UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 20172018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1 - 5332
P&F INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 22-1657413 | |
(State or other jurisdiction of | (I.R.S. Employer Identification Number) | |
incorporation or organization) | ||
445 Broadhollow Road, Suite 100, Melville, New York | 11747 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(631) 694-9800
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 ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company |
(Do not check if a smaller reporting company) | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for the complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐¨ No ☒x
As of May 8, 20174, 2018 there were 3,597,8703,579,294 shares of the registrant’s Class A Common Stock outstanding.
|
P&F INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20172018
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
P&F INDUSTRIES, INC. AND SUBSIDIARIES
March 31, 2017 | December 31, 2016 | |||||||
(unaudited) | (See Note 1) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 1,413,000 | $ | 3,699,000 | ||||
Accounts receivable — net | 8,628,000 | 7,906,000 | ||||||
Inventories | 20,243,000 | 19,901,000 | ||||||
Prepaid expenses and other current assets | 3,197,000 | 3,030,000 | ||||||
TOTAL CURRENT ASSETS | 33,481,000 | 34,536,000 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 1,150,000 | 1,150,000 | ||||||
Buildings and improvements | 5,210,000 | 5,209,000 | ||||||
Machinery and equipment | 19,632,000 | 19,401,000 | ||||||
25,992,000 | 25,760,000 | |||||||
Less accumulated depreciation and amortization | 18,991,000 | 18,671,000 | ||||||
NET PROPERTY AND EQUIPMENT | 7,001,000 | 7,089,000 | ||||||
GOODWILL | 3,899,000 | 3,897,000 | ||||||
OTHER INTANGIBLE ASSETS — net | 6,407,000 | 6,606,000 | ||||||
DEFERRED INCOME TAXES — net | 1,863,000 | 1,793,000 | ||||||
OTHER ASSETS — net | 103,000 | 130,000 | ||||||
TOTAL ASSETS | $ | 52,754,000 | $ | 54,051,000 |
See accompanying notes to consolidated financial statements (unaudited).
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2017 | December 31, 2016 | |||||||
(unaudited) | (See Note 1) | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 2,458,000 | $ | 2,398,000 | ||||
Accrued compensation and benefits | 654,000 | 1,733,000 | ||||||
Accrued other liabilities | 1,952,000 | 2,019,000 | ||||||
Current maturities of long-term debt | 8,000 | 13,000 | ||||||
TOTAL CURRENT LIABILITIES | 5,072,000 | 6,163,000 | ||||||
Long–term debt, less current maturities | 89,000 | 88,000 | ||||||
Other liabilities | 205,000 | 210,000 | ||||||
TOTAL LIABILITIES | 5,366,000 | 6,461,000 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued | — | — | ||||||
Common stock | ||||||||
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,181,000 at March 31, 2017 and December 31, 2016 | 4,181,000 | 4,181,000 | ||||||
Class B - $1 par; authorized - 2,000,000 shares; no shares issued | — | — | ||||||
Additional paid-in capital | 12,918,000 | 12,906,000 | ||||||
Retained earnings | 35,821,000 | 36,061,000 | ||||||
Treasury stock, at cost – 584,000 shares at March 31, 2017 and December 31, 2016 | (4,821,000 | ) | (4,821,000 | ) | ||||
Accumulated other comprehensive loss | (711,000 | ) | (737,000 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 47,388,000 | 47,590,000 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 52,754,000 | $ | 54,051,000 |
See accompanying notes to consolidated financial statements (unaudited).
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(unaudited)
Three months | ||||||||
ended March 31, | ||||||||
2017 | 2016 | |||||||
Net revenue | $ | 13,216,000 | $ | 14,499,000 | ||||
Cost of sales | 8,243,000 | 9,283,000 | ||||||
Gross profit | 4,973,000 | 5,216,000 | ||||||
Selling, general and administrative expenses | 5,047,000 | 5,019,000 | ||||||
Operating (loss) income | (74,000 | ) | 197,000 | |||||
Other income, net | — | (14,000 | ) | |||||
Interest expense | 10,000 | 102,000 | ||||||
(Loss) income from continuing operations before income taxes | (84,000 | ) | 109,000 | |||||
Income tax (benefit) expense | (24,000 | ) | 43,000 | |||||
(Loss) income from continuing operations | (60,000 | ) | 66,000 | |||||
Discontinued operations (Note 2) | ||||||||
Net income from discontinued operations, net of tax of $0 and $38,000 for the three-month periods ended March 31, 2017 and 2016 | — | 72,000 | ||||||
Gain on sale of discontinued operations, net of tax benefit of $0 and $141,000 for the three-month periods ended March 31, 2017 and 2016 | — | 12,185,000 | ||||||
Net income from discontinued operations | — | 12,257,000 | ||||||
Net (loss) income | $ | (60,000 | ) | $ | 12,323,000 | |||
Basic (loss) earnings per share | ||||||||
Continuing operations | $ | (0.02 | ) | $ | 0.02 | |||
Discontinued operations | — | 3.40 | ||||||
Net (loss) income | $ | (0.02 | ) | $ | 3.42 | |||
Diluted (loss) earnings per share | ||||||||
Continuing operations | $ | (0.02 | ) | $ | 0.02 | |||
Discontinued operations | — | 3.24 | ||||||
Net (loss) income | $ | (0.02 | ) | $ | 3.26 | |||
Weighted average common shares outstanding: | ||||||||
Basic | 3,598,000 | 3,601,000 | ||||||
Diluted | 3,598,000 | 3,778,000 | ||||||
Net (loss) income | $ | (60,000 | ) | $ | 12,323,000 | |||
Other comprehensive income (loss)-foreign currency translation adjustment | 26,000 | (70,000 | ) | |||||
Total comprehensive (loss) income | $ | (34,000 | ) | $ | 12,253,000 |
March 31, 2018 | December 31, 2017 | |||||||
(unaudited) | (See Note 1) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 1,704,000 | $ | 1,241,000 | ||||
Accounts receivable — net | 10,667,000 | 10,047,000 | ||||||
Inventories | 18,739,000 | 19,657,000 | ||||||
Prepaid expenses and other current assets | 1,427,000 | 1,224,000 | ||||||
TOTAL CURRENT ASSETS | 32,537,000 | 32,169,000 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Land | 1,281,000 | 1,281,000 | ||||||
Buildings and improvements | 6,138,000 | 6,138,000 | ||||||
Machinery and equipment | 21,094,000 | 20,579,000 | ||||||
28,513,000 | 27,998,000 | |||||||
Less accumulated depreciation and amortization | 19,380,000 | 19,091,000 | ||||||
NET PROPERTY AND EQUIPMENT | 9,133,000 | 8,907,000 | ||||||
GOODWILL | 4,454,000 | 4,447,000 | ||||||
OTHER INTANGIBLE ASSETS — net | 8,376,000 | 8,533,000 | ||||||
DEFERRED INCOME TAXES — net | 847,000 | 872,000 | ||||||
OTHER ASSETS — net | 89,000 | 110,000 | ||||||
TOTAL ASSETS | $ | 55,436,000 | $ | 55,038,000 |
See accompanying notes to consolidated financial statements (unaudited).
3 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)BALANCE SHEETS
Class A common stock, $1 par | Additional paid-in | Retained | Treasury stock | Accumulated other comprehensive | ||||||||||||||||||||||||||||
Total | Shares | Amount | capital | earnings | Shares | Amount | loss | |||||||||||||||||||||||||
Balance, January 1, 2017 | $ | 47,590,000 | 4,181,000 | $ | 4,181,000 | $ | 12,906,000 | $ | 36,061,000 | (584,000 | ) | $ | (4,821,000 | ) | $ | (737,000 | ) | |||||||||||||||
Net loss | (60,000 | ) | — | — | — | (60,000 | ) | — | — | — | ||||||||||||||||||||||
Restricted common stock compensation | 12,000 | — | — | 12,000 | — | — | — | — | ||||||||||||||||||||||||
Dividends | (180,000 | ) | — | — | — | (180,000 | ) | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustment | 26,000 | — | — | — | — | — | — | 26,000 | ||||||||||||||||||||||||
Balance, March 31, 2017 | $ | 47,388,000 | 4,181,000 | $ | 4,181,000 | $ | 12,918,000 | $ | 35,821,000 | (584,000 | ) | $ | (4,821,000 | ) | $ | (711,000 | ) |
March 31, 2018 | December 31, 2017 | |||||||
(unaudited) | (See Note 1) | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Short-term borrowings | $ | 3,241,000 | $ | 1,928,000 | ||||
Accounts payable | 2,735,000 | 2,443,000 | ||||||
Accrued compensation and benefits | 961,000 | 1,944,000 | ||||||
Accrued other liabilities | 1,256,000 | 1,576,000 | ||||||
Current maturities of long-term debt | 95,000 | — | ||||||
TOTAL CURRENT LIABILITIES | 8,288,000 | 7,891,000 | ||||||
Long–term debt, less current maturities | — | 94,000 | ||||||
Other liabilities | 1,064,000 | 1,040,000 | ||||||
TOTAL LIABILITIES | 9,352,000 | 9,025,000 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock - $10 par; authorized - 2,000,000 shares; no shares issued | — | — | ||||||
Common stock | ||||||||
Class A - $1 par; authorized - 7,000,000 shares; issued – 4,229,000 at March 31, 2018 and 4,203,000 at December 31, 2017 | 4,229,000 | 4,203,000 | ||||||
Class B - $1 par; authorized - 2,000,000 shares; no shares issued | — | — | ||||||
Additional paid-in capital | 13,210,000 | 13,064,000 | ||||||
Retained earnings | 34,340,000 | 34,455,000 | ||||||
Treasury stock, at cost – 641,000 shares at March 31, 2018 and 631,000 shares at December 31, 2017 | (5,261,000 | ) | (5,179,000 | ) | ||||
Accumulated other comprehensive loss | (434,000 | ) | (530,000 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 46,084,000 | 46,013,000 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 55,436,000 | $ | 55,038,000 |
See accompanying notes to consolidated financial statements (unaudited).
4 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
Three months | ||||||||
ended March 31, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net (loss) income from continuing operations | $ | (60,000 | ) | $ | 66,000 | |||
Net income from discontinued operations | — | 12,257,000 | ||||||
Adjustments to reconcile net (loss) income from operations to net cash used in operating activities: | ||||||||
Non-cash charges: | ||||||||
Depreciation and amortization | 319,000 | 409,000 | ||||||
Amortization of other intangible assets | 206,000 | 308,000 | ||||||
Amortization of debt issue costs | 9,000 | 98,000 | ||||||
Provision for losses on accounts receivable - net | 1,000 | 2,000 | ||||||
Stock-based compensation | — | 11,000 | ||||||
Restricted stock-based compensation | 12,000 | 14,000 | ||||||
Deferred income taxes | (71,000 | ) | (127,000 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (716,000 | ) | (719,000 | ) | ||||
Inventories | (331,000 | ) | (230,000 | ) | ||||
Prepaid expenses and other current assets | (166,000 | ) | (456,000 | ) | ||||
Other assets | 18,000 | (1,639,000 | ) | |||||
Accounts payable | 59,000 | 190,000 | ||||||
Accrued compensation and benefits | (1,080,000 | ) | (1,017,000 | ) | ||||
Accrued other liabilities | (69,000 | ) | 218,000 | |||||
Other liabilities | (5,000 | ) | (4,000 | ) | ||||
Total adjustments | (1,814,000 | ) | (2,942,000 | ) | ||||
Net cash used in operating activities – continuing operations | (1,874,000 | ) | (2,876,000 | ) | ||||
Net cash used in operating activities – discontinued operations | — | (840,000 | ) | |||||
Net cash used in operating activities | $ | (1,874,000 | ) | $ | (3,716,000 | ) |
Three months | ||||||||
ended March 31, | ||||||||
2018 | 2017 | |||||||
Net revenue | $ | 15,742,000 | $ | 13,216,000 | ||||
Cost of sales | 10,308,000 | 8,243,000 | ||||||
Gross profit | 5,434,000 | 4,973,000 | ||||||
Selling, general and administrative expenses | 5,280,000 | 5,047,000 | ||||||
Operating income (loss) | 154,000 | (74,000 | ) | |||||
Other expenses | 29,000 | — | ||||||
Interest expense | 37,000 | 10,000 | ||||||
Income (loss) before income taxes | 88,000 | (84,000 | ) | |||||
Income tax expense (benefit) | 23,000 | (24,000 | ) | |||||
Income (loss) | 65,000 | (60,000 | ) | |||||
Net income (loss) | $ | 65,000 | $ | (60,000 | ) | |||
Basic and diluted earnings (loss) per share | $ | 0.02 | $ | (0.02 | ) | |||
Weighted average common shares outstanding: | ||||||||
Basic | 3,583,000 | 3,598,000 | ||||||
Diluted | 3,745,000 | 3,598,000 | ||||||
Net income (loss) | $ | 65,000 | $ | (60,000 | ) | |||
Other comprehensive income - foreign currency translation adjustment | 96,000 | 26,000 | ||||||
Total comprehensive income (loss) | $ | 161,000 | $ | (34,000 | ) |
See accompanying notes to consolidated financial statements (unaudited).
