject, nevertheless, to the
provisions of the laws of the State of Delaware, of the Certificate of
Incorporation and of the By-Laws of the corporation.
3. Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in
such manner as shall be provided in the By-Laws of the corporation.
4. In the absence of fraud, no contract or other transaction
between the corporation and any other corporation, and no act of the
corporation, shall in any way be affected or invalidated by the fact
that any of the directors of the corporation are pecuniarily or
otherwise interested in, or are directors or officers of, such other
corporation; and, in the absence of fraud, any director, individually,
or any firm of which any director may be a member, may be a party to,
or may be pecuniarily or otherwise interested in, any contract or
transaction of the corporation; provided, in any case, that the fact
that he or such firm is so interested shall be disclosed or shall have
been known to the Board of Directors or a majority thereof; and any
director of the corporation who is also a director or officer of any
such other corporation, or who is also interested, may be counted in
determining the existence of a quorum at any meeting of the Board of
Directors of the corporation which shall authorize any such contract,
act or transaction and may vote thereat to authorize any such contract,
act or transaction, with like force and effect as if he were not such
director or officer of such other corporation, or not so interested.
5. Any contract, act or transaction of the corporation or of
the directors may be ratified by a vote of a majority of the shares
having voting powers at any meeting of stockholders, or at any special
meeting called for such purpose, and such ratification shall, so far as
permitted by law and by this Certificate of Incorporation, be as valid
and as binding as though ratified by every stockholder of the
corporation.
TENTH: From time to time any of the provisions of this
Certificate of Incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this Certificate of Incorporation are granted subject to the provisions of this
Article TENTH.
ELEVENTH: No director shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the General Corporation Law of Delaware, as such
section may be amended from time to time, or (iv) for any transaction from which
the director derived an improper personal benefit.
Executed at Farmingdale, New York on May 26, 1999.
Joseph A. Molino
Vice President
<PAGE>
P & F INDUSTRIES, INC.
EXHIBIT 21
Subsidiaries of the Registrant
Embassy Industries, Inc., a New York Corporation
d/b/a Embassy Industries, Inc.
Franklin Manufacturing Corporation
Florida Pneumatic Manufacturing Corporation, a Florida Corporation
d/b/a Florida Pneumatic Manufacturing Corporation
Universal Tool
Fuji Air Tools
Pipemaster
Berkley Tool
Green Manufacturing, Inc. a Delaware Corporation
d/b/a Green Manufacturing, Inc.
<PAGE>
P & F INDUSTRIES, INC.
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
P & F Industries, Inc.
Farmingdale, New York
We hereby consent to the incorporation by reference in the Form S-8 Registration
Statement filed on February 18, 1997 of our report dated March 7, 2000, relating
to the consolidated financial statements and schedule of P & F Industries, Inc.
and subsidiaries appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
We also consent to the reference to us under the caption "Experts" in the Form
S-8 Registration Statement.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 7, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,305,351
<SECURITIES> 0
<RECEIVABLES> 13,086,000
<ALLOWANCES> 0
<INVENTORY> 20,614,501
<CURRENT-ASSETS> 35,108,766
<PP&E> 18,204,316
<DEPRECIATION> 7,200,142
<TOTAL-ASSETS> 54,240,359
<CURRENT-LIABILITIES> 17,188,168
<BONDS> 7,325,661
0
0
<COMMON> 3,504,893
<OTHER-SE> 25,519,637
<TOTAL-LIABILITY-AND-EQUITY> 54,240,359
<SALES> 81,936,434
<TOTAL-REVENUES> 82,700,440
<CGS> 57,168,846
<TOTAL-COSTS> 57,168,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,389,383
<INCOME-PRETAX> 7,197,505
<INCOME-TAX> 2,652,000
<INCOME-CONTINUING> 4,545,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,545,505
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.23
</TABLE>