5 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSHAREHOLDERS’ EQUITY (unaudited)
Three months | ||||||||
ended March 31, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Investing Activities: | ||||||||
Capital expenditures | $ | (231,000 | ) | $ | (242,000 | ) | ||
Net cash used in investing activities – continuing operations | (231,000 | ) | (242,000 | ) | ||||
Net cash provided by investing activities – discontinued operations | — | 20,163,000 | ||||||
Net cash (used in) provided by investing activities | (231,000 | ) | 19,921,000 | |||||
Cash Flows from Financing Activities: | ||||||||
Dividend payments | (180,000 | ) | — | |||||
Proceeds from exercise of stock options | — | 23,000 | ||||||
Purchase of Class A common stock | — | (255,000 | ) | |||||
Proceeds from short-term borrowings | — | 16,998,000 | ||||||
Repayments of short-term borrowings | — | (7,912,000 | ) | |||||
Repayments of term loans | — | (6,343,000 | ) | |||||
Repayments of notes payable | (5,000 | ) | (9,000 | ) | ||||
Payments of bank financing costs | — | (23,000 | ) | |||||
Net cash (used in) provided by financing activities – continuing operations | (185,000 | ) | 2,479,000 | |||||
Net cash used in financing activities – discontinued operations | — | (18,716,000 | ) | |||||
Net cash used in financing activities | (185,000 | ) | (16,237,000 | ) | ||||
Effect of exchange rate changes on cash | 4,000 | (11,000 | ) | |||||
Net decrease in cash | (2,286,000 | ) | (43,000 | ) | ||||
Cash at beginning of period | 3,699,000 | 927,000 | ||||||
Cash at end of period | $ | 1,413,000 | $ | 884,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 1,000 | $ | 86,000 | ||||
Income taxes | $ | — | $ | 8,000 | ||||
Class A common stock, $1 par | Additional paid-in | Retained | Treasury stock | Accumulated other comprehensive | ||||||||||||||||||||||||||||
Total | Shares | Amount | capital | earnings | Shares | Amount | loss | |||||||||||||||||||||||||
Balance, January 1, 2018 | $ | 46,013,000 | 4,203,000 | $ | 4,203,000 | $ | 13,064,000 | $ | 34,455,000 | (631,000 | ) | $ | (5,179,000 | ) | $ | (530,000 | ) | |||||||||||||||
Net income | 65,000 | — | — | — | 65,000 | — | — | — | ||||||||||||||||||||||||
Exercise of stock options | 105,000 | 26,000 | 26,000 | 79,000 | — | — | — | — | ||||||||||||||||||||||||
Restricted common stock compensation | 7,000 | — | — | 7,000 | — | — | — | — | ||||||||||||||||||||||||
Purchase of Class A common stock | (82,000 | ) | — | — | — | — | (10,000 | ) | (82,000 | ) | — | |||||||||||||||||||||
Stock-based compensation | 60,000 | — | — | 60,000 | — | — | — | — | ||||||||||||||||||||||||
Dividends | (180,000 | ) | — | — | — | (180,000 | ) | — | — | — | ||||||||||||||||||||||
Foreign currency translation adjustment | 96,000 | — | — | — | — | — | — | 96,000 | ||||||||||||||||||||||||
Balance, March 31, 2018 | $ | 46,084,000 | 4,229,000 | $ | 4,229,000 | $ | 13,210,000 | $ | 34,340,000 | (641,000 | ) | $ | (5,261,000 | ) | $ | (434,000 | ) |
See accompanying notes to consolidated financial statements (unaudited).
6 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months | ||||||||
ended March 31, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) | $ | 65,000 | $ | (60,000 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Non-cash charges: | ||||||||
Depreciation and amortization | 335,000 | 319,000 | ||||||
Amortization of other intangible assets | 179,000 | 206,000 | ||||||
Amortization of debt issue costs | 23,000 | 9,000 | ||||||
(Recovery of) provision for losses on accounts receivable - net | (1,000 | ) | 1,000 | |||||
Stock-based compensation | 60,000 | — | ||||||
Loss on sale of fixed assets | 1,000 | — | ||||||
Restricted stock-based compensation | 7,000 | 12,000 | ||||||
Deferred income taxes | 21,000 | (71,000 | ) | |||||
Fair value increase in contingent consideration | 29,000 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (603,000 | ) | (716,000 | ) | ||||
Inventories | 961,000 | (331,000 | ) | |||||
Prepaid expenses and other current assets | (200,000 | ) | (166,000 | ) | ||||
Other assets | — | 18,000 | ||||||
Accounts payable | 287,000 | 59,000 | ||||||
Accrued compensation and benefits | (985,000 | ) | (1,080,000 | ) | ||||
Accrued other liabilities | (328,000 | ) | (69,000 | ) | ||||
Other liabilities | (5,000 | ) | (5,000 | ) | ||||
Total adjustments | (219,000 | ) | (1,814,000 | ) | ||||
Net cash used in operating activities | (154,000 | ) | (1,874,000 | ) | ||||
See accompanying notes to consolidated financial statements (unaudited).
7 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months | ||||||||
ended March 31, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Investing Activities: | ||||||||
Capital expenditures | $ | (570,000 | ) | $ | (231,000 | ) | ||
Proceeds from disposal of assets | 10,000 | — | ||||||
Net cash used in investing activities | (560,000 | ) | (231,000 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Dividend payments | (180,000 | ) | (180,000 | ) | ||||
Proceeds from exercise of stock options | 105,000 | — | ||||||
Purchase of Class A common stock | (82,000 | ) | — | |||||
Net proceeds from short-term borrowings | 1,313,000 | — | ||||||
Repayments of notes payable | — | (5,000 | ) | |||||
Net cash provided by (used in) financing activities | 1,156,000 | (185,000 | ) | |||||
Effect of exchange rate changes on cash | 21,000 | 4,000 | ||||||
Net increase (decrease) in cash | 463,000 | (2,286,000 | ) | |||||
Cash at beginning of period | 1,241,000 | 3,699,000 | ||||||
Cash at end of period | $ | 1,704,000 | $ | 1,413,000 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 16,000 | $ | 1,000 | ||||
Income taxes | $ | 2,000 | $ | — |
See accompanying notes to consolidated financial statements (unaudited).
8 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the management of the Company, as defined below, these unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth therein. All such adjustments, except for those adjustments relating to discontinued operations are of a normal recurring nature. Results for interim periods are not necessarily indicative of results to be expected for a full year.
The consolidated balance sheet information as of December 31, 20162017 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017 (“20162017 Form 10-K”). The interim financial statements contained herein should be read in conjunction with the 20162017 Form 10-K.
The consolidated financial statements have been reported in U.S. dollars by translating asset and liability amounts of a foreign wholly-owned subsidiary at the closing exchange rate, equity amounts at historical rates and the results of operations and cash flow at the average of the prevailing exchange rates during the periods reported. As a result, the Company is exposed to foreign currency translation gains or losses. These gains or losses are presented in the Company’s consolidated financial statements as “Other comprehensive income (loss) - foreign currency translation adjustment”.
Principles of Consolidation
The unaudited consolidated financial statements contained herein include the accounts of P&F Industries, Inc. and its subsidiaries, (“P&F” or the “Company”). All significant intercompany balances and transactions have been eliminated.
Reclassification
Certain amounts in the consolidated financial statements of the Company have been reclassified to conform to classifications used in the current year. The reclassifications had no effect on previously reported results of operations or retained earnings.
The Company
P&F is a Delaware corporation incorporated on April 19, 1963. Prior to February 11, 2016 (the “Nationwide Closing Date”), the effective date of the sale of its Nationwide Industries, Inc. (“Nationwide”) subsidiary, P&F operated in two primary lines of business or segments: (i) tools and other products (“Tools”) and (ii) hardware and accessories (“Hardware”). As a result of the sale of Nationwide, which had been reported in the Hardware segment, the Company currently only operates in the Tools business. See Note 2 to consolidated financial statements for further discussion.
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (continued)
Tools
The Company conducts its Tools business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn operates through its wholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”). Exhaust Technologies Inc. (“ETI”) and Universal Air Tool Company Limited (“UAT”) are wholly-owned subsidiaries of Florida Pneumatic. TheEffective April 5, 2017, the Company purchased substantially all of the operating assets, less certain payables of Jiffy Air Tool, Inc., (“Jiffy”) through a wholly-owned subsidiary. See Note 2 to our consolidated financial statements for further discussion. Lastly, the business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned subsidiary of Hy-Tech.
Florida Pneumatic is engaged in the importationmanufactures, imports and sale ofsells pneumatic hand tools, most of which are of its own design, primarily forto the retail, industrial, automotive and automotive markets, and the importation and sale of compressor air filters. Florida Pneumaticaerospace markets. It also markets, through its Berkley Tool division (“Berkley”), a product line which includes pipe and bolt dies, pipe taps, wrenches, vises and stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brand of pipe cutting and threading machines.
Hy-Tech designs, manufactures and distributes its own line of industrial pneumatic tools.tools, industrial gears, hydrostatic test plugs and a wide variety of parts under the brands ATP, ATSCO, OZAT, Numatx, Thaxton and Quality Gear. Industries served include power generation, petrochemical, construction, railroad, mining, ship building and fabricated metals. Hy-Tech also producesmanufactures components, assemblies, finished product and markets impact wrenches, grinders, drills, and motors. Further, it also manufactures tools to customer specifications. Its customers include refineries, chemical plants, power generation facilities, heavy construction enterprises, oil and gas and mining companies. In addition, Hy-Tech manufactures an extensive line of pneumatic tool replacement parts that are sold to original equipment manufacturers (“OEMs”). It also manufactures and distributes high pressure stopperssystems for hydrostatic testing fabricated pipe, gears, sprockets, splines and racks and produces a line of siphons.various Original Equipment Manufacturers under their own brand names.
9 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Hardware
Prior to the Nationwide Closing Date, the Company conducted its Hardware business through its wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). Countrywide conducted its business operations through its wholly-owned subsidiary, Nationwide. Nationwide was an importer and manufacturer of door, window and fencing hardware and accessories, including rollers, hinges, window operators, sash locks, custom zinc castings and door closers. Effective as of the Nationwide Closing Date, Countrywide sold Nationwide to an unrelated third party for approximately $22,200,000. See Note 2 to consolidated financial statements for further discussion.NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (continued)
Management Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses in those financial statements. Certain significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, inventory, goodwill, intangible assets and other long-lived assets, contingent consideration, income taxes and deferred taxes. Descriptions of these policies are discussed in the Company’s 20162017 Form 10-K. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Significant Accounting Policies – Revenue Recognition
Our significant accounting policies are described in "Note 1: Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2017. Our significant accounting policy relating to revenue recognition reflects the impact of the adoption of ASC 606, defined below, in the first quarter of 2018.
The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606,Revenue from Contracts with Customers ("ASC 606"). The Company sells its goods on terms which transfer title and risk of loss at a specified location, which may be our warehouse, destination designated by our customer, port of loading or port of discharge, depending on the final destination of the goods. Other than standard product warranty provisions, our sales arrangements provide for no other post-shipment obligations. The Company offers rebates and other sales incentives, promotional allowances or discounts for certain customers, typically related to customer purchase volume, and are classified as a reduction of revenue and recorded at the time of sale, using the most likely amount approach. The Company periodically evaluates whether an allowance for sales returns is necessary. Historically, we have experienced minimal sales returns. If the Company believes there are material potential sales returns, it would provide the necessary provision against sales.
The Company's performance obligations underlying its core revenue sources remain substantially unchanged. Its revenue is generated through the sale of finished products, and is generally recognized at the point in time when merchandise is transferred to the customer with a fixed payment due generally within 30 to 90 days, and in an amount that considers the impacts of estimated allowances. Further, the Company has made a policy election to account for shipping and handling activities that occur after the customer has obtained control of the products as fulfillment costs rather than as an additional promised service. This election is consistent with the Company’s prior policy, and therefore the adoption of ASC 606 relating to shipping and handling activities will not have any impact on its financial results. Additionally, as the result of the adoption of ASC 606, the Company will account for certain expenses that in prior periods were accounted for as a selling expense, which will now be treated as an adjustment to gross revenue. Accordingly, during the three-month period ended March 31, 2018 the Company reduced its net revenue, gross margin and selling expense by approximately $214,000. Additionally, the Company at March 31, 2018 has included in its allowance for doubtful accounts approximately $74,000 that was previously accounted for in its current liabilities. There are no remaining performance obligations as of March 31, 2018.
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (Continued)
The Company analyzes its revenue as follows:
Revenue generated at Florida Pneumatic.
Three months ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Revenue | Percent of revenue | Revenue | Percent of revenue | |||||||||||||
Retail | $ | 4,090,000 | 33.4 | % | $ | 5,353,000 | 50.9 | % | ||||||||
Automotive | 3,938,000 | 32.1 | 3,613,000 | 34.4 | ||||||||||||
Aerospace | 2,670,000 | 21.8 | 89,000 | 0.9 | ||||||||||||
Industrial/catalog | 1,364,000 | 11.1 | 1,245,000 | 11.8 | ||||||||||||
Other | 202,000 | 1.6 | 209,000 | 2.0 | ||||||||||||
Total | $ | 12,264,000 | 100.0 | % | $ | 10,509,000 | 100.0 | % |
Revenue generated at Hy-Tech.
Three months ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Revenue | Percent of revenue | Revenue | Percent of revenue | |||||||||||||
ATP brands | $ | 3,076,000 | 88.4 | % | $ | 2,406,000 | 88.9 | % | ||||||||
Other brands | 402,000 | 11.6 | 301,000 | 11.1 | ||||||||||||
Total | $ | 3,478,000 | 100.0 | % | $ | 2,707,000 | 100.0 | % |
New Accounting Pronouncements
Recently Adopted
In March 2016,January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting StandardStandards Update (“ASU”) 2016-09,No. 2017-04,ImprovementsIntangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplified the testing of goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company concluded that ASU 2017-04 is preferable to Employee Share-Based Payment Accountingthe current guidance due to efficiency, since ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. The Company adopted ASU 2017-04 in 2017, in conjunction with its annual impairment test of goodwill for all reporting units. The adoption of ASU 2017-04 did not have a material impact on the Company’s financial results.
In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. The standard reduces complexityamendments in several aspects ofASU 2016-15 are intended to add or clarify guidance on the accounting for employee share-based compensation, including the income tax consequences, classification of awards as either equity or liabilities,certain cash receipts and classification onpayments in the statement of cash flows. Theflows, with the intent of reducing diversity in practice for the eight types of cash flows identified. ASU 2016-15 is effective for public companies' fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017. The impactadoption of ASU 2016-15 as of January 1, 2018 had no material effect on the Company’s financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) ASC 606 (“ASC 606”), which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates to ASC 606 were issued by the FASB in 2015 and 2016.
The Company adopted ASC 606 on the first day of fiscal 2018. Its underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company has elected to use the modified retrospective approach. As the Company does not have any contracts that were not completed as of January 1, 2018, there is no adjustment required to its retained earnings. The adoption wasof ASC 606 will not have an effect on the Company’s cash flows. Other than discussed earlier in this Note 1, the Adoption of ASC 606 did not have a material toeffect on the Company’s consolidated financial statements.
In July 2015, the FASBThe Company does not believe that any other recently issued ASU No. 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). Theaccounting standard simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value for entities using the first-in-first out method of valuing inventory. ASU 2015-11 eliminates other measures required by current guidance to determine net realizable value. ASU 2015-11 is effective for fiscal 2017. The impact of the adoption was notwould have a material to the Company’seffect on its consolidated financial statements.
11 |
In November 2015, the FASB issued ASU 2015-17,Balance Sheet Classification of Deferred Taxes. ASU 2015-17 is aimed at reducing complexity in accounting standards. Currently, GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction; companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective in fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. The Company early adopted and applied the new standard to all periods presented in the Consolidated Balance Sheets.
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (Continued)
Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02,Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Accounting Standards Codification (“ASC”)ASC Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 – BUSINESS AND SUMMARY OF ACCOUNTING POLICIES – (Continued)
New Accounting Pronouncements
Not Yet Adopted
In May 2014,February 2018, the FASB issued No. ASU No. 2014-09,2018-02,RevenueIncome Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Contracts with Customers, as a new Topic, ASC Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updatesAccumulated Other Comprehensive Income (“ASU 2018-02”). Under ASU 2018-02, an entity may elect to Topic 606 issued byreclassify the FASB in 2015 and 2016 include the following:
The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. The Company intends to use the modified retrospective approach. The Company iscurrently in the process of completing its assessment of any significant contract and assessing the impact the adoptionincome tax effects of the new revenue standard and related updates will haveTax Reform Act on its consolidated financial statements and related disclosures. Thus far the Company does not believe the adoption of this standard and related updates will have a material effect on its consolidated financial statements and related disclosures. However, the Company will continue its evaluation of the standards update through the date of adoption. The standard update, as amended, will be effective for annual periods beginning after December 15, 2017.
In January 2017, the FASB issueditems within accumulated other comprehensive income to retained earnings. ASU No. 2017-04,“Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which simplified the testing of goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-042018-02 is effective for public companies for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period. We are currently evaluating what impact, if any, adoption of ASU 2018-02 may have on our consolidated financial statements.
Other Accounting Pronouncement
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries previously deferred from tax, generally eliminates U.S federal income taxes on dividends from foreign subsidiaries and creates a new provision designed to tax global intangible low-taxed income (“GILTI”). Also on December 22, 2017, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides for a measurement period of up to one year from the enactment for companies to complete their accounting for the Act. The Company is currently evaluatingapplying the guidance in SAB 118 when accounting for the enactment-date effects of the Act.
At March 31, 2018, the Company has not completed its accounting for the tax effects of the Act, but has made reasonable estimates of the effects thaton the adoptionre-measurement of ASU 2017-04its deferred tax assets and liabilities as well as its transition tax liability. During the three month period ended March 31, 2018, the Company made no adjustments to the provisional amounts recorded at December 31, 2017. Additionally, the Company has not yet collected and analyzed all necessary tax and earnings data of its foreign operations and therefore, the Company has also not yet completed its accounting for the income tax effects of the transition tax. The Company will have oncontinue to make and refine its consolidated financial statements. calculations as additional analysis is completed.
Other than the aforementioned, the Company does not believe that any other recently issued, but not yet effective accounting standard, if adopted, will have a material effect on its consolidated financial statements.
NOTE 2 – ACQUISITION
On April 5, 2017 (the “Jiffy Closing Date”), Bonanza Holdings Corp. (now known as Jiffy Air Tool, Inc.), a Delaware corporation and newly formed wholly-owned subsidiary (“Jiffy”) of Florida Pneumatic, Jiffy Air Tool, Inc. a Nevada corporation (“Jiffy Seller”), The Jack E. Pettit—1996 Trust, the sole shareholder of Jiffy Seller and Jack E. Pettit, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which, among other things, Jiffy acquired (the “Jiffy Acquisition”) substantially all of the operating assets of Jiffy Seller for $5,950,000, in addition to the assumption of certain payables and contractual obligations as set forth in the Asset Purchase Agreement. Jiffy manufactures and distributes pneumatic tools and components, primarily sold to aerospace manufacturers. The purchase price was $5,950,000, less a post-closing working capital adjustment of $155,000, which was paid by Jiffy Seller to the Company in June 2017.
Additionally, Jiffy Seller may be entitled to up to $1,000,000 in additional consideration, which is contingent upon Jiffy achieving certain revenue thresholds and other criteria as set forth in the Asset Purchase Agreement within two defined measurement periods occurring within approximately the first two years following the Jiffy Closing Date. As of March 31, 2018, the Company has estimated the fair value of this contingent consideration to be $880,000.
In connection with the Asset Purchase Agreement, a separate Purchase and Sale Agreement and Joint Escrow Instructions (the “Purchase and Sale Agreement” and together with the Asset Purchase Agreement, the “Agreements”) was entered into between Jiffy Seller and Bonanza Properties Corp. (“Bonanza Properties”), a Delaware corporation and newly formed wholly-owned subsidiary of Florida Pneumatic, pursuant to which Bonanza Properties purchased certain real property of Jiffy Seller. Pursuant to the Purchase and Sale Agreement, the purchase price for the real property was $1,050,000.
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 2 – DISCONTINUED OPERATIONSACQUISITION – (Continued)
Sale of Nationwide Industries, Inc.
Effective as ofThe initial total consideration ($5,950,000 plus $1,050,000) paid to Jiffy Seller was from funds available under the Nationwide Closing Date, the Company, as part of its strategic plan to focus on expanding its position in the power-tool and accessories market, sold Nationwide. On this date, P&F, Countrywide, Nationwide and Argosy NWI Holdings, LLC, a Delaware limited liability company (“Buyer”), entered into a Stock Purchase and Redemption Agreement (the “Stock Purchase Agreement”), pursuant to which, among other things, after giving effect to certain contributions and redemptions of Nationwide’s common shares (“Nationwide Shares”), the Buyer acquired all of the outstanding Nationwide Shares from Countrywide (the “Acquisition”). The purchase price for the Nationwide Shares acquired in the Acquisition was approximately $22,200,000, before giving effect to an estimated working capital adjustment,Revolver, as defined in the Stock Purchase Agreement, of approximately $802,000 in favor of the Buyer. Further, in accordance with the Stock Purchase Agreement, the Company placed into escrow $1,955,000 (“escrow funds”), of which $250,000 related to the final working capital adjustment. PursuantNote 9, less certain amounts escrowed pursuant to the terms of the Stock Purchase Agreement, the final working capital adjustment amount was determined to be approximately $75,000 in the Company’s favor. As a result, during the three-month period ended June 30, 2016, the $250,000 portion of the escrow funds was released to the Company, and the final working capital adjustment amount of $75,000 was paid to the Company by the Buyer. In connection with the Acquisition, Countrywide agreed that, should it sell the real property it owned in Tampa, Florida, (the “Premises”) it will contribute an additional $400,000 into the escrow funds. In November 2016, the Premises were sold, and as a result Countrywide contributed the additional $400,000 into the aforementioned escrow funds. After paying closing costs, the net cash received from the Buyer was approximately $18,700,000.Agreements.
Total | ||||
Cash paid at closing | $ | 7,000,000 | ||
Less working capital adjustment | (155,000 | ) | ||
Fair value of contingent consideration | 692,000 | |||
Total estimated purchase price | $ | 7,537,000 |
The escrow funds, which are classified as Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheet, are to be released in August 2017, less any claims made against these escrow funds, in accordance with the Stock Purchase Agreement.following table presents purchase price allocation:
Accounts receivable | $ | 789,000 | ||
Inventories | 1,571,000 | |||
Other current assets | 45,000 | |||
Land | 131,000 | |||
Building | 919,000 | |||
Machinery and equipment | 1,196,000 | |||
Identifiable intangible assets: | ||||
Customer relationships | 1,670,000 | |||
Trademarks and trade names | 790,000 | |||
Non-compete agreements | 17,000 | |||
Liabilities assumed | (125,000 | ) | ||
Goodwill | 534,000 | |||
Total estimated purchase price | $ | 7,537,000 |
The Company believes that these escrow funds are highly collectible, and that it is more likely than not that with respect to any or all such potential claims made against the Company, these claims will not exceed the minimum dollar threshold amount of $150,000 required under the Stock Purchase Agreement. The Company has included $1,705,000excess of the escrow funds in its gain on saletotal purchase price over the fair value of Nationwide. Should claims made against the Company pursuantnet assets acquired, including the value of the identifiable intangible assets, has been allocated to goodwill. Goodwill will be amortized over 15 years for tax purposes, but not deductible for financial reporting purposes. The intangible assets subject to amortization will be amortized over 15 years for tax purposes. For financial reporting purposes, useful lives have been assigned as follows:
Customer relationships | 15 years | |
Trademarks and trade names | Indefinite | |
Non-compete agreements | 4 years |
The following unaudited pro-forma combined financial information gives effect to the Stock Purchase Agreement exceedJiffy Acquisition as if the minimum threshold, thenJiffy Acquisition was consummated January 1, 2017. This unaudited pro-forma financial information is presented for information purposes only, and is not intended to present actual results that would have been attained had the extent such claims are resolved in favorJiffy Acquisition been completed as of January 1, 2017 (the beginning of the Buyer under the termsearliest period presented) or to project potential operating results as of the Stock Purchase Agreement, the total amount of such claims will be recorded as a loss on sale of Nationwide inany future date or for any future periods.
As Nationwide was a substantial and unique business unit of the Company, its sale was a strategic shift. Accordingly, in accordance with ASC Topic 360, the Company has classified Nationwide as a discontinued operation in 2016.
The net income from discontinued operations, net of taxes in 2016 presented in the accompanying Consolidated Statements of Operations and Comprehensive (Loss) Income, is comprised of the following:
January 1, 2016 through February 11, 2016 | ||||
Revenue | $ | 1,830,000 | ||
Cost of goods sold | 1,177,000 | |||
Gross margin | 653,000 | |||
Selling and general and administrative expenses | 483,000 | |||
Interest expense-net | 60,000 | |||
Income before income taxes | 110,000 | |||
Income taxes | 38,000 | |||
Net income | $ | 72,000 |
Three months ended | ||||
March 31, | ||||
2017 | ||||
Revenue | $ | 14,694,000 | ||
Net Income | $ | 46,000 | ||
Earnings per share – Basic | $ | 0.01 | ||
Earnings per share – Diluted | $ | 0.01 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 2 – DISCONTINUED OPERATIONS – (Continued)
The Company recognized a gain of $12,185,000, on the sale of Nationwide during the three-month period ended March 31, 2016, which represents the difference between the adjusted net purchase price and the carrying book value of Nationwide. However, for income tax purposes, the Company’s tax basis in Nationwide was greater than the net proceeds, thus resulting in a tax loss. At the applicable tax rate of 34%, this loss has been recorded as a tax benefit of $141,000. This tax benefit may only be applied against future capital gain transactions.
NOTE 3 – EARNINGS (LOSS) EARNINGS PER SHARE
Basic earnings (loss) earnings per common share is based only on the average number of shares of Common Stock outstanding for the periods. Diluted earnings (loss) earnings per common share reflects the effect of shares of Common Stock issuable upon the exercise of options, unless the effect on earnings is antidilutive.
Diluted earnings (loss) earnings per common share is computed using the treasury stock method. Under this method, the aggregate number of shares of Common Stock outstanding reflects the assumed use of proceeds from the hypothetical exercise of any outstanding options to purchase shares of Common Stock. The average market value for the period is used as the assumed purchase price.
The following table sets forth the elements of basic and diluted earnings (loss) earnings per common share:
Three months ended | ||||||||
March 31, | ||||||||
2017 | 2016 | |||||||
Numerator for basic and diluted (loss) earnings per common share: | ||||||||
Net (loss) income from continuing operations | $ | (60,000 | ) | $ | 66,000 | |||
Net income from discontinued operations | — | 12,257,000 | ||||||
Net (loss) income | $ | (60,000 | ) | $ | 12,323,000 | |||
Denominator: | ||||||||
For basic earnings per share - weighted average common shares outstanding | 3,598,000 | 3,601,000 | ||||||
Dilutive securities(1) | — | 177,000 | ||||||
For diluted earnings per share - weighted average common shares outstanding | 3,598,000 | 3,778,000 |
Three months ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
Numerator for basic and diluted earnings (loss) per common share: | ||||||||
Net income (loss) | $ | 65,000 | $ | (60,000 | ) | |||
Denominator: | ||||||||
For basic earnings (loss) per share - weighted average common shares outstanding | 3,583,000 | 3,598,000 | ||||||
Dilutive securities(1) | 162,000 | — | ||||||
For diluted earnings (loss) per share - weighted average common shares outstanding | 3,745,000 | 3,598,000 |
(1) | Dilutive securities consist of “in the money” stock options. |
At March 31, 20172018 and 2016,2017, there were outstanding stock options whose exercise prices were higher than the average market values of the underlying Common Stock for the period. Options for the three months ended March 31, 2017 are anti-dilutive and are excluded from the computation of diluted earnings (loss) per share. The weighted average of anti-dilutive stock options outstanding was as follows:
Three months ended | ||||||||
March 31, | ||||||||
2017 | 2016 | |||||||
Weighted average antidilutive stock options outstanding | 71,000 | 89,000 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
Weighted average antidilutive stock options outstanding | 49,000 | 71,000 |
NOTE 4 – STOCK-BASED COMPENSATION
There were no options granted or issued during the three-month period ended March 31, 2017.2018.
The following is a summary of the changes in outstanding options during the three-month period ended March 31, 2017:2018:
Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Outstanding and Vested, January 1, 2017 | 423,817 | $ | 5.68 | 2.9 | $ | 1,271,704 | ||||||||||||||||||||||||||
Outstanding, January 1, 2018 | 418,233 | $ | 5.17 | 3.8 | $ | 1,343,442 | ||||||||||||||||||||||||||
Granted | — | — | — | |||||||||||||||||||||||||||||
Exercised | — | (26,130 | ) | 3.98 | ||||||||||||||||||||||||||||
Forfeited | — | — | — | |||||||||||||||||||||||||||||
Expired | — | — | — | |||||||||||||||||||||||||||||
Outstanding and Vested, March 31, 2017 | 423,817 | $ | 5.68 | 2.6 | $ | 865,862 | ||||||||||||||||||||||||||
Outstanding, March 31, 2018 | 392,103 | $ | 5.25 | 3.8 | $ | 989,441 | ||||||||||||||||||||||||||
Vested, March 31, 2018 | 303,103 | $ | 4.71 | 2.1 | $ | 929,811 |
14 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 4 – STOCK-BASED COMPENSATION – (Continued)
Option Shares | Weighted Average Grant- Date Fair Value | |||||||
Non-vested options, January 1, 2018 | 89,000 | $ | 4.41 | |||||
Granted | — | — | ||||||
Vested | — | — | ||||||
Forfeited | — | — | ||||||
Non-vested options, March 31, 2018 | 89,000 | $ | 4.41 |
The number of shares of Common Stock available for issuance under the P&F Industries, Inc. 2012 Stock Incentive Plan (the “2012 Plan”) as of March 31, 20172018 was 175,450.88,812. At March 31, 2017,2018, there were 113,817192,233 options outstanding issued under the 2012 Plan and 310,000199,870 options outstanding issued under the 2002 Stock Incentive Plan.
Restricted Stock
The Company, in May 2016,2017, granted 1,000 restricted shares of its Common Stockcommon stock to each non-employee member of its Board of Directors, totaling 5,000 restricted shares. The Company determined that the fair value of these shares was $8.72$6.17 per share, which was the closing price of the Company’s Common Stock on the date of the grant. These shares cannot be traded earlier than the first anniversary of the grant date. As such, the Company is ratably amortizing the total non-cash compensation expense of approximately $44,000$30,000 in its selling, general and administrative expenses through May 2017.
2018.
P&F INDUSTRIES, INC. AND SUBSIDIARIESTreasury Stock
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
On August 9, 2017, the Company’s Board of Directors authorized the Company to repurchase up to 100,000 shares of its common stock over a period of up to twelve months (the “Repurchase Program”). On August 24, 2017, the Company announced that, pursuant to the Repurchase Program, it had adopted a written trading plan in accordance with the guidelines specified under Rule 10b5-1 under the Securities Exchange Act of 1934. A plan under Rule 10b5-1 allows the Company to repurchase shares at times when it might otherwise be prevented from doing so by securities laws or because of self-imposed trading blackout periods. Repurchases made under the plan are subject to the SEC’s regulations, as well as certain price, market, volume, and timing constraints specified in the plan. Since repurchases under the plan are subject to certain constraints, there is no guarantee as to the exact number of shares that will be repurchased under the plan. Since the inception of the Repurchase Program through March 31, 2018, the Company repurchased approximately 57,000 shares of its common stock at an aggregate cost of approximately $439,000.
NOTE 5 – FAIR VALUE MEASUREMENTS
Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the following hierarchy:
Level 1: Quoted prices for identical assets or liabilities in active markets that can be assessed at the measurement date.
Level 2: Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.
The guidance requires the use of observable market data if such data is available without undue cost and effort.
15 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 5 – FAIR VALUE MEASUREMENTS – (Continued)
As of March 31, 20172018 and December 31, 2016,2017, the carrying amounts reflected in the accompanying consolidated balance sheets for current assets and current liabilities approximated fair value due to the short-term nature of these accounts.
The fair value of the Prepaid expenses and other current assets, which consists primarily of escrowed funds from the sale of Nationwide, which was estimated to be the same as its carrying value, based on Level 3 inputs. The Company believes the escrow will be released to the Company in August 2017, in accordance with the terms and conditions set forth in the Stock Purchase Agreement.
Assets and liabilities measured at fair value on a non-recurring basis include goodwill and intangible assets. Such assets are reviewed quarterly for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (level 3).
NOTE 6 – ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable - net consists of:
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Accounts receivable | $ | 8,713,000 | $ | 7,991,000 | $ | 10,892,000 | $ | 10,199,000 | ||||||||
Allowance for doubtful accounts | (85,000 | ) | (85,000 | ) | ||||||||||||
Allowance for doubtful accounts, sales discounts and chargebacks | (225,000 | ) | (152,000 | ) | ||||||||||||
$ | 8,628,000 | $ | 7,906,000 | $ | 10,667,000 | $ | 10,047,000 |
NOTE 7 – INVENTORIES
Inventories consist of:
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Raw material | $ | 1,985,000 | $ | 1,918,000 | $ | 1,912,000 | $ | 1,871,000 | ||||||||
Work in process | 872,000 | 658,000 | 1,873,000 | 1,556,000 | ||||||||||||
Finished goods | 17,386,000 | 17,325,000 | 14,954,000 | 16,230,000 | ||||||||||||
$ | 20,243,000 | $ | 19,901,000 | $ | 18,739,000 | $ | 19,657,000 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill are as follows:
Balance, January 1, 2017 | $ | 3,897,000 | ||
Currency translation adjustment | 2,000 | |||
Balance, March 31, 2017 | $ | 3,899,000 |
Balance, January 1, 2018 | $ | 4,447,000 | ||
Currency translation adjustment | 7,000 | |||
Balance, March 31, 2018 | $ | 4,454,000 |
Other intangible assets were as follows:
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Cost | Accumulated amortization | Net book value | Cost | Accumulated amortization | Net book value | Cost | Accumulated amortization | Net book value | Cost | Accumulated amortization | Net book value | |||||||||||||||||||||||||||||||||||||
Other intangible assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Customer relationships (1) | $ | 5,146,000 | $ | 1,137,000 | $ | 4,009,000 | $ | 5,143,000 | $ | 1,022,000 | $ | 4,121,000 | $ | 6,847,000 | $ | 1,715,000 | $ | 5,132,000 | $ | 6,836,000 | $ | 1,570,000 | $ | 5,266,000 | ||||||||||||||||||||||||
Trademarks and trade names (1) | 1,511,000 | — | 1,511,000 | 1,507,000 | — | 1,507,000 | 2,344,000 | — | 2,344,000 | 2,329,000 | — | 2,329,000 | ||||||||||||||||||||||||||||||||||||
Trademarks and trade names (2) | 200,000 | 9,000 | 191,000 | 200,000 | 5,000 | 195,000 | 200,000 | 22,000 | 178,000 | 200,000 | 19,000 | 181,000 | ||||||||||||||||||||||||||||||||||||
Engineering drawings | 330,000 | 154,000 | 176,000 | 330,000 | 148,000 | 182,000 | 330,000 | 182,000 | 148,000 | 330,000 | 175,000 | 155,000 | ||||||||||||||||||||||||||||||||||||
Non-compete agreements (1) | 214,000 | 167,000 | 47,000 | 212,000 | 150,000 | 62,000 | 243,000 | 223,000 | 20,000 | 239,000 | 210,000 | 29,000 | ||||||||||||||||||||||||||||||||||||
Patents | 1,205,000 | 732,000 | 473,000 | 1,205,000 | 666,000 | 539,000 | 1,405,000 | 851,000 | 554,000 | 1,405,000 | 832,000 | 573,000 | ||||||||||||||||||||||||||||||||||||
Totals | $ | 8,606,000 | $ | 2,199,000 | $ | 6,407,000 | $ | 8,597,000 | $ | 1,991,000 | $ | 6,606,000 | $ | 11,369,000 | $ | 2,993,000 | $ | 8,376,000 | $ | 11,339,000 | $ | 2,806,000 | $ | 8,533,000 |
(1) | A portion of these intangibles are maintained in a foreign currency, and are therefore subject to foreign exchange rate fluctuations. |
(2) | These were previously considered an |
Amortization expense of intangible assets from continuing operations subject to amortization was as follows:
Three months ended March 31, | Three months ended March 31, | Three months ended March 31, | ||||||||||
2017 | 2016 | |||||||||||
2018 | 2018 | 2017 | ||||||||||
$ | 206,000 | $ | 308,000 | 179,000 | $ | 206,000 |
The weighted average amortization period for intangible assets was as follows:
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Customer relationships | 9.1 | 9.3 | 9.9 | 10.1 | ||||||||||||
Trademarks and trade names (2) | 14.3 | 14.5 | 13.3 | 13.5 | ||||||||||||
Engineering drawings | 8.6 | 8.8 | 8.0 | 8.1 | ||||||||||||
Non-compete agreements | 1.0 | 1.2 | 2.0 | 1.8 | ||||||||||||
Patents | 6.5 | 6.1 | 8.6 | 8.8 |
Amortization expense for each of the next five years and thereafter is estimated to be as follows:
2018 | $ | 648,000 | ||
2019 | 563,000 | |||
2020 | 544,000 | |||
2021 | 508,000 | |||
2022 | 508,000 | |||
Thereafter | 2,125,000 | |||
$ | 4,896,000 |
2019 | $ | 696,000 | ||
2020 | 677,000 | |||
2021 | 641,000 | |||
2022 | 637,000 | |||
2023 | 637,000 | |||
Thereafter | 2,744,000 | |||
$ | 6,032,000 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 9 – DEBT
In October 2010, the Company entered into a Loan and Security Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association (“Capital One”, or the “Bank”). The Credit Agreement, as amended from time to time, among other things, provides forthe ability to borrow funds under a Revolver Loan (“Revolver”),arrangement, which is currently set at a maximum of $16,000,000. Revolver borrowings under which are secured by the Company’s accounts receivable, inventory, equipment and mortgages on itsreal property. Additionally, there is a $1,600,000 line available for capital expenditures. Lastly, the Credit Agreement includes a $100,000 Term Loan. This term loan, which is secured by real property, (“Real Property”), inventoryremains in place such that should the Company and equipment.Capital One wish to facilitate future term loan borrowings more efficiently and less costly. P&F and certain of its subsidiaries are borrowers under the Credit Agreement, and their obligations are cross-guaranteed by certain other subsidiaries. Lastly, the Credit Agreement expires in February 2019.
At the Company’s option, Revolver borrowings will bear interest at either LIBOR (“London InterBank Offered Rate”) or the Base Rate, as the term is defined in the Credit Agreement, plus thean Applicable Margin, as defined in the Credit Agreement. Further, the interest rate, either LIBOR or Base Rate, which is addedWe are subject to the Applicable Margin, is at the option of the Company. The Company is limited as tolimitations on the number of LIBOR borrowings.
TheContemporaneously with the acquisition of the Jiffy business discussed in Note 2 to the consolidated financial statements, the Company in August 2014, entered into ana Second Amended and Restated Loan and Security Agreement, effective as of the April 5, 2017, the closing date of the Jiffy Acquisition (the “Restated Loan“2017 Agreement”), with Capital One. The Restated Loan2017 Agreement, among other things, amended the Credit Agreement by: (1) increasing the totalmaximum amount of the credit facility from $29,423,000 to $33,657,000, (2) increasingit can borrow under the Revolver Commitment (as defined) from $20,000,000$10,000,000 to $22,000,000, (3) creating a new Term Loan,$16,000,000, subject to certain borrowing base criteria, and (2) modifying certain borrowing base criteria as defined in the Restated Loan Agreement (“Term Loan B”),well as financial and (4) re-designating as “Term Loan A”, the previously existing outstanding Term Loan, which relates primarily to the Company’s Real Property.other covenants. In addition, the Restated Loan Agreement also reset certain financial covenants.
ContemporaneouslyCompany incurred $84,000 of debt issue costs in connection with the sale of Nationwide, as discussed in Note 2, the Company entered into the Consent and Second Amendment to the Restated Loan Agreement (the “2016 Amendment”) with Capital One. The 2016 Amendment, among other things: (a) provided the Bank’s consent to the transactions contained in the Stock Purchase Agreement and the repurchase of certain shares and options discussed in Note 2 to the consolidated financial statements; (b) amended the Restated Loan Agreement by: (i) reducing the aggregate Commitment (as defined in the Restated Loan Agreement) to $11,600,000; (ii) reducing the Term Loan A to $100,000; (iii) reducing the Revolver Commitment to $10,000,000 (less the new Term Loan A balance of $100,000); (iv) reducing the Capex Loan Commitment to $1,600,000; (v) modifying certain financial covenants, (vi) lowering interest rate margins and fee obligations; and (vii) extending the expiration of the Credit Agreement to February 11, 2019. Additionally, the Bank released the mortgage on the Company’s Real Property located in Tampa, Florida.this Amendment.
The Company provides Capital One with, among other things, monthly financial statements, and monthly borrowing base certificates. The Company is required to complycertificates and certificates of compliance with certainvarious financial covenants. Under certain circumstancesShould an event of default occur, the Companyinterest rate would be requiredincrease by two percent per annum during the period of default, in addition to submit certificates of compliance. The Company believes it is in compliance with all covenants under the Credit Agreement.
See Note 11 – Subsequent Events for discussion pertainingother remedies provided to the Second Amended Restated and Loan Agreement the Company entered into April 5, 2017 with Capital One.
SHORT–TERM BORROWINGS
At March 31, 2017 and December 31, 2016, there were no Revolver borrowings outstanding. Applicable LIBOR Margins in effect as of March 31, 2017 and December 31, 2016 was 1.50%. The Applicable Base Rate Margins in effect as of March 31, 207 and December 31, 2016 was 0.50%.
The Company purchased vehicles for use by its UAT salesforce. The current portion of the balance due relating to these vehicles is $8,000 at March 31, 2017 and $13,000 at December 31, 2016.
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 9 – DEBT – (Continued)
LONG –TERM BORROWINGS
The Restated Loan Agreement provides for Term Loan A, which is secured by mortgages on the Real Property, accounts receivable, inventory and equipment. Term Loan AShort-term borrowings can be at either LIBOR or at the Base Rate, or a combination of the two, plus the Applicable Margins. At March 31, 20172018 and December 31, 2016, margins on2017, the Company’s short-term borrowings were $3,241,000 and $1,928,000, respectively. Applicable LIBOR Margin in effect as of March 31, 2018 and December 31, 2017 was 1.50%, and the Applicable Base Rate Margin was 0.50% at both dates.
TERM LOAN BORROWINGS
The Term Loan borrowings can be at either LIBOR or at the Base Rate, or a combination of the two, plus the Applicable Margins. LIBOR borrowings at March 31, 2018, and December 31, 2017 were 1.5%1.50%. The Applicable Margin for borrowings at the Base Rate for the same timeframes was 0.5%0.50%. A portion of the net proceeds from the sale of Nationwide repaid all but $100,000 ofAt both March 31, 2018 and December 31, 2017 this Term Loan A and, accordingly, such remaining balance is being borrowedwas at the LIBOR Rate, andBase Rate. At March 31, 2018, this $100,000 Term Loan is included in Current maturities of long-term debt on the consolidated balance sheet. At December 31, 2017, this obligation was included in Long-term debt, less deferred financing feescurrent maturities on the Company’s Consolidated Balance Sheet at March 31, 2017 and December 31, 2016.consolidated balance sheet.
In accordance with ASU 2015-03, the Company reduced its long-term debt by $11,000$5,000 and $12,000,$6,000, respectively, relating to debt issue costs as of March 31, 20172018 and December 31, 2016.2017.
NOTE 10 – DIVIDEND PAYMENTS
On January 26, 2017,February 14, 2018, the Company’s Board of Directors, in accordance with their dividend policy, declared a quarterly cash dividend of $0.05 per common share, which was paid on February 10, 2017,March 2, 2018, to shareholders of record at the close of business on February 6, 2017.26, 2018. The total amount of this dividend payment was approximately $180,000.
NOTE 11 – SUBSEQUENT EVENTS
On April 5, 2017 (the “Jiffy Closing Date”), Bonanza Holdings Corp., a Delaware corporation and newly formed wholly owned subsidiary (“Jiffy Buyer”) of Florida Pneumatic, Jiffy Air Tool, Inc. a Nevada corporation (“Seller”), The Jack E. Pettit—1996 Trust, the sole shareholder of Seller (the “Shareholder”), and Jack E. Pettit entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which, among other things, the Jiffy Buyer acquired (the “Jiffy Acquisition”) substantially all of the operating assets of Seller for $5,950,000 in addition to the assumption of certain payables and contractual obligations as set forth in the Asset Purchase Agreement. This amount is subject to a post-closing working capital adjustment. In addition, the Seller may be entitled to up to $1,000,000 in additional contingent consideration based upon certain revenue thresholds and other criteria set forth in the Asset Purchase Agreement with respect to two defined measurement periods occurring within approximately the first two years following the Jiffy Closing Date. Jiffy Air Tool, Inc. manufactures and distributes pneumatic tools and components, primarily sold to aerospace manufacturers.
Additionally, in connection with the Asset Purchase Agreement, a separate Purchase and Sale Agreement and Joint Escrow Instructions (the “Purchase and Sale Agreement” and together with the Asset Purchase Agreement, the “Agreements”) was entered into between Seller and Bonanza Properties Corp. (“Bonanza Properties”), a Delaware corporation and newly formed wholly owned subsidiary of Florida Pneumatic, pursuant to which Bonanza Properties purchased certain real property of the Seller. Pursuant to the Purchase and Sale Agreement, the purchase price for the real property was $1,050,000.
The total consideration ($5,950,000 plus $1,050,000) paid by the Jiffy Buyer to the Seller was from availability under the Revolver pursuant to the Second Amended and Restated Loan Agreement (defined below), less certain amounts escrowed pursuant to, among others, the terms of the Agreements.
P&F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 11 – SUBSEQUENT EVENTS – (Continued)
As the Jiffy Acquisition has recently been completed, the Company is currently in the process of completing the purchase price allocation. As a result, the Company expects that the purchase price allocation will be included in the Company’s consolidated financial statements for the quarterly period ending June 30, 2017.
The following unaudited pro-forma combined financial information gives effect to the Jiffy Acquisition as if the Jiffy Acquisition was consummated January 1, 2016. This unaudited pro-forma financial information is presented for information purposes only, and is not intended to present actual results that would have been attained had the Jiffy Acquisition been completed as of January 1, 2016 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.
For the Three-Month Period Ended March 31, | ||||||||
2017 | 2016 | |||||||
Revenues | $ | 14,694,000 | $ | 16,174,000 | ||||
Net income | $ | 8,000 | $ | 161,000 | ||||
Earnings per share - basic and diluted | $ | 0.00 | $ | 0.04 |
Contemporaneously with the Jiffy Acquisition,, the Company entered into a Second Amended and Restated Loan and Security Agreement, effective as of the Closing Date (the “Second Amended and Restated Loan Agreement”), with Capital One. The Second Amended and Restated Loan Agreement amended and restated the 2016 Amendment.
The Second Amended and Restated Loan Agreement, among other things, amended the Credit Agreement by: (1) the maximum amount the Company can borrow under the Revolver Commitment (as defined in the Second Amended and Restated Loan Agreement) increased from $10,000,000 to $16,000,000, subject to certain borrowing base criteria; (2) maintaining the existing Tranche A Commitment of up to $100,000; (3) maintaining the existing Capex Loan Commitment of up to $1,600,000, and (4) modifying certain borrowing base criteria as well as financial and other covenants.
18 |
P&F INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statement
The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of P&F Industries, Inc. and subsidiaries (“P&F”, or the “Company”). P&F and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to shareholders. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “would,” “could”“could,” “should,” and their opposites and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. Any forward-looking statements contained herein, including those related to the Company’s future performance, are based upon the Company’s historical performance and on current plans, estimates and expectations. All forward-looking statements involve risks and uncertainties. These risks and uncertainties could cause the Company’s actual results for all or part the 20172018 fiscal year and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company for a number of reasons including, but not limited to:
· | Exposure to fluctuations in energy prices; |
· | Debt and debt service requirements; |
· | Borrowing and compliance with covenants under our credit facility; |
· | Disruption in the global capital and credit markets; |
· | The strength of the retail economy in the United States and abroad; |
· |
· | Customer concentration; |
· | Adverse changes in currency exchange rates; |
· | Impairment of long-lived assets and goodwill; |
· | Unforeseen inventory adjustments or changes in purchasing patterns; |
· | Market acceptance of products; |
· | Competition; |
· | Price reductions; |
· | Interest rates; |
· | Litigation and insurance; |
· | Retention of key personnel; |
· | Acquisition of businesses; |
· | Regulatory environment; |
· | The threat of terrorism and related political instability and economic uncertainty; and |
· | Information technology system failures and attacks, |
and those other risks and uncertainties described in its Annual Report on Form 10-K for the year ended December 31, 20162017 (“20162017 Form 10-K”) and its other reports and statements filed by the Company with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. 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. The Company cautions you against relying on any of these forward-looking statements.
19 |
Business
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
OUR BUSINESS
P&F and each of its subsidiaries are herein referred to collectively as the “Company.” In addition, the words “we”, “our” and “us” refer to the Company. Prior to February 11, 2016, (the “Nationwide Closing Date”) the effective date of the sale of its Nationwide Industries, Inc. (“Nationwide”) subsidiary, P&F operated in two primary lines of business or segments: (i) tools and other products (“Tools”) and (ii) hardware and accessories (“Hardware”). As a result of the sale of Nationwide, the Company currently only operates in the Tools segment. See Note 2 to the consolidated financial statements for further discussion.
Tools
The Company conducts its ToolsWe conduct our business through a wholly-owned subsidiary, Continental Tool Group, Inc. (“Continental”), which in turn operates through its wholly-owned subsidiaries, Florida Pneumatic Manufacturing Corporation (“Florida Pneumatic”) and Hy-Tech Machine, Inc. (“Hy-Tech”). Exhaust Technologies Inc. (“ETI”) and Universal Air Tool Company Limited (“UAT”) are wholly-owned subsidiaries of Florida Pneumatic. Effective April 5, 2017, we purchased substantially all of the operating assets, less certain payables of Jiffy Air Tool, Inc., (“Jiffy”) through a wholly-owned subsidiary. See Note 2 to our consolidated financial statements for further discussion. The business of Air Tool Service Company (“ATSCO”) operates through a wholly-owned subsidiary of Hy-Tech.
Florida Pneumatic is engaged in the importationmanufactures, imports and sale ofsells pneumatic hand tools, most of which are of its own design, primarily forto the retail, industrial, automotive and automotive markets, and the importation and sale of compressor air filters. Florida Pneumaticaerospace markets. It also markets, through its Berkley Tool division (“Berkley”), a product line which includes pipe and bolt dies, pipe taps, wrenches, vises and stands, pipe and tubing cutting equipment, hydrostatic test pumps, and replacement electrical components for a widely-used brand of pipe cutting and threading machines.
Hy-Tech designs, manufactures and distributes its own line of industrial pneumatic tools.tools, industrial gears, hydrostatic test plugs and a wide variety of parts under the brands ATP, ATSCO, OZAT, Numatx, Thaxton and Quality Gear. Industries served include power generation, petrochemical, construction, railroad, mining, ship building and fabricated metals. Hy-Tech also producesmanufactures components, assemblies, finished product and markets impact wrenches, grinders, drills, and motors. Further, it also manufactures tools to customer specifications. Its customers include refineries, chemical plants, power generation facilities, heavy construction enterprises, oil and gas and mining companies. In addition, Hy-Tech manufactures an extensive line of pneumatic tool replacement parts that are sold to original equipment manufacturers (“OEMs”). It also manufactures and distributes high pressure stopperssystems for hydrostatic testing fabricated pipe, gears, sprockets, splines and racks and produces a line of siphons.
Hardware
Prior to the Nationwide Closing Date,, the Company conducted its Hardware business through its wholly-owned subsidiary, Countrywide Hardware, Inc. (“Countrywide”). Countrywide conducted its business operations through its wholly-owned subsidiary, Nationwide. Nationwide was an importer and manufacturer of door, window and fencing hardware and accessories, including rollers, hinges, window operators, sash locks, custom zinc castings and door closers. On the Nationwide Closing Date, Countrywide sold Nationwide to an unrelated third party for approximately $22,200,000. See Note 2 to consolidated financial statements for further discussion.various Original Equipment Manufacturers under their own brand names.
KEY INDICATORS
Economic Measures
Much of our business is driven by the ebbs and flows of the general economic conditions in both the United States and, to a lesser extent, abroad. We focus on a wide array of customer types including, but not limited to, large retailers, aerospace manufacturers, large and small resellers of pneumatic tools and parts, and automotive related customers. We tend to track the general economic conditions of the United States, industrial production and general retail sales.
A key economic measure relevant to us is the cost of the raw materials in our products. Key materials include metals, especially various types of steel and aluminum. Also important is the value of the United States Dollar (“USD”) in relation to the Taiwanese dollar (“TWD”), as we purchase a significant portion of our products from Taiwan. Purchases from Chinese sources are made in USD,USD; however, if the Chinese currency, the Renminbi (“RMB”), were to be revalued against the USD, there could be a negative impact on the cost of our products. Additionally, we closely monitor the fluctuation in the Great British Pound (“GBP”) to the USD, and the GBP to TWD, both of which can have an impact on the consolidated results. In addition, we monitor the number of operating rotary drilling rigs in the United States, as a means of gauging oil production, which is a key factor in our sales into the oil and gas exploration and extraction sector.
The cost and availability of a quality labor pool in the countries where products and components are manufactured, both overseas as well as in the United States, could materially affect our overall results.
20 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Operating Measures
Key operating measures we use to manage our operations are: orders; shipments; development of new products; customer retention; inventory levels and productivity. These measures are recorded and monitored at various intervals, including daily, weekly and monthly. To the extent these measures are relevant; they are discussed in the detailed sections below.
Financial Measures
Key financial measures we use to evaluate the results of our business include: various revenue metrics; gross margin; selling, general and administrative expenses; earnings before interest and taxes; operating cash flows and capital expenditures; return on sales; return on assets; days sales outstanding and inventory turns. These measures are reviewed at monthly, quarterly and annual intervals and compared to historical periods as well as established objectives. To the extent that these measures are relevant, they are discussed in the detailed sections below for each operating segment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Descriptions of these policies are discussed in the 20162017 Form 10-K. Certain of these accounting policies require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities, revenues and expenses. On an ongoing basis, we evaluate estimates, including, but not limited to those related to bad debts, inventory reserves, goodwill and intangible assets, warranty reserves, and taxes and deferred taxes. We base our estimates on historical data and experience, when available, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
OVERVIEW
Key factors or events impacting our first quarter 20172018 results of operations were:
● |
● |
● |
RESULTS OF OPERATIONS
Continuing operations
Unless otherwise discussed elsewhere in the Management’s Discussion and Analysis, we believe that our relationships with our key customers and suppliers remain satisfactory. The on-going weakness in the global oil and gas exploration and extraction markets continues to hamper both Hy-Tech and to a lesser degree, Florida Pneumatic. Further, there is a persistent weakness in the other markets that Hy-Tech serves, including power generation and construction.
We have elected not to renew our supply agreement with Sears, which will expire on September 30, 2017. While Sears remains at or close to complying with its payment terms to Florida Pneumatic, this difficult decision wasdetermined that, based on a number of factors including Sears’ continuing financial difficulties, the sale of the Craftsman brand by Sears to Stanley Black & Decker and our level of working capital exposure in relation to our return on that investment with Sears. It is anticipated thatpertaining to Sears, it was in our best interest not to renew a supply agreement between us and Sears, inventory exposure should be eliminated byeffective September 30, 2017 and that all accounts receivable should be collected by December 2017. However, at the present time, there can be no assurance that we will fully recover our working capital exposure.
In December of 2017, Florida Pneumatic and Home Depot agreed to launch an improved line of pneumatic tools to replace the current offering. We expect to begin shipment of this new product line sometime in the third quarter of 2018. Gross margin for the new product line will be approximately 2% less than the current product line. In order to promote the roll out of the new products, Florida Pneumatic has agreed to participate in the marketing efforts by contributing $1,000,000. We believe this will be contributed some time during the remainder of 2018.
We adopted ASC 606 effective January 1, 2018. The most significant impact of this adoption to our results of operations was that beginning January 1, 2018 we now classify certain expenses as deductions against revenue, that prior to the adoption, were accounted for as a selling expense.
21 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS- (Continued)
Continuing operations- (Continued)We believe that over time several newer technologies and features will have a greater impact on the market for the Company’s traditional pneumatic tool offerings. This evolution has been felt initially by the advent of some cordless operated hand tools in the automotive aftermarket. We are currently evaluating the development of more advanced technologies in our tool platforms.
Following an announcement by the President of the United States in first quarter of 2018 of his intention to impose tariffs on certain goods imported specifically from China, the Office of the US Trade Representative announced a proposed list of China-manufactured categories of products that would be subject to a tariff of up to 25%. Such list is scheduled to undergo further review in a public notice and comment process, including a hearing. It is anticipated that a final determination on the products subject to the tariffs will be announced during the second quarter of 2018. A large portion of products imported by Florida Pneumatic for its Retail customers could be subject to this tariff. Should Florida Pneumatic be unable to pass a major portion of the additional cost created by these new proposed tariffs on to its customers, the profit margin on these products would be severely impacted. We are awaiting further announcements on this matter from the U.S. Government and remain in contact with our Retail customers. Based upon current releases from the Office of the US Trade Representative, products offered to the Company’s non-retail customers thus far are not materially affected, as such other products are imported from other countries, produced domestically or, to the extent imported from China, such imports are immaterial to those product lines.
Other than the aforementioned, or that may be discussed further in this management’s discussion and analysis, there are no major trends or uncertainties that had, or we could reasonably expect could have, a material impact on our revenue, nor was there any unusual or infrequent event, transaction or any significant economic change that materially affected our results of operations.
During the first quarter of 2016, we sold Nationwide to an unrelated third party for approximately $22,200,000. As a result of this transaction, Nationwide’s 2016 results are reported under discontinued operations. Please see Note 2 - Discontinued Operations, to our consolidated financial statements for additional information.
The tables below provide an analysis of our net revenue from continuing operations for the three-month periods ended March 31, 20172018 and 2016:2017.
Three months ended March 31 | Three months ended March 31, | |||||||||||||||||||||||||||||||
Decrease | Increase | |||||||||||||||||||||||||||||||
2017 | 2016 | $ | % | 2018 | 2017 | $ | % | |||||||||||||||||||||||||
Florida Pneumatic | $ | 10,509,000 | $ | 10,830,000 | $ | (321,000 | ) | (3.0 | )% | $ | 12,264,000 | $ | 10,509,000 | $ | 1,755,000 | 16.7 | % | |||||||||||||||
Hy-Tech | 2,707,000 | 3,669,000 | (962,000 | ) | (26.2 | ) | 3,478,000 | 2,707,000 | 771,000 | 28.5 | ||||||||||||||||||||||
Consolidated | $ | 13,216,000 | $ | 14,499,000 | $ | (1,283,000 | ) | (8.8 | )% | $ | 15,742,000 | $ | 13,216,000 | $ | 2,526,000 | 19.1 | % |
Florida Pneumatic
Florida Pneumatic markets its air tool products to threefour primary sectors within the pneumatic tool market; retail, industrial/catalogRetail, Automotive, Aerospace and the automotive market.Industrial/catalog. It also generates revenue from its Berkley products line, as well as a line of air filters and other OEM parts (“Other”).
Three months ended March 31, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Increase (decrease) | 2018 | 2017 | Increase (decrease) | |||||||||||||||||||||||||||||||||||||||||||
Revenue | Percent of revenue | Revenue | Percent of revenue | $ | % | Revenue | Percent of revenue | Revenue | Percent of revenue | $ | % | |||||||||||||||||||||||||||||||||||||
Retail customers | $ | 5,353,000 | 50.9 | % | $ | 5,549,000 | 51.2 | % | $ | (196,000 | ) | (3.5 | )% | |||||||||||||||||||||||||||||||||||
Retail | $ | 4,090,000 | 33.4 | % | $ | 5,353,000 | 50.9 | % | $ | (1,263,000 | ) | (23.6 | )% | |||||||||||||||||||||||||||||||||||
Automotive | 3,613,000 | 34.4 | 3,721,000 | 34.4 | (108,000 | ) | (2.9 | ) | 3,938,000 | 32.1 | 3,613,000 | 34.4 | 325,000 | 9.0 | ||||||||||||||||||||||||||||||||||
Aerospace | 2,670,000 | 21.8 | 89,000 | 0.9 | 2,581,000 | 2,900.0 | ||||||||||||||||||||||||||||||||||||||||||
Industrial/catalog | 1,334,000 | 12.7 | 1,357,000 | 12.5 | (23,000 | ) | (1.7 | ) | 1,364,000 | 11.1 | 1,245,000 | 11.8 | 119,000 | 9.6 | ||||||||||||||||||||||||||||||||||
Other | 209,000 | 2.0 | 203,000 | 1.9 | 6,000 | 3.0 | 202,000 | 1.6 | 209,000 | 2.0 | (7,000 | ) | (3.3 | ) | ||||||||||||||||||||||||||||||||||
Total | $ | 10,509,000 | 100.0 | % | $ | 10,830,000 | 100.0 | % | $ | (321,000 | ) | (3.0 | )% | $ | 12,264,000 | 100.0 | % | $ | 10,509,000 | 100.0 | % | $ | 1,755,000 | 16.7 | % |
The decline in Florida Pneumatic’s first quarter 2018 Retail revenue presented in the table above was driven by our decision in 2017 not to renew a supply agreement with Sears, as well as a slight decline in The Home Depot revenue. The increase in Automotive revenue this quarter, compared to the same three-month period in 2017, was due primarily to the increase in consumer product demand for our AIRCAT tools sold through a major on-line distributor, and an increase in revenue from our UAT division headquartered in the United Kingdom. UAT revenue in local currency (GBP), declined 1.62% this quarter compared to the same period in 2017, however when converted to USD its revenue increased 10.5%, resulting in an increase of approximately $72,000. The Jiffy acquisition in April 2017 enabled us to approach the aerospace sector with a much stronger brand and breadth of products. As a result, our Aerospace sales contributed nearly $2.6 million to Florida Pneumatic’s improved revenue this quarter, compared to the first quarter of 2017. Lastly,Industrial/catalog revenue increased 9.6% this quarter, compared to the same period in 2017, which we attribute to overall market sector strengthening for this product line.
22 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS- (Continued)
Continuing operations- (Continued)
The decline in Florida Pneumatic’s first quarter 2017 Retail revenue presented in the table above was driven primarily by a 7.1% reduction in shipments to Sears this quarter, compared to the same period in 2016, and a 2.3% drop in revenue attributable to The Home Depot. When comparing the three-month periods ended March 31, 2017 and 2016, our Automotive revenue, which consists primarily of sales of our AIRCAT product line, declined by 2.9%. Revenue in USD from our UAT division, headquartered in the United Kingdom, is also included in our Automotive revenue. UAT revenue in local currency (GBP), increased 8.2% this quarter compared to the same period in 2016, however when converted to USD its revenue declined 6.4% or approximately $47,000, due to a 13.6% decline in the foreign currency exchange rate. Lastly, although ourIndustrial/catalog revenue declined the first quarter of 2017, compared to the same period a year ago, revenue for this sector has begun to improve in the third quarter of 2016, however no assurance can be given that this trend will continue.
Hy-Tech
Hy-Tech focuses primarily on the industrial sector of the pneumatic tools market. Hy-Techdesigns, manufactures and markets its own value-added linesells a wide range of industrial products under the brands ATP, ATSCO, OZAT and NUMATX, which are categorized as “ATP” for reporting purposes and include heavy duty air tools and parts, including the ATSCOair motors, industrial grinders, impact sockets, hydro-pneumatic riveters and OEM business. Hy-Tech’s other product line,lines, Thaxton and Quality Gear, are reported with its general machining business as well as distributes a complementary line of sockets, which in the aggregate are referred to as “ATP”. Hy-Tech Machine also manufactures products primarily marketed“Other” below.
Three months ended March 31, | ||||||||||||||||||||||||
2018 | 2017 | Increase | ||||||||||||||||||||||
Revenue | Percent of revenue | Revenue | Percent of revenue | $ | % | |||||||||||||||||||
ATP | $ | 3,076,000 | 88.4 | % | $ | 2,406,000 | 88.9 | % | $ | 670,000 | 27.8 | % | ||||||||||||
Other | 402,000 | 11.6 | 301,000 | 11.1 | 101,000 | 33.6 | ||||||||||||||||||
Total | $ | 3,478,000 | 100.0 | % | $ | 2,707,000 | 100.0 | % | $ | 771,000 | 28.5 | % |
Significant components contributing to the mining, construction and industrial manufacturing sectors. These products along with gears, sprockets, splines, and hydraulic stoppers are aggregated as “Other”.
Three months ended March 31, | ||||||||||||||||||||||||
2017 | 2016 | Increase (decrease) | ||||||||||||||||||||||
Revenue | Percent of revenue | Revenue | Percent of revenue | $ | % | |||||||||||||||||||
ATP | $ | 2,406,000 | 88.9 | % | $ | 3,406,000 | 92.8 | % | $ | (1,000,000 | ) | (29.4 | )% | |||||||||||
Other | 301,000 | 11.1 | 263,000 | 7.2 | 38,000 | 14.4 | ||||||||||||||||||
Total | $ | 2,707,000 | 100.0 | % | $ | 3,669,000 | 100.0 | % | $ | (962,000 | ) | (26.2 | )% |
Approximately $686,000 of the declineincrease in Hy-Tech’s first quarter 2018 ATP revenue, is duecompared to the same period in 2017, include the increase in orders from a large customer that was acquired in the ATSCO acquisition dramatically reducingthat had, until recently, reduced its purchases. We believe the decline inplacement of orders from this customer is due primarily to their possessing excess tools and parts,with us. Additionally, our “engineered solutions” program, which they market to the oil and gas sector. Further, as mentioned in previous filings, we significantly curtailed our shipment of very low gross margin tools to one customer, accounting for $157,000 of the decline in ATP revenue. The largest component of Hy-Tech’s revenue is derived from the oil and gas sector. Currently this revenue, which accounts for approximately 30% to 35% of their total revenue, is driven by a number of factors, such as, the number of off-shore rigs located in the Gulf of Mexico, “turn-arounds” or plant maintenance activities and land rigs. During the first quarter of 2017, according to Baker Hughes Incorporated, the number of off-shore rigs in operation at March 31, 2017 was 22, compared to 26 in operation on March 31, 2016. While the number of land rigs has increased recently, we believe that there remains excess inventory of tools and spare parts. Additionally, we believe that the turn-around activities continue to lag, compared to historic levels, further negatively impacting Hy-Tech’s revenue. Further, we believe lower-priced imported tools and spare parts are impacting the marketplace. However, at March 31, 2017, Hy-Tech’s backlog increased approximately 50%, compared to a year ago, with orders from both existing and new customers. In 2016 we began to pursuepursues alternate markets where we believe we can exploit our engineering and manufacturing expertise, and develop different applications for our tools, motors and accessories. We believe the development of this newaccessories, continues to expand. This marketing strategy has providedcontinues to provide us an opportunity to generate revenue from the new markets in 2017. Revenue from these new sources during the firstof revenue. Revenue this quarter of 2017from this new initiative was $395,000, compared to approximately $203,000, and is included$200,000 in the ATP grouping. Atsame period in the prior year, with future orders at March 31, 2017, Hy-Tech had more than $460,0002018 of approximately $760,000. The improvement in orders for products within this new initiative.Hy-Tech’s Other revenue was driven primarily by an increase in Thaxton sales.
23 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
RESULTS OF OPERATIONS- (Continued)
Continuing operations- (Continued)
Gross profit / margin
Three months ended March 31, | Increase (decrease) | |||||||||||||||||||||||
2017 | 2016 | Amount | % | |||||||||||||||||||||
Florida Pneumatic | $ | 4,119,000 | $ | 4,124,000 | $ | (5,000 | ) | (0.1 | )% | |||||||||||||||
As percent of respective revenue | 39.2 | % | 38.1 | % | 1.1 | %pts | ||||||||||||||||||
Hy-Tech | $ | 854,000 | $ | 1,092,000 | $ | (238,000 | ) | (21.8 | ) | |||||||||||||||
As percent of respective revenue | 31.5 | % | 29.8 | % | 1.7 | %pts | ||||||||||||||||||
Total | $ | 4,973,000 | $ | 5,216,000 | $ | (243,000 | ) | (4.7 | )% | |||||||||||||||
As percent of respective revenue | 37.6 | % | 36.0 | % | 1.6 | %pts |
Three months ended March 31, | Increase (decrease) | |||||||||||||||||||||||||||
2018 | 2017 | Amount | % | |||||||||||||||||||||||||
Florida Pneumatic | $ | 4,183,000 | $ | 4,119,000 | $ | 64,000 | 1.6 | % | ||||||||||||||||||||
As percent of respective revenue | 34.1 | % | 39.2 | % | (5.1) % pts | |||||||||||||||||||||||
Hy-Tech | $ | 1,251,000 | $ | 854,000 | $ | 397,000 | 46.5 | |||||||||||||||||||||
As percent of respective revenue | 36.0 | % | 31.5 | % | 4.5 % pts | |||||||||||||||||||||||
Total | $ | 5,434,000 | $ | 4,973,000 | $ | 461,000 | 9.3 | % | ||||||||||||||||||||
As percent of respective revenue | 34.5 | % | 37.6 | % | (3.1) % pts |
Three primary factors impacted Florida Pneumatic’s first quarter of 2017 gross margin improvement overduring the samethree-month period ended March 31, 2018. First, as discussed earlier in this management’s discussion and analysis, we adopted ASC 606. This adoption effectively reduced gross profit by reducing net revenue by $214,000, thus resulting in a year ago was driven primarily by improved product mix. The increasereduction in gross margin of 1.7 percentage points in Hy-Tech’s first quarter of 2017percent. Second, its gross margin comparedwas negatively impacted by late arrival of overseas shipments, which are the drivers of Florida Pneumatic’s overhead absorption. As fewer containers were processed through its facility it caused reduced absorption, thus lowering their gross margin. We believe the absorption short-fall incurred this quarter should be reversed during the second and third quarters of 2018. Lastly, during the three-month period ended March 31, 2018, foreign currency, specifically the weakness of the U.S. dollar to the same period in 2016,Taiwan dollar adversely affected Florida Pneumatic’s gross margin.
Hy-Tech was alsoable to improve its overall gross margin primarily due to greater absorption of its manufacturing overhead costs, driven primarily by product mix.greater through-put through the facility.
Selling, and general and administrative expenses
Selling, general and administrative expenses, (“SG&A”) include salaries and related costs, commissions, travel, administrative facilities, communications costs and promotional expenses for our direct sales and marketing staff, administrative and executive salaries and related benefits, legal, accounting and other professional fees as well as general corporate overhead and certain engineering expenses.
During the first quarter of 2017,2018, our SG&A was $5,047,000,$5,280,000, compared to $5,019,000$5,047,000 for the same three-month period in 2016. The increase was due in large part to2017, or an increase of $201,000$233,000. The most significant item contributing to the net increase was additional operating expenses incurred at Jiffy during the first quarter of professional fees and other related2018 of $581,000, whereas there were no Jiffy SG&A expenses incurredduring the first quarter of 2017. Additionally, as the result of the adoption of the new revenue recognition standards, we now are required to classify as adjustments to net revenue certain expenses, which aggregated approximately $214,000 during the three-month period ended March 31, 2017, primarily due2018 that prior to the acquisitionadoption were accounted for as SG&A. Other significant components to the change in SG&A include reductions in: (i) variable expenses, which include costs such as: commissions, advertising travel and warranty of $192,000, due primarily to lower Retail revenue; (ii) depreciation and amortization of $48,000; (iii) professional fees of $242,000, which during the first quarter of 2017 included fees and expenses related to the Jiffy Air Tool, Inc., which is discussed in Note 11 to our consolidated financial statements and our on-going merger and acquisition efforts. This increase wasAcquisition as well as recruitment fees for executive positions at Hy-Tech. The reductions were partially offset by the reduction this quarter compared to the same period a year agoincreases in depreciationour stock-based compensation of $59,000, and amortization expenses of $107,000, due primarily to the impairment of intangible assets of Hy-Tech related to both its original acquisition in 2007 and the acquisition of ATSCO in 2014. Variable expenses declined this quarter by $12,000, compared to the same period in 2016. Our compensation expense which is comprised of base salaries and wages, accrued performance-based bonus incentives, associated payroll taxes and employee benefits, declined $12,000.increased $47,000.
Other income – netExpense
The real property that generated $14,000Other Expense represents the adjustment of Other income – net during the three-month period ended March 31, 2016, was soldfair value of the contingent consideration obligation to the Jiffy Seller, as discussed in November 2016. As such, there is no income of a similar nature for the first quarter of 2017. See Note 2 to our consolidated financial statements for further discussion.statements.
24 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
RESULTS OF OPERATIONS- (Continued)
Continuing operations- (Continued)
Interest
Three months ended March 31, | Decrease | Three months ended March 31, | Increase | |||||||||||||||||||||||||
2017 | 2016 | Amount | % | 2018 | 2017 | Amount | ||||||||||||||||||||||
Interest expense attributable to: | ||||||||||||||||||||||||||||
Short-term borrowings | $ | 1,000 | $ | 3,000 | $ | (2,000 | ) | (66.7 | )% | $ | 13,000 | $ | 1,000 | $ | 12,000 | |||||||||||||
Term loans, including Capital Expenditure Term Loans | - | 1,000 | (1,000 | ) | (100.0 | ) | 1,000 | — | 1,000 | |||||||||||||||||||
Amortization expense of debt issue costs | 9,000 | 98,000 | (89,000 | ) | (90.8 | ) | 23,000 | 9,000 | 14,000 | |||||||||||||||||||
Total | $ | 10,000 | $ | 102,000 | $ | (92,000 | ) | (90.2 | )% | $ | 37,000 | $ | 10,000 | $ | 27,000 |
In accordance with accounting guidance we have reportedThe increase in short-term loan borrowings interest was driven primarily by greater borrowings against our short-termRevolver, described below, in 2018, compared to the prior year, and term loanto a lesser extent, higher interest expense incurred during the period January 1, 2016 through February 11, 2016, which was the effective date of sale of Nationwide,rates. The increase in Discontinued operations. Further, as the result, of the Company and the Bank agreeing to significantly modify the Credit Agreement, we were required to write down and recognized as interest expense, the debt issue costs associated with the then existing Credit Agreement. As such, $80,000 is included in amortization expense of debt issue costs in our interest expense foris due to the three-month period ended March 31, 2016. See Note 2expenses incurred with the amendment to our consolidated financial statements for further discussion onLoan and Security Agreement (“Credit Agreement”) in April 2017 that related to the sale of Nationwide and the 2016 Amendment. See Liquidity and Capital Resources elsewhere in this Management’s Discussion and Analysis section for further information regarding our bank loans.Jiffy acquisition.
Primarily the result of the sale of Nationwide and the real property located in Tampa, Florida, occurring in February and November 2016, respectively, our bank borrowings have, during the first quarter of 2017, been minimal. As a result, ourOur average balance of short-term borrowings during the three-month period ended March 31, 20172018 was $103,000,$1,847,000, compared to $5,227,000$103,000 during the same three-month period in 2016.
However, as the result of the acquisition of Jiffy Air Tool Inc. in April 2017, our Revolver (as defined below), or short-term borrowings, will increase in future periods. See Note 11 – Subsequent Events to our consolidated financial statements for further discussion.2017.
Income taxes
At the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis, and may change in subsequent interim periods. Accordingly, our effective tax rate for the three-month period ended March 31, 20172018 was benefit of 28.6%26.1%, compared to the effective tax provisionbenefit rate of 39.4%28.6% for the three-month period ended March 31, 2016.2017. The Company’s effective tax rates for both periods were affected primarily by state taxes, non-deductible expenses and foreign tax rate differentials.
In addition to those items mentioned above that affected the Company’s effective tax rates was the Tax Cuts and Jobs Act (the “Act”) which was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries previously deferred from tax, generally eliminates U.S federal income taxes on dividends from foreign subsidiaries and creates a new provision designed to tax global intangible low-taxed income (“GILTI”). Also on December 22, 2017, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides for a measurement period of up to one year from the enactment for companies to complete their accounting for the Act. The Company is applying the guidance in SAB 118 when accounting for the enactment-date effects of the Act.
At March 31, 2018, the Company has not completed its accounting for the tax effects of the Act, but has made reasonable estimates of the effects on the re-measurement of its deferred tax assets and liabilities as well as its transition tax liability. During the three month period ended March 31, 2018, the Company made no adjustments to the provisional amounts recorded at December 31, 2017. Additionally, the Company has not yet collected and analyzed all necessary tax and earnings data of its foreign operations and therefore, the Company has also not yet completed its accounting for the income tax effects of the transition tax. The Company will continue to make and refine its calculations as additional analysis is completed.
The Act also subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet made its accounting policy election. At March 31, 2018, because the Company is still evaluating the GILTI provisions, the Company has included tax expense related to GILTI for the current year in its estimated annual effective tax rate and has not provided additional GILTI on deferred items.
25 |
RESULTS OF OPERATIONS
Discontinued operations - 2016
Nationwide’s resultsManagement’s Discussion and Analysis of operations in our consolidated financial statementsFinancial Condition and Note 2, presents their revenue and costResults of goods sold for the period January 1, 2016 through February 11, 2016. The SG&A incurred during the same period includes that of Nationwide plus $19,000 of expenses incurred at the corporate level that is specifically attributable to Nationwide. In accordance with current accounting guidance, we included, as part of discontinued operations, all interest expense incurred attributable to our Bank borrowings during the period January 1, 2016 through February 11, 2016. We recognized a gain of $12,185,000, on the sale of Nationwide during the three-month period ended March 31, 2016, which represented the difference between the adjusted net purchase price and the carrying value of Nationwide. Operations – Continued
LIQUIDITY AND CAPITAL RESOURCES
We monitor such metrics as days’ sales outstanding, inventory requirements, inventory turns, estimated future purchasing requirements and capital expenditures to project liquidity needs, as well as evaluate return on assets. Our primary sources of funds are operating cash flows and our Revolver Loan (“Revolver”) with our Bank.
We gauge our liquidity and financial stability by various measurements, some of which are shown in the following table:
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Working Capital | $ | 28,409,000 | $ | 28,373,000 | $ | 24,249,000 | $ | 24,278,000 | ||||||||
Current Ratio | 6.60 to 1 | 5.60 to 1 | 3.93 to 1 | 4.08 to 1 | ||||||||||||
Shareholders’ Equity | $ | 47,388,000 | $ | 47,590,000 | $ | 46,084,000 | $ | 46,013,000 |
Credit facility
In October 2010, we entered into a Loan and SecurityCredit Agreement (“Credit Agreement”) with an affiliate of Capital One, National Association (“Capital One”, or the “Bank”). The Credit Agreement, as amended from time to time, among other things, provides forthe ability to borrow funds under a Revolver arrangement, which is currently set at a maximum of $16,000,000. Revolver borrowings under which are secured by the Company’s accounts receivable, inventory, equipment and mortgages on itsreal property. Additionally there is a $1,600,000 line available for capital expenditures. Lastly, the Credit Agreement includes a $100,000 term loan. This term loan, which is secured by our real property, (“Real Property”), inventoryremains in place such that should we and equipment.Capital One wish to facilitate future term loan borrowings more efficiently and less costly. P&F and certain of its subsidiaries are borrowers under the Credit Agreement, and their obligations are cross-guaranteed by certain other subsidiaries.
At our option, Revolver borrowings will bear interest at either LIBOR (“London InterBank Offered Rate”) or the Base Rate, as the term is defined in the Credit Agreement, plus thean Applicable Margin, as defined in the Credit Agreement. The interest rate, either LIBOR or Base Rate, which is added to the Applicable Margin, is at the option of the Company,We are subject to limitations on the number of LIBOR borrowings.
Contemporaneously with the sale of Nationwide in February 2016, we entered into a Consent and Second Amendment to the Restated Loan Agreement (the “2016 Amendment”) with Capital One. The 2016 Amendment, among other things, provided the Bank’s consent to the transactions contained in the Stock Purchase Agreement and the repurchase of certain shares and amended the Restated Loan Agreement by: (a) reducing the aggregate Commitment (as defined in the Restated Loan Agreement) to $11,600,000; (b) reducing the Term Loan A to $100,000; (c) reducing the Revolver Commitment to $10,000,000 (less the new Term Loan A balance of $100,000); (d) reducing the Capex Loan Commitment to $1,600,000; (e) modifying certain financial covenants; (f) lowering interest rate margins and fee obligations, and (g) extending the expiration of the Credit Agreement to February 11, 2019.
LIQUIDITY AND CAPITAL RESOURCES – (Continued)
The net funds provided by the sale of Nationwide of approximately $18,700,000 were used to pay down the Revolver, the Capex loans and the Term Loan A; however, the Amendment provided for $100,000 to remain outstanding under the Term Loan A, rather than pay it off in full so that the Company and Capital One could facilitate potential increased future term loan borrowings more inexpensively and efficiently.
At March 31, 20172018 and December 31, 2016, we had no2017, our short-term or Revolver borrowings outstanding.were $3,241,000 and $1,928,000, respectively. Applicable LIBOR Margins in effect as of March 31, 20172018 and December 31, 20162017 was 1.50%. The Applicable Base Rate Margins in effect as of March 31, 20172018 and December 31, 20162017 was 0.50%.
Contemporaneously with the acquisition of the Jiffy Air Tool, Inc. business discussed in Note 112 to the consolidated financial statements, the Companywe entered into a Second Amended and Restated Loan and Security Agreement, effective as of April 5, 2017, the Closing Dateclosing date of the Jiffy Acquisition (the “Second Amended and Restated Loan“2017 Agreement”), with Capital One. The Second Amended and Restated Loan Agreement amended and restated the 2016 Amendment.
The Second Amended and Restated Loan2017 Agreement, among other things, amended the Credit Agreement by: (1) increasing the maximum amount the Companyit can borrow under the Revolver Commitment (as defined in the Second Amended and Restated Loan Agreement)defined) from $10,000,000 to $16,000,000, subject to certain borrowing base criteria, and (2) modifying certain borrowing base criteria as well as financial and other covenants. In addition, we incurred $84,000 of debt issue costs in connection with this Amendment.
We provide Capital One monthly financial statements, monthly borrowing base certificates and monthly certificates of compliance with various financial covenants. We believe we are in compliance with all financial and non-financial covenants. As part of the 2017 Agreement, if an event of default occurs, the interest rate would increase by two percent per annum during the period of default, in addition to other remedies provided to Capital One.
We believe that should a need arise whereby the current credit facility is insufficient, we can borrow additional amounts against our Real Property, as well as secure additional funds.real property or other assets.
26 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
LIQUIDITY AND CAPITAL RESOURCES – (Continued)
Cash flows
During the three-month period ended March 31, 2017,2018, our net cash decreasedincreased to $1,413,000$1,704,000 from $3,699,000$1,241,000 at December 31, 2016.2017. Our total bank debt at March 31, 20172018 was $3,341,000 and $2,028,000 at December 31, 2016 was $100,000. As discussed earlier and in Notes 2 and 9 to the consolidated financial statements, our reduction in debt is primarily due to the sale of Nationwide.2017. The total debt to total book capitalization (total debt divided by total debt plus equity); at March 31, 20172018 was 6.8% and at December 31, 20162017 was 0.2%4.2%.
In March 2016,February 2018, our Board of Directors approved the initiation ofdeclared a dividend policy under which the Company intends to declare quarterly cash dividends to its stockholders in the amountdividend of $0.05 per quarter. During the three-month period endedshare of our common stock, which was paid in March 31, 2017, our Board of Directors voted to approve the payment of a quarterly dividend. As such in February 2017, we paid a $0.05 per share dividend to the shareholders of record as of February 2017.2018. The total of such dividend payment was $180,000. The Company continues to maintain the dividend policy; however, the declaration of dividends under this policy going forward is dependent upon the Company’sour financial condition, results of operations, capital requirements and other factors deemed relevant by our Board of Directors.
On August 9, 2017, our Board of Directors authorized us to repurchase up to 100,000 shares of our common stock over a period of up to twelve months (the “Repurchase Program”). On August 24, 2017, we announced that, pursuant to the Company’s boardRepurchase Program, we had adopted a written trading plan in accordance with the guidelines specified under Rule 10b5-1 under the Securities Exchange Act of directors. 1934. Since inception of the Repurchase Program, through March 31, 2018, we repurchased approximately 57,000 shares of our Common Stock, the cost of which was approximately $439,000. During the three-month period ended March 31, 2018, we repurchased 10,356 shares at a cost of approximately $82,000.
During the three-month period ended March 31, 2017,2018, we used $231,000$570,000 for capital expenditures, compared to $242,000$231,000 during the same period in the prior year. Capital expenditures for the balance of 20172018 are expected to be approximately $693,000,$1,500,000, some of which may be financed through our credit facilities with Capital One, or financed through independent third party financial institutions. The remaining 20172018 capital expenditures will likely be for machinery and equipment, tooling and computer hardware and software.
We believe that net cash flows from operations, plus the more than likely receipt in August 2017 of approximately $2,100,000 of escrow funds from the sale of Nationwide and available borrowings under our Credit Facility should provide sufficient cash to fund our consolidated cost structure for at least the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES – (Continued)
Customer concentration
Florida Pneumatic has two customers, SearsAt March 31, 2018 and December 31, 2017, accounts receivable from The Home Depot that, in the aggregate, at March 31, 2017,was 32.4% and December 31, 2016, accounted for 48.5% and 53.5%31.0%, respectively, of our total accounts receivable. To date, these customers remain at or close to complying with their payment terms. Further, these two customers in the aggregate, accounted for 40.5% of ourAdditionally, revenue forfrom The Home Depot during the three-month periodperiods ended March 31, 2018 and 2017 compared to 38.3%were 23.5% and 30.8%, respectively. There were no other customers that accounted for more than 10% of our consolidated revenue during the same three-month period in 2016.periods ended March 31, 2018 or 2017.
As previously mentioned we have elected not to renew an agreement with Sears, which will terminateterminated September 30, 2017. We believe theThe loss of Sears’s revenue will havehad a negative impact our financial condition, but willdoes not affect our ability to remain a going concern. Further, we believe the loss of both customersThe Home Depot would also negatively impact our working capital, but again, would not affect our ability to remain a going concern.
27 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 to our consolidated financial statements for a discussion of recent accounting standards and pronouncements.
We are currently evaluating the impact of the adoption of ASU 2016-02,Leases, on our consolidated financial condition, results of operations and cash flows.
In addition, in February 2018, the FASB issued No. ASU 2018-02,Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). Under ASU 2018-02, an entity may elect to reclassify the income tax effects of the Tax Reform Act on items within accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period. We are currently evaluating what impact, if any, adoption of ASU 2018-02 may have on our consolidated financial statements.
Other than the aforementioned, we do not believe that any other recently issued, but not yet effective accounting standard, if adopted, will have a material effect on our consolidated financial statements.
28 |
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Item 3. | Quantitative And Qualitative Disclosures About Market Risk |
Not required.
Item 4. Controls and Procedures
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated, as of March 31, 2017,2018, the effectiveness of the Company's disclosure controls and procedures, which were designed to be effective at the reasonable assurance level. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company's disclosure controls and procedures as of March 31, 2017,2018, the Company’s management, including its CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level at that date.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting, identified in connection with the evaluation required by Exchange Act Rule 13a-15(d), that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
29 |
Item 1. | Legal Proceedings | |
There have been no material changes to the legal proceedings disclosure described in our 2017 Form 10-K.
Item 1A. | Risk Factors |
There were no material changes to the risk factors previously disclosed in our 2017 Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Maximum | ||||||||||||||||
Number | ||||||||||||||||
Total Number of | of shares | |||||||||||||||
Shares Purchased as | that May Yet | |||||||||||||||
Part of Publicly | Be Purchased | |||||||||||||||
Total Number of | Average Price | Announced Plan | Under the Plan | |||||||||||||
Period | Shares Purchased | Paid per Share | or Program | or Program (1) | ||||||||||||
January 1, 2018 - January 31, 2018 | 3,122 | $ | 8.38 | 3,122 | 50,000 | |||||||||||
February 1, 2018 – February 28, 2018 | — | — | — | 50,000 | ||||||||||||
March 1, 2018 – March 31, 2018 | 7,234 | $ | 7.68 | 7,234 | 42,766 |
(1) | On August 24, 2017, the Company announced that it had adopted a written trading plan for the purpose of repurchasing up to 100,000 shares of its common stock. This trading plan expires on August 23, 2018, and was adopted pursuant to an authorization of a stock repurchase program by the Company’s Board which was publicly announced on August 10, 2017. |
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures | |
None.
Item 5. | Other Information | |
None.
Item 6. | Exhibits | |
See “Exhibit Index” immediately following the signature page.
30 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
P&F INDUSTRIES, INC. | |
(Registrant) | |
/s/ JOSEPH A. MOLINO, Jr. | |
Joseph A. Molino, Jr. | |
Chief Financial Officer | |
Dated: May | (Principal Financial and Chief Accounting Officer) |
31 |
The following exhibits are either included in this report or incorporated herein by reference as indicated below:
Exhibit Number | Description of Exhibit | |
| ||
| ||
Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Richard A. Horowitz, Principal Executive Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 . | |
32.2 | Certification of Joseph A. Molino, Jr., Principal Financial Officer of the Registrant, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | * Interactive Data |
* Attached as Exhibit 101 are the following, each formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income (Loss) Income;; (iii) Consolidated Statement of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
A copy of any of the foregoing exhibits to this Quarterly Report on Form 10-Q may be obtained, upon payment of the Registrant’s reasonable expenses in furnishing such exhibit, by writing to P&F Industries, Inc., 445 Broadhollow Road, Suite 100, Melville New York 11747, Attention: Corporate Secretary.
32 |